Posts Tagged ‘trade’

What is the real value of a gallon of gas? In Venezuela you can buy a gallon of gas for about 11 cents. In Saudi Arabia it will cost you 45 cents. In the U.S. it’s about $3.70 and in Germany it’s about $9.20. You can do the same cost comparison for pretty much any product, whether it’s coffee, bread, milk, or TV sets and you will find a wide distribution of prices. What does this say then about the value of something? Is there any way to say what the actual value of a product is? The answer, of course, is no, there isn’t. The value of anything more or less corresponds to the amount of work needed to make it. So if you have crude oil bubbling up out of your back yard you would probably sell it for less than if you had to dig for it a couple of miles straight down through solid rock.

So it is that in any part of the world, certain things are cheap and other things are more expensive and when you live in any particular place you adjust to the local conditions and values. That’s why Americans have had a long love affair with gargantuan gas-guzzlers and the Japanese buy those strange looking little boxes with tiny wheels. For a long time, in fact up until maybe thirty or forty years ago, everyone in the world lived in accordance with the realities of their local economies and each nation’s economy was more or less successful, depending upon its own resources. Eventually, some bright people realized that a profit could be made if you bought eggs in East Podunk, where people would sell you an egg for a nickel, and then you sold the eggs in West Podunk where people would pay a dime for an egg. Since it only cost a penny to drive from East to West Podunk, it was a surefire way to make a ton of money.

About a month after this discovery the great multinational companies were created and the world was changed overnight, more or less. Now you can buy the same gas that costs 45cents in Saudi Arabia and pay $3.65 for it here. If you figure in the shipping costs for getting the gas here, I suppose it does eat into the profits a bit, doesn’t it? However, since Exxon Mobil just posted the largest profits ever in the history of any American company I don’t suppose their management is crying in their oil barrels are they? The secret of the whole thing is this: Exxon Mobil isn’t an American company anymore – not really – it’s what they call a multinational company. Just like the East Podunk Egg Company, they’ve expanded beyond their borders.

In any economic transaction there are only two types of outcomes: Case 1. There is an even trade, like when you trade a bowl of corn for a bowl of peas, or Case 2. Someone gains and someone loses, like when you sell your used car for $1,000 when you know it won’t last another month. The multinationals are experts in the type 2 transactions. They buy their products cheap and sell them for as much as they can. They have found they can make zillions of dollars by exploiting the difference in the regional value of things, like oil, labor, or anything else that can be bought and sold. This all started back in Podunk, as you recall. Then it expanded within the U.S. when the great industrial firms of the northeast moved to the cheap labor market of the south. It wasn’t long afterward that these companies were in Mexico looking for even cheaper labor. Somewhere along the line, the best and brightest of the leaders of these industries figured the whole thing out and in a heartbeat they formed multinational companies that had no allegiance to any country. Their only allegiance was to themselves and making a buck. Their “country” had become just another potential customer or source of things to buy and sell. Their countries’ workers were just another commodity to hire and fire as costs went up and down and less expensive workers became available in other countries. The multinational executives sort of became citizens of the world, so to speak, but, perhaps for tax purposes, they found it advantageous to belong to one country or another.

Just for kicks I thought I would look up the largest multinational companies. Here are the top ten according to Forbes:

  1. HSBC Holdings
  2. General Electric
  3. Bank of America
  4. JPMorgan Chase
  5. ExxonMobil
  6. Royal Dutch Shell
  7. BP
  8. Toyota Motor
  9. ING Group
  10. Berkshire Hathaway.

In case you are not familiar with HSBC, they used to be called Hong Kong and Shanghai Banking Corporation. When England turned Hong Kong over to Chinese rule they pulled their bank back to Scotland and renamed it HSBC. It’s the largest company in the world. Other U.S based companies in the top 20 are: AT&T (12), Wal-Mart (16), Chevron (17), and American International Group (18).

All of these companies have one thing in common: they exploit the regional differences in the price of commodities to make a profit. In order to do this they have to give up a sense of allegiance or responsibility for the people who live in their “home” country in order to succeed financially. Thus when your labor becomes too expensive and they can find a guy in Costa Rica who will do the same work; they dump you and hire him. Until, of course, the Costa Rican guy starts living a little to well and then they dump him and hire some guy in Tibet to do the work. It’s like that with every commodity they deal with, not just labor, so don’t be angry – it’s nothing personal, it’s just business – multinational business.

So, while you are sipping your latte during your ten minute break from your job at Starbucks, think about this: your government does nothing to regulate these activities or to protect the export of your job to another country. It does nothing to ensure that you can find new work in your local economy. Your government doesn’t care that you are not a multinational citizen; you are a local citizen at the mercy of a grand scheme run by people of enormous wealth who are sucking the lifeblood out of your economy so that they can enrich themselves by taking advantage of regional differences in the value of things. You can’t stop this yourself. Only a government can regulate this, and ours won’t. In fact it encourages it.

The solution to this problem is to make it less advantageous for multinational companies to exploit us, maybe by punitive taxation, maybe by legislation making such practices illegal, maybe by breaking up these companies as the government did with Ma Bell. There are a lot of ways to find a solution to the problem, but it needs to be done. This is Step Two in the repair of our economy.

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