Off-shoring and out-sourcing production
can result in significant savings. The cost of labour, including
skilled labour, can often be obtained at a fraction of the price of
what it would cost to feed and house a slave, never mind what it
would cost to hire a worker locally. Out-sourcing production also
allows investors to take advantage of economies of scale, in which
manufacturers of components such as micro chips used in computers,
cell phones, automobiles, etc. can be purchased much more cheaply
than the costs of end-users manufacturing such components for
themselves. Economies of scale also allow manufactures to purchase
extracted raw materials in bulk at reduced prices. Furthermore, local
environmental regulations are often prohibitive to manufacturing. For
instance, things requiring the use of rare earth elements –cellular
telephones, computer hard drives, electric and hybrid vehicles,
flat-screen monitors and televisions, significant defence
applications such as electronic displays, guidance systems, lasers,
and radar and sonar systems—are primarily produced in China, not
because rare earth itself is particularly rare, but because the
process of extracting rare earth elements is so highly destructive to
the environment –to water, crops, people and animals, etc.—that
almost all rare-earth-derived products originate in China. Similarly,
the cost of compliance with local regulations protecting worker
safety, the safety of the buildings in which they work, etc. can also
be externalized by out-sourcing or off-shoring production. Finally,
by reinvesting profits in off-shore holdings corporations can avoid
paying taxes in their home countries. Externalizing all these costs
means that the cost paid by end consumers does not include or reflect
the social and environmental costs borne by the citizens of the
countries in which the goods they consume are produced.
The
externalization of carbon emissions:
Another aspect of out-sourcing and off-shoring production is the externalization of carbon emissions. Under the status quo responsibility for carbon emissions that take place in another country are also externalized, and end consumers in wealthy countries escape responsibility and accountability, not only for any fossil fuels used in 2nd, 3rd, and 4th country production processes, but also for the shipping of raw materials, components, and finished products.
This is further exacerbated by the purchase of carbon off-sets. Instead of a business or individual reducing their own carbon emissions, they can purchase the right to emit by enabling an equivalent emission-reducing activity somewhere else in the world. By purchasing or otherwise protecting enough jungle in Brazil or Indonesia, for instance, an individual or business wealthy enough to do so can claim to be carbon neutral without actually reducing their own emissions. This option is of course not available to poor people or poor countries who sell control over forests as off-sets to wealthier countries and businesses. The purchase of carbon-offsets may confer carbon neutrality on some wealthy emitters, but at the cost of increased global economic disparity.
Over-reliance on Global Supply Chains:
The current and on-going interruptions in supply chains are also due in large part to the externalizing production costs. The COVID 19 pandemic illuminated the global economies reliance on a highly complex global web of suppliers of raw materials, components, manufactures, end consumers, and the just-on-time-delivery of most of the above. In the early days of the pandemic this was manifest in the shortage of PPEs—masks and such—after borders were closed. Today factory closures due to poor distribution of vaccines and the resulting COVID outbreaks, interruptions in shipping and overland transport, a shortage in computer chips, etc. continue to impede a return to normal. Over-reliance on global supply chains intended to externalize and minimize production costs are no longer able to adequately supply existing demand. Just-in-time-delivery seems to be a thing of the past when it comes to everything from automobiles to refrigerators to Christmas gifts. Pivoting to this new reality requires a reconstruction of the dominant business model—something that is going to take considerable time.
Geopolitics is also playing a role. First the Trump administration, and now the Biden administration, see China as a major threat and adversary. However sanctions on China and tariffs on Chinese products also hurt US businesses and corporations, and will therefore be limited in scope. EU reliance on Russian gas is also providing Russia with the opportunity to limit access to Russian gas to further their political objectives. The degree to which a country can prioritize its political objectives over economic considerations depends to a considerable extent on how reliant its economy is on access to goods supplied by, and access to markets of their political adversaries. Western countries have allowed their economies to become particularly reliant on access to out-sourced goods and off-shore production.
Challenges:
Can
Western countries successfully extricate themselves from their
over-reliance on externalized production costs? Will their economies
and social safety nets be able to withstand such a transition?
The greatest challenge of all is reducing global Greenhouse Gas emissions while allowing corporations to externalize the cost of cutting emissions to countries ill-equipped to reduce them. It is simply unrealistic to assume that the countries producing our consumer goods will willingly cut their emissions without compensation from the countries consuming the lion's share of the goods they produce. Yet the carbon emission reduction strategies and proposals of Western countries do not include incentives to induce developing and poor countries—the very countries to which they have externalized the costs of their high-consumption life-styles—to reduce their emissions. This while the countries least responsible but most affected, and least able to mitigate against the effects of extreme weather events—cyclones, floods, droughts, mudslides, etc.—bare the brunt of the burden, as climate refugees, along with economic and political refugees, are warehoused in concentration camps because the developed countries that once colonized don't want them, ostensibly because they are unvaccinated.
The reality is that an over-privileged few are benefiting from an unjust global supply chain and distribution of resources, while much of the cost of this economic development model is borne by those too powerless to do anything about it.
