Viewpoint
Comments on recent news, follow up on discussions, etc.
Low Cost and Government Policy
The low cost fever is everywhere, from retailers to car manufacturers. And the mass of consumers is rushing to buy. Few realize that low cost is not the same as great value, as specifications are adapted to deliver the same profitability to the members of the value chain. Yes, there are productivity gains, but those do not explain all the cost gains. Another explanation comes from the relentless relocation of activities from the western countries to countries with a lower labor cost. After the manufacturing, it is now the support activities that are relocated. So less and less value is created, for instance in Europe. The US is in a somewhat better situation as more innovation allows to replace low value creation activities by higher value creation activities. What is right? Reducing trade? Returning to protectionism? Reducing benefits for those unemployed to reduce the transfer of cost from enterprises to the public sector and future generations? More efficient encouragement of innovation? I will not set government policies in 10 lines written casually, but the question needs to be addressed with more courage. Low cost is a double edged sword.