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  • CarpeDiem
    replied
    Originally posted by Surrey View Post

    It is standard economic theory taught at business schools and universities throughout the world.

    If you are able to lower your input costs then you can lower your prices giving you a competitive advantage.

    Thank you. I am aware how economic theory works having studied and now teaching courses in business principles and economic theory at a post secondary level (my escape from the corporate world).

    It's important to note the word "can" in the phrase "can lower prices". Can, not will.

    My experience has shown me that reality differs quite a lot from theory.

    As I mentioned previously, price cuts don't necessarily get passed on to the end consumer. Frequently savings go to increased dividends to shareholders or board bonuses. It is the shareholder who decides the board's renumeration and tenure. They tend to hold more sway. Trickle down stops at shareholder level.

    Then let's look at co-operative retailing or to be blunt price fixing.
    Ever notice how all gas stations from whatever company sell gas for basically the same price? And tend to raise or lower their prices at the same time. You'd think that a wily competitor would lower the prices to corner the market. However, there is an understanding this is not going to happen and it doesn't. Other industries operate at the same level. Here in Canada we had an issue with bread price fixing at national grocery stores. The big bakers and some grocery chains set prices to their advantage not the consumer.

    Then we have the category killer businees (Amazon/Walmart) who comes in with lower prices, then once the dust is settled, sets their own prices for customer/retailer in a market with drastically reduced competition. Look at the case study of Vlasic pickles and their dealing with Walmart if you want to see how that business model works. Being a vendor for Walmart is a devil's deal for a manufacturer.

    Finally let me use the examples of new cars.
    Has the cost of new cars dropped substanially over the last decade?
    Sure there's new technology but there's also been huge cost savings in labour, manufacturing, material, automation, outsourcing and offshoring.
    So has there been a drastic drop in car prices?
    If not, where is the extra money going? Hint: shareholders and to make up for the "lost profit" years of the last recession. Not the consumer.

    Theory is well and good but it's best to look how theory functions in actual case studies.
    Trickle down doesn't work because it ignores some basic aspects of human nature.

    Good luck though if that's what you're relying on to make things run smoothly.
    You will definitely need it.
    Last edited by CarpeDiem; 20 Feb 20, 12:31.

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  • Surrey
    replied
    Originally posted by CarpeDiem View Post

    Truly fascinating theory. Do you have any evidence that this works in real life? What I have seen, experienced and participated in as a member of the C-suite is the desire to squeeze the most profit as possible out of production. The easiest place to save money for a business is labour. Hence layoffs and transfer of production overseas. Trickle down doesn't work as a rule. When we received tax breaks or production cost cuts, the extra profits stopped at the shareholder level (more dividends/bonuses) rather than lower prices to consumers.

    I have participated in shutting (union) factories down then reopening them with cheaper non-union labour. Moving from full-time employees to contract employees (no benefits, asier to let go). Watched the move to the gig economy. Offshored and outsourced countless jobs usually handled in house (HR, payroll, IT support) to cheaper locales. Good for the old bottom line and shareholders love it.

    The only thing that is a possible challenge to this process is demographics. Bodies are still needed for certain jobs, but with falling birthrates there is some leverage for employees there. If they're willing to take service jobs usually handled by the uneducated/lower class/immigrant.

    It's a delusion to think high paying jobs are coming back any time soon. High paying manufacturing jobs are done and dusted. With governments moving to weaken legislation or failing to respond to new business model (gig economy/contract employees), precarious employment is going to increase, not decrease.
    It is standard economic theory taught at business schools and universities throughout the world.

    If you are able to lower your input costs then you can lower your prices giving you a competitive advantage.

    Leave a comment:


  • CarpeDiem
    replied
    Originally posted by Surrey View Post

    Lower nominal wages but higher real wages. So people are better off.
    Truly fascinating theory. Do you have any evidence that this works in real life? What I have seen, experienced and participated in as a member of the C-suite is the desire to squeeze the most profit as possible out of production. The easiest place to save money for a business is labour. Hence layoffs and transfer of production overseas. Trickle down doesn't work as a rule. When we received tax breaks or production cost cuts, the extra profits stopped at the shareholder level (more dividends/bonuses) rather than lower prices to consumers.

    I have participated in shutting (union) factories down then reopening them with cheaper non-union labour. Moving from full-time employees to contract employees (no benefits, asier to let go). Watched the move to the gig economy. Offshored and outsourced countless jobs usually handled in house (HR, payroll, IT support) to cheaper locales. Good for the old bottom line and shareholders love it.

    The only thing that is a possible challenge to this process is demographics. Bodies are still needed for certain jobs, but with falling birthrates there is some leverage for employees there. If they're willing to take service jobs usually handled by the uneducated/lower class/immigrant.

    It's a delusion to think high paying jobs are coming back any time soon. High paying manufacturing jobs are done and dusted. With governments moving to weaken legislation or failing to respond to new business model (gig economy/contract employees), precarious employment is going to increase, not decrease.

    Leave a comment:


  • Surrey
    replied
    Originally posted by Vaeltaja View Post
    Actually if the overall production drops then also the real wages too. You do understand that lower expenses mean lower profits for UK producers? Furthermore it would mean less taxes and more debt for the country.
    No. Lower costs of production mean more goods and services can be produced with the same resources. Making us richer.

    Leave a comment:


  • Vaeltaja
    replied
    Originally posted by Surrey View Post
    Lower nominal wages but higher real wages. So people are better off.
    Actually if the overall production drops then also the real wages too. You do understand that lower expenses mean lower profits for UK producers? Furthermore it would mean less taxes and more debt for the country.

    Leave a comment:


  • Surrey
    replied
    Originally posted by ljadw View Post

    The question is not that trade brings prosperity, everyone agrees on this, but what is the best solution in 2020 for Britain and the other developped countries .While Free Trade brings cheap products for the consumer, it destroys jobs at home ,and consumers are also producers .What is the benefit of having cheap imports,if you can no longer export ?
    See the cheap T-Shirts from Bengladesh .
    See the cheap products from Poland, when Britain was a member of the EU .
    The developped countries must protect themselves against the cheap imports from the underdevelopped countries ,otherwise all our industries will disappear .
    Cheap products for the consumer increases real income. This further increases demand for all goods and services including those produced domestically. As previous post a virtuous circle.

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  • Surrey
    replied
    Originally posted by Snowygerry View Post

    That implies lower wages for your citizens though…

    We'll see soon enough, if nothing else, this is an interesting experiment
    Lower nominal wages but higher real wages. So people are better off.

    Leave a comment:


  • ljadw
    replied
    Originally posted by Surrey View Post

    Using either of the Chamberlains as a positive example is a bit dubious to say the least.

    Trade brings prosperity and has done so since the earliest times. The British Empire was built on trade, mostly with the Americas and the Far East. Brexit frees us to do this again.
    The question is not that trade brings prosperity, everyone agrees on this, but what is the best solution in 2020 for Britain and the other developped countries .While Free Trade brings cheap products for the consumer, it destroys jobs at home ,and consumers are also producers .What is the benefit of having cheap imports,if you can no longer export ?
    See the cheap T-Shirts from Bengladesh .
    See the cheap products from Poland, when Britain was a member of the EU .
    The developped countries must protect themselves against the cheap imports from the underdevelopped countries ,otherwise all our industries will disappear .

    Leave a comment:


  • Snowygerry
    replied
    Originally posted by Surrey View Post

    Pushing consumer prices down will make the costs of production of UK goods and services more lower. Thus improving our exports. A virtuous circle.
    That implies lower wages for your citizens though…

    We'll see soon enough, if nothing else, this is an interesting experiment

    Leave a comment:


  • Surrey
    replied
    Originally posted by Snowygerry View Post
    Well that could be a benefit, you can import cheaper manufactured goods from around the world without EU restrictions, which will probably push consumer prices in the UK down.

    Selling your own products around the world has become harder though, and without full access to the EU market (and others), commercial profit will suffer.

    The balance is hard to predict, like so many things in economics, the only way to know for sure is to try
    Pushing consumer prices down will make the costs of production of UK goods and services more lower. Thus improving our exports. A virtuous circle.

    Leave a comment:


  • Snowygerry
    replied
    Well that could be a benefit, you can import cheaper manufactured goods from around the world without EU restrictions, which will probably push consumer prices in the UK down.

    Selling your own products around the world has become harder though, and without full access to the EU market (and others), commercial profit will suffer.

    The balance is hard to predict, like many things in economics, the only way to know for sure is to try
    Last edited by Snowygerry; 20 Feb 20, 08:58.

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  • Surrey
    replied
    Originally posted by Snowygerry View Post
    It also benfitted from having colonies (well everybody here did), not only were they a source of agricultural products but also a market for manufactured goods.

    These days there's heavy competition for both…

    And Europeans no longer control the trade routes, for goods OR people.
    Britain restricted Imperial preference in the 2nd half of the c19th allowing food imports from everywhere, particularly the US.

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  • Snowygerry
    replied
    It also benfitted from having colonies (well everybody here did), not only were they a source of agricultural products but also a market for manufactured goods.

    These days there's heavy competition for both…

    And Europeans no longer control the trade routes, for goods OR people.

    Leave a comment:


  • Surrey
    replied
    Originally posted by Snowygerry View Post

    Back then though "free trade" meant dragging the raw materials from the colonies, adding value and exporting finished products again.

    That business model is hard to replicate now.
    Britain benefited from obtaining goods that were either unavailable at home or cheaper to produce overseas. That is the primary gain of trade. If you can get something from overseas for cheaper than you make it yourself then you gain.

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  • Snowygerry
    replied
    Originally posted by Surrey View Post
    Using either of the Chamberlains as a positive example is a bit dubious to say the least.

    Trade brings prosperity and has done so since the earliest times. The British Empire was built on trade, mostly with the Americas and the Far East. Brexit frees us to do this again.
    Back then though "free trade" meant dragging the raw materials from the colonies, adding value and exporting finished products again.

    That business model is hard to replicate now.

    Leave a comment:

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