Grow the "Capital-Augmented Labor Productivity"

I get excited about capitalism, this is no surprise. But I want to provide a particular example which I share with my undergraduates. I hope that it makes you excited as well.

I call this approach, grow the "Capital-Augmented Labor Productivity." I tell the students about a trip I took to Sao Paulo and how I saw a very large team or workers digging in on the side of the interstate, doing road construction, absent any earth moving equipment. I then compare this to the presence of capital in the US and talk about why this might be the case, why we have such a different picture of road construction in the US vs. in Brazil.

The answer, which I reward with my enthusiasm, is that there are low opportunity costs for labor in Sao Paulo. It is a low-skilled job and there are plenty of places in Brazil where people are just happy to have work outside of the home. This means that there is low competition among employers for wages.

I also point them to China, where there have been incredible changes in the working conditions of manufacturing labor around Shanghai and Beijing. In fact, the economist reports in their special issue on China that employers are beginning to look further inland, along the rivers, for new sources of cheap labor bringing manufacturing jobs and infrastructure development to people whose opportunity costs have remained low despite monster growth in China for the last few decades.

I mention to them that some people call this exploitation. I call this growing "Capital-Augmented Labor Productivity." In the wake of the companies seeking to exploit workers there is a increase in skills, increase in standard of living, increased capital investment. All of these are consistent with rising wages. Wages can only rise when productivity rises. One way of increasing productivity is through education (both how to use capital, and how to be a better worker). Both of these seem to increase all of our humanitarian measures. So this "exploitation" of workers around the world makes everyone better especially when it is consistent with monotonically increasing productivity of the workers.

The only way that we can be successful in a global economy is to become more productive. This can mean a variety of things. What it certainly means is that the globe is constantly getting more productive per worker. What I predict is that this greater affluence will make everyone better off. Who doesn't want to be on board with that?