by Dr. J.W. Smith
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It is unequal pay for equally-productive work which creates the poles of an extremely wealthy few and an impoverished many. Not only is unequal pay a cause of poverty, through failure to build buying power in step with productive capacity, it severely reduces economic efficiency, wastes industrial capacity, and creates wars. Those wars waste even more labor, capital, and resources.
The secret to siphoning away others' wealth is the low-paid labor in the poor nations and high profits and high wages in the rich societies that have dominated global trade for centuries. Now that is no secret is it? But read on. The difference in wealth accumulation is not linear, it is exponential. It is not just high pay divided by the low pay. It is high pay divided by the low pay squared.
Arjun Makhijani calculates that, through an imbalance of currency values, equally-productive labor in the world's defeated, dependent nations were paid 20 percent that of the developed world, a five to one differential. Later currency collapses in the developing world may have doubled that differential to 10 to one.
On the following formula, please do the math yourself. Forget about the 10 times differential in pay. It is not linear progression, it is exponential. Consider only how long the low-paid worker or nation must work to buy one unit of wealth from the high-paid worker or nation and then consider how many units of wealth the high-paid worker or nation can purchase from the low-paid worker when working those same number of hours.
Wealth accumulation advantage increases or decreases exponentially with the differential in pay for equally-productive labor. Follow this example carefully and do the math yourself:
Wealth accumulation advantage compounds in step with the pay differential for equally-productive labor:
Equal pay for equal work is essential for eliminating poverty. All wealth comes from natural resources and most those resources are in the impoverished world. Study a world map and note the tiny area taken up by the old imperial nations. Europe has consumed their resources or never had them in the first place, Japan has almost no natural resources, Taiwan has few and Hong Kong and Singapore have none.
Econometric professors remember: This math is only in trade between nations with a wage differential for equally-productive labor. It does not represent trade within a homogenized market of both high-paid and low-paid workers. It does, however, point the way towards correcting today's neo-liberal economic formulas built from faulty assumptions. Anyone who uses this insight to correct those neo-liberal formulas, we would like to publish your work along with ours.
The wealth accumulation advantage of the higher-paid nation over the lower-paid nation is equal to the high pay divided by the low pay squared: (Wr/Wp)2 = A where
All who do this math will understand clearly why the weak resource-wealthy world is impoverished and the powerful resource-poor world is wealthy. The only way this can ever change is if all the world's poor understand how their wealth is siphoned to powerful nations through unequal pay for equally-productive work. Inform your friends, form your discussion groups. People are good. Prove to philosophers and negotiators in the wealthy world the honest math of world trade and many will recognize they have been misinformed and support you.
In our next column, we will go into the history of "plunder by trade" through powerful nations controlling the wealth-producing and wealth-distribution process.