Specialization and Its Cost (Update2)

In people’s mind, Shanxi Province is always associated with illegal collieries and brick kilns which hundreds of people have been killed or wounded due to explosions of gases, collapse of mines or tortures by the foremen and the owners. People and the Press are always angry with these phenomena but curious about the continuous happening of the serious cases. Has Shanxi fallen into a vicious cycle?

When the focuses are concentrated on the social, moral, or even political systems, the economic factor may be neglected.

How could economy make Shanxi fall into the vicious cycle of illegal collieries and brick kilns? Some people argue that it’s the fault of specialization. The abundant natural resources and cheap labour forces make Shanxi Province acquire the comparative advantages in producing coal and bricks. The more specialized Shanxi Province is, the more mono-form its economy takes. As a result, the pursuit for higher profit by trading these low value-added goods drives officials and local magnates to exploit those poor peasants and migrant workers.

It seems to be reasonable. However, the relationship between workers and owners of the mines and brick kilns is all about the story of exchange. This previous argument only covers the picture of one party in the exchange. The other half of the picture from the perspective of those workers is not mentioned.

Before we check the part story of those workers, let’s get a general view for the exchange process, specialization. In economists’ minds, specializations should bring a win-win situation for both parties participated in the trade. They will tell you the stories of a painter and a carpenter, or a country specialized in sea food production and a country producing agricultural products. In their cases, specialization makes both parties better off. If that’s true, then how can we explain those phenomena in Shanxi Province?

If we give a second thought on the stories economists present, we may find that both parties are equal in the legal status. Individuals exchange with individuals and countries with countries equally. The specialization is based on the fair trade as an assumption. In this sense, Shanxi Province is getting better economically through the exchange of coal and brinks with other provinces for the goods they need. However, the tragedy happens when there is inequality between the two parties. The tragedy happens in the relationship between the owners of the mines and brick kilns and the education-inadequate peasants and migrant workers.

Why is there inequality? Maybe the answer is the lack of choices. The aim of peasants and migrant workers is to survive and support their families. If there are any better choices for the peasants and migrant workers, they will flow out of the industry which might take their lives as a cost. Since there are no other choices, they take the risk of death to do the dangerous work.

Is it the specialization limits the choices of peasants and migrant workers? To some extent, it is. The limit of choices reflects the strict ranks of jobs. However, this is one of the results of the specialization. You use your comparative advantages to do the job fit you best. However, the fittest job may not be a highly-paid or even enough paid one. Actually, this is the cost of specialization society has to pay.

Some extreme liberalists may argue that those peasants and migrant workers are so illiterate or unskilled that they should only be granted those dangerous and low-paid jobs. However, we need to solve three questions. Is it their fault to be illiterate or unskilled? Should the government participate to help them out? If the government participate, will this increase the benefit of the whole society?

The first question is quite obvious. Most of those peasants and migrant workers are born in a poor family. The environment usually does not allow them to study or develop themselves. However, the family environment has nothing to do with the children bred in it. They have no choice. The illiterate and incompetence of those peasants and migrant workers are the tragedy of society. They are bearing the cost produced by society rather than the cost produced by themselves.

As a result, the cost should be shared by society. The responsibility obviously falls to the government. They play the role of auditor to check the cost and benefit between different actors in society and finally using taxes they collected to make the second distribution of wealth.

The government’s participation is not a bad thing at least for these cases. If we assume that the increase of wealth has the decreasing rate as the consumption of other goods, then it is quite clear that the second distribution of wealth using the money from the rich to help the poor may increase the total benefit of society as a whole.

That is to say, the government plays an important role in the equal exchange when specialization is inevitable. The government should compensate the peasants and workers the social cost they are bearing. A common way is to establish a good social security system and exercise welfare policies consistently.

As a result, it can be concluded roughly that specialization can bring benefit on the equal basis, but bring some negative impact when there is. However, if the government is weak and could not provide well social security system, the cost of specialization will be very obvious. If we extent our conclusion a bit further, we may find something more surprising. If there is no government (world government as for the international arena), the specialization (globalization as it is called) may bring great benefit only to those who are strong. The small and developing countries may suffer a lot as a victim billing the cost without any compensation.