Zero Sum Game

Zero Sum Game September 24, 2020

Zero sum game: a situation in which one person or group can win something only by causing another person or group to lose it. 

A few days ago, I was having a discussion with a friend who leans rather heavily toward the political right. He is a union hater, and claimed that unions had used their collective bargaining power to push up wages in the US to the point that businesses had been forced to move their manufacturing facilities overseas to remain competitive in world markets. By doing so, the unions had harmed business, the workers they represent, and the US economy.

I pointed out that many developing nations have much lower standards of living than the US, and that trying to compete with their labor rates would be disastrous for our workers and the US economy. Furthermore, developing nations often do not enforce environmental or worker safety regulations like the ones we have. The higher cost of doing business in the US is due in part to those regulations. (NOTE: Trump is working hard to eliminate many of them.)

I recognize that unions, like any other human organizations, foster corruption and bureaucracy that have resulted in unnecessary costs for employers. But there is no doubt that the organized labor movement in the US has led to higher wages and benefits, and better working conditions than those that existed prior to unions and collective bargaining. I think our unions could benefit from the example of European unions, which work with management, and negotiate in good faith, resulting in a mutually beneficial relationship that has resulted in increased productivity and a high standard of living for European workers.

Any decision on international trade creates winners and losers. To some extent, it is a zero-sum game. If a country allows cheap products from low-wage nations to be imported, consumers benefit, but it harms domestic producers and their workers. The businesses have two alternatives:

  1. Reduce costs to remain competitive through some combination of layoffs, increased productivity, and reductions in wages and benefits.
  2. Move their facilities to low-wage countries.

Either way, the workers lose.

On the other hand, if government decides to protect domestic businesses with tariffs, those local businesses and their workers benefit, but consumers pay higher prices, and companies that make products for export may suffer, as some trading partners might decide to retaliate with tariffs of their own. The decisions of government determine who the winners and losers are. How should those decisions be made? If the government truly represents the people, the goal should be to maximize the benefits and minimize the costs. And since we are all in this together, it seems reasonable and fair that everyone should share in both. Thus, workers who lose their jobs, and businesses who are harmed should be compensated. That compensation must necessarily be paid for with taxes collected from everybody. If the government has done its job right, then everybody should be better off than they were before the action was taken.

My right wing friend will have none of this. In his view, the government has made the decision to maximize the benefit vs. cost ratio, and its responsibility ends there. This philosophical principle is referred to as laissez-faire economics. Let the market work. Government should stay out of it.

How are costs and benefits of trade decisions quantified?. Consider this simple example: A US company makes cell phones, and sells them for $300. A foreign company is allowed to import cell phones and sell them for $200. The local company either goes out of business or moves its operations to a foreign country. Either way, the workers lose their jobs. How many cell phones purchased at a savings of $100 are equal to one worker’s loss of income?

If the worker is not compensated for his loss, then the money he was making and spending in the US economy, is now being spent by other consumers who have an extra hundred bucks to spend on other things.

Now multiply these numbers by millions for the myriad of products that are being imported from low-wage countries, and the devastating effects on US workers, and you have a picture of what is happening not just here, but in other “developed” nations.

The unions and their workers cannot be blamed for this. Nobody can be blamed. The losers in this zero sum game must be compensated, and provided with tools to restore their economic self-sufficiency.

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