Race to the bottom

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Purple

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Race to the bottom

Is this term used by people who are just frightened by competition?
I have never heard it used by small shop owners or others that are used to competing in a completely open market. I have heard it used by people in sectors where there is, or has been, a limit on supply or very high demand over the last few years (e.g. solicitors and doctors) or in sectors where there has been price fixing on the supply side (e.g. trades covered by registered trade [price fixing] agreements, heavily unionised semi-state monopolies etc).

I never heard anyone talk about a race to the bottom when multinational companies were laying people off in the USA and moving their jobs to Ireland because we were cheaper yet when the same companies do the same thing to their Irish operations they are somehow unethical and greedy. How is this not a double standard?


Are those who scream race to the bottom really asking for one way protectionism in one of the most open economies in the world? Have any of these people actually thought through the consequences of what they are asking for?
 
I think the term is largely used by unions as a scare tactic - implying that the outcome would be a nation that will compete at the lower end of world trade with countries such as China and India where we would be producing mass market white goods and the like.

Instead we need Ireland to race to the bottom of the markets where we have relative, comparative advantages such as services, pharma and banking, where we can draw on the well-educated workforce, EU location, low corp tax and English speaking. This type of race to the bottom will ensure we come out a stronger nation in the longterm
 
I agree but I would say that low-end services are just as vulnerable as low-end manufacturing, indeed they may be more vulnerable. The desk fan made in China has to be shipped to Europe, the lady who answers the phone when I call Dell customer support is in India but she provides an excellent service and the distance adds nothing to the cost of delivering the service to the customer.

Our economy can’t just be based on a taxation advantage (such as banking and pharma), we have to have a real knowledge/skill based value add. This applies to manufacturing as much as services or anything else. In that context we have to be price and skill competitive with our EU neighbours. In other words we have to produce like Germans with a cost base like the British.
 
Well, you could look at it that way;

Shops do ( by and large) supply commodities and the most important way to compete in the supply of a commodity is on price. So it is not surprising that they don't tend to analyse their business in this way. ( Of course, they can differentiate to some extent by giving better service, longer opening hours, home delivery, or goods that cannot be got elsewhere - locally produced eggs, jams, bread etc.).

For many goods and services, the customer needs to feel that he is getting more than the basic commidity product\service. If consumers weren't amenable to feeling this way about products\services, there would be no such thing as a fashion industry, and and IPod would not cost four times as much as a 'no-name' product with the same functionality.

In essence, I think that:

"we need to avoid a race to the bottom"

is the exact same phrase as:

"we need to move up the value chain".


Our economy has passed the stage where we can compete based on our prices being very significantly less than elsewhere. People who come to do business here will come because they want to do business specifically with us, the Irish. They like our work ethic, or our ability, or our command of the English or whatever. We need more of this business.
 
Purple said:
In other words we have to produce like Germans with a cost base like the British.
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This is exactly what I meant when referring to our race to the bottom - we need to be cheaper compared to other countries in the EU with similiar characteristics - we can't compete with Poland for certain types of manufacturing (e.g. Dell), but we can with London for banking etc
 
Actually, this is a good thread and IMO belongs in the Great Financial Debates section
 
In layman’s terms Price X Output = Value

When labour was cheap then our output could be low in technological/value add terms. As our price increases our value add should have increased by at least the same amount. It didn’t. That’s why we are in the shape we are in.
There are some areas where we can increase our value-add and so maintain or increase our cost. There are some areas where we can’t and have to reduce our cost. Blanket statements about racing to the bottom are meaningless and only serve to stifle necessary but often painful change.
 
why is manufacturing or even low end manufacturing dismissed. In some cases there has to be a benefit in producing product within the eu, close to the market & no tarriffs plus the made in Ireland/EU tag.
People should look at everything made in the far east and see can we do it here better. China throw people at manufacturing, but we could be smarter and probably take more capex but where 100 chinese build X, can 10 -15 here make X.
Theres empty factories, plant and machinery out there.
Probably would also mean a major change to work practices, for every labour hour paid you would need productivity. so a very flexible work force would be required with some kind of profit sharing incentive. You work when the work is there, this means the operation would be highly efficient and productive ie profitable ie greater profit share.
 
I’m not knocking manufacturing, that’s the area I’m in, but I wouldn’t dismiss the Chinese as low end and labour intensive. They are every bit as smart as us and produce very high end products. We should be concentrating on low volume, high value products where the price charged reflects the R&D value add and market need rather than the manufacturing cost. This can be in medical device, software, B2B products etc but there will still be a requirement to be cost competitive with our neighbours so the “Knowledge Economy” cannot be used as an excuse for paying ourselves more than we are worth.
 


i agree . Just saying on the low end stuff with initial capital spend (assuming plany & mach in cheap cos its just lying around) mamufacturing costs would scale upwards very well on high volume, but in china they seem to just throw more people at it.
 
The first thing we should do is get our cost base down to the U.K. equivalent.This alone would be enough to create 100k+ jobs if citizens of this country bought the equivalent irish product in preference to the british product and shoped in the Irish retail shops as distinct from the british ones. Also the shopping trips to the U.S. should be subject to VAT searches to discourage this blatant abuse.It is so unfair to Irish retailers who have to pay much higher Vat and taxes than American retail outlets and the irish shoppers in America get the tax taken off the price.
Competing with China is not possible for Ireland ,except by multinationals who are given every incentive possible.Dealing with China is done by the E.U. who have their rules on tarifs etc.
I do think the irish government could get the minimum wage down to the U.K. equivalent to help small buisnesses compete and the taxes and Vat should be the same or preferably lower here in our retail outlets.
 

I agree with your post but as for competing with China; we are an Irish SME and we export manufactured goods to China and Poland.
 
Purple said:
I agree with your post but as for competing with China; we are an Irish SME and we export manufactured goods to China and Poland.
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if you dont mind saying, what field are you in & have you seen an upswing toward the end of the year.
 
dockingtrade said:
if you dont mind saying, what field are you in & have you seen an upswing toward the end of the year.
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I've PM'd you on what we do.
On the up-swing; no, we haven't seen that much of an up-swing but then again what goes on in the domestic economy has absolutely no impact on us so our down-swing was in the order of 10%.
 
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