French Fires

How do you explain the rioting that is happening in France? Two words: cheap labor. France, like most other mature Western economies, has embraced cheap labor from underdeveloped countries. That flood of cheap labor has, at least until now, served both corporations and consumers. Corporate earnings are up across the board, for example.

But, you point out, wages are down across the board too. How does that serve consumers -- most of whom are working-class folk?

The answer comes as a single, hyphenated word -- Wal-Mart. Cheap labor produces cheap goods. How many times have you bought something at a Big Box store and said to yourself, I don't know how they can make and sell this item so cheaply? Down deep, of course, you really don't care. You're just happy you got the gizmo for so little.

And it's not just cheap labor abroad that we're addicted to. In both Europe and the U.S., legal and illegal immigration has turned ordinary Americans into cheap labor employers as well. Even a working-class stiff can afford a gardener, a housekeeper and a nanny these days. You can quite literally pick them up right off the street corner.

Want an addition built on to your home? It's almost certain that the only reason you can afford one is because the contractor no longer hires union carpenters. Instead, he picks up a few Mexican carpenters down on a corner, or a hiring hall. They are skilled and hardworking, and they put in a full day for a fraction of what a union carpenter would charge. You're happy. The contractor's happy.But some former union carpenter now works at the local Oil Stop, earning half of what he once made. Then again, that one-time union carpenter is still able to make ends meet, thanks to cheap imported goods -- at least for now.

So far, so good for everyone -- at least it would appear. But there is an inevitable price for all this, and the French are paying it now. There really is no free lunch, even in France. Two dynamics are now in play, even if most Western governments still refuse to acknowledge them.

First, Western economies have been busy for the past 10 years or so stewing the golden geese that made them economic powerhouses in the first place --- their working middle-classes. Workers' real wages have plummeted as their homegrown industries turned to cheaper foreign labor. In the short run, those cheap goods coming back into their countries blunted the effect of lower domestic wages. But that can't go on forever. Sooner or later, Western consumers will run out of both disposable income and available credit. When that happens, the middle-class consumer -- the engine that drives every Western economy -- will stop pulling the train. (We should see the first hint of that here during the coming holiday season.)

Second, low wages paid to immigrants -- many illegal -- create the very conditions that sparked the riots in France. Do the math yourself. If American workers, who have seen their real wages drop like a rock, are beginning to feel the first signs of economic stress, imagine the fiscal conditions that face the average low-wage immigrant family. Such immigrants already live on the economic razor's edge. What they learn -- too late --is that the deck is stacked against them. They cannot join the mainstream of these societies, because allowing them to do so would require paying them a livable wage. And what purpose would that serve, paying immigrants the same as domestic workers? The French, for example, already don't seem to care for having all these folks in their country to begin with. The reason they put up with them is because they work for peanuts.

France may be the first Western nation to experience the downside of cheap imported labor, but it will not be the last. Trapped in ghettos by low wages, stuck in low-end jobs by cultural, racial and religious factors, the lid eventually blows -- always. When that happens the citizens and companies that had benefited from their cheap labor first always go into denial. They are shocked, simply shocked! They blame everyone but themselves for the real reasons behind the violence. The rioters are "scum, stirred up by radical clerics. They are not oppressed, they have no genuine issues. They are just criminals."

Yes, some of the rioters we are seeing in France are criminals. But France's real problem is that French society has become hooked on a pool of surplus immigrant labor. I said "surplus," because that's key to keeping cheap labor cheap. The trouble is that surplus of labor also means that, at any point in time, there are more unemployed immigrants in France than working ones, with more joining that surplus labor pool each day. Tick, tick, tick.

America is lucky in that our flood of immigrants comes largely from Mexico, a generally peaceful country populated by peaceful people. (Have you ever heard of a Mexican suicide bomber?) France's immigrants, by comparison, largely herald from poor Muslim countries, like former French colonies in North Africa -- a part of the world where political/social/religous violence is the norm rather than the exception.

But the Americans and the French have their thirst for cheap labor in common. And sooner or later, social unrest will hit here as well. Here, I suspect it will be American workers who got a taste of middle-class life, only to have it snatched away from them. Those once well-paid Americans now find themselves stranded between the rich, who are getting richer, and the working poor, who are getting poorer.

The middle ground upon which they once stood has all but disappeared. They may not understand the macro-economic reasons for that, but they know this much -- they no longer have the means of moving up the economic ladder, and they have no intentions of joining the working poor.

When that realization sinks in, even dirt-cheap toaster ovens at Wal-Mart won't help.

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