The Economics of Quality

I just read in a news report that if our economy keeps going the way it is now, the U.S. will post a 5.7% drop in GDP by the end of the year. This is, of course, considered dire. In contrast, the GDP of China is on course to grow by 6% this year, down from their usual 8-10%, but still firmly positive. The lucky bastards. Or are they?

GDP, or Gross Domestic Product, is the grand sum of all the goods and services bought and sold in the U.S. in a year. The measurement was formulated during the great depression of the 1930’s as a rough indicator of how well the economy was recovering.

It is not an original thought to point out that GDP is a speedometer, not a compass. When someone has a fender bender in a parking lot, that increases GDP, as do tornadoes, cancer, and a host of other undesirable events that cost people money. It doesn’t indicate anything about income distribution or the ability of ordinary people to pay their bills. Various other indicators of the well being of society have been proposed, but the mainstream media, politicians, and the general public remain fixated on GDP, often referred to simply as “the economy.” The economy speeds up and we cheer. It slows down, and everyone is worried.

It is also not an original act to point out that we live in a limited environment, with diminishing amounts of fossil fuels, minerals, forests, arable land, and fresh water. One would think that more people would make the connection that an eternally growing economy is a planetary impossibility. One would be wrong.

I’d like to point out a different direction for our economy, what might be called the Quality Economy. It involves focusing on the quality of production rather than mere quantity.

Our present system is focused on quantity. Great quantities of raw materials are shipped across oceans to Asia where they are transformed into mountains of mostly cheap, disposable goods. It is profitable for manufacturers to maximize the flow of goods. This is achieved through favorable trade laws and currency exchange rates, sweat labor, and planned obsolescence. But what does this really get us?

Some seriously underpaid, unskilled schmuck in Shanghai spends seven 12-hour days a week pulling injection molded plastic chairs out of a machine, while slowly dying of chemical poisoning, malnutrition, and overwork. The chairs get shipped in bunker-fueled cargo vessels to the U.S., where they end up getting stacked in a Wal-Mart by some other underpaid, unskilled schmuck. A third underpaid, unskilled schmuck whose father used to build furniture buys these ugly, flimsy chairs. They break within a year and he has to go buy more. Shanghai Plastic Chair Co. makes money, Shipping Inc. makes money, and Wal-Mart makes money, but everybody else loses.

Consider instead an economy where a skilled worker in Shanghai makes wooden chairs for people in Shanghai and a skilled worker in, let’s say, Des Moines Iowa, makes wooden chairs for people in Des Moines. Both workers can get paid a living wage for what they do. Being skilled, they have more unique economic value and therefore more economic power and control over their work environments. They will probably feel better about what they do. They will be able to afford the products of other local manufacturers. The chairs will last longer, reducing resource flow from the environment and pollutant flow to the environment. Shanghai Plastic Chair Co., Shipping Inc. and Wal-Mart lose out, but my heart does not bleed for them.

The end result is that GDP could stagnate while the lives of people here and abroad could improve. Granted, the chair example is simplistic, but the overall strategy is to go in the opposite direction of the standard economic wisdom. The trend in industry for the past two centuries has been to reduce the number and skill level of workers. The more recent trend has been to send manufacturing jobs to countries with the lowest wages, least worker rights, and lowest environmental standards. This has maximized the flow rates of materials and capital at great expense to humanity.

One objection to this concept is that it will lower productivity. We worship productivity, but what does it really mean? It is dollars of output divided by hours worked. Note that the variable we are supposed to increase is “dollars,” without any indication of the quality of what was done or its value to society. Today, greater productivity means that you work harder so that a shareholder somewhere else can make more money. Increases in productivity haven’t been matched by increased wages for workers in the U.S. for the past 30 years.

Another objection is that most people can’t afford quality. I would counter that none of us can afford quantity. In a recent essay I discussed how globalization and outsourcing is sinking this country in debt. Our vast consumption of cheap sweatshop goods is unsustainable in terms of economics, the diminishing supply of resources, and the environment. A generation or two ago, American factory workers manufactured goods that were sold to other American factory workers. We could do that again.

And don’t tell me, a la Thomas Friedman, that the world is “flat,” in terms of global trade. Last time I checked we were a sovereign nation, capable of deciding what can and cannot pass over our borders, and under what conditions. We don’t have to be part of NAFTA or GATT. The world can be as flat or as bumpy as we want it to be. It will take some significant political change to get Congress out of the pockets of Wal-Mart and Shipping Inc., but that has to be done anyway.

I’ll leave you with a photo of something I made a while back.

Your Minor Heretic started out as a blacksmith. I apprenticed to a master smith right out of high school, working for room and board. He taught me how to take fifty cents worth of steel and a few hours and make what he called “house jewelry.” The item above is a Suffolk style door latch, hammered out of a few inches of half-inch square stock. It isn’t the best thing I’ve ever done, but you could put that on a door and it would be there for your great grandchildren. It isn’t a massive amount of material, but it contains a great deal of labor and skill. It epitomizes what we need to do with our economy – apply a great deal of knowledge, skill, and labor to limited resources to produce things of lasting quality.