Tuesday, May 26, 2009

Too Cheap is not Good for Consumers in the Long Run

First of all, I want you to read this report of BBC: The far-away food factories. It has talked about the experience of a student from UK who recently visited a fish processing factory not as a tourist but as a worker. That factory supplies fish for some supermarkets in England and the Indonesian workers have to work very hard to meet the strict standards of England and EU in terms of hygiene and cleanliness. Very nice to see that the consumers get clean products and can enjoy their meals. After all, they pay for it and they are entitled to getting quality products.

There is nothing wrong or unethical about it. What is so bad is that the workers in the fish factory gets very low salary. Of course, Indonesia is not a rich country and you cannot expect that the workers will get good salary. However, the salary they get is really pathetic. Some of them even cannot live with their families. Some of them are too poor to make a bus ride to another part of the district to see their children. Still, they cannot or wont leave the jobs because this is the best deal they have got. If they did not have this job then life would have become even worse. The factory owner is a bit helpless too. May be he is getting some healthy amount of profit but in the end of the day, he cannot bargain hard with the British supermarkets because then the supermarkets would go for another trader or producer.

The consumers in England are very happy to get fish in an affordable price. So, in the end of the day, everyone is happy. However, on a second thought, we have to remember that it is inhuman that some people cannot even see their children for many days just because you want to have cheap fish. From ethical point of view, this is bad and even immoral. However, let us take a look from the business of point of view. First of all, as a consumer, you will get habit to cheap products. Secondly, the consumers of the rich countries have to work and earn money. They have to produce some goods and services that people of the poor countries will have to buy. However, if the consumers of rich countries destroy this balance then the workers of poor countries will never have any real purchasing power.

I feel that more than the credit crunches in USA, this kind of bad consumerism caused the global recession. Of course, I am a hobby economist and you do not need to take my view seriously. In China and India, still more than 1.5 billion people do not have a car. On the other hand, in USA, auto makers like General Motors are on the verge of getting bankrupt. They are getting bankrupt because they cannot sell their products. If they could sell a car to just even 10% of that 1.5 billion people of India and China then they would have much better condition right now.

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