I originally wanted to sit down and start writing about what the Future Economy would most likely look like. I was then going to use the macro-economic trends to reverse engineer my way down to find great investment ideas. But I've decided to write about a different topic today. Over the last few years I've seen a bunch of articles outline how more companies are beginning to outsource. Outsourcing is not a new trend, but with each passing day, the effects of this practice are accumulating to the point where the question about what the future economy will look like is fuzzy.

We have all heard some of the arguments in favor of increased outsourcing. We know that countries that can efficiently produce a good or service should be rewarded and should do so in greater volume so that each country can become more productive at producing goods and services that they excel/specialize in and stop wasting time and resources on producing goods/services that they struggle with. The result is that the nations in the world will produce more goods/services and wealth. Most of us understand the principle and even agree with it - But that doesn't mean there aren't consequences to its application.

It's beginning to look like the dream of every company is to be to headquartered in a tropical paradise with no taxes, manufacture goods in a 3rd world country with wage slaves, and sell the products/services to the West at a high price point. There is a fundamental flaw in the design of an economy that does this and the sustainability of economies built on this model are questionable.

The large customer base in the West is largely a result of the spending power of the Middle Class ,which is a result of good jobs with decent pay. The problem occurs when the Middle Class is eroded, shrunk and diminished through a loss of quality jobs and decent pay due to competition with wage slaves. It's not like these quality jobs WITH their quality pay are going elsewhere - the job may be, but the quality pay sure isn't! It really does seem like every company wants to sell products/services to Western nations but they don't want to employ anyone in the West due to the higher wages. Soon, you have to ask yourself, where will the Middle Class work? How can the Middle Class compete with wage slaves in the 3rd world? On price alone, it simply can't. But an even better question is, to who will these companies sell their products? The Middle Class in the West will be less able to afford the products, and the wage slaves in other nations generally aren't paid well enough to become customer's for many of the companies either (of course, there are some exceptions to this rule, but does the increase in the East equal the decrease in the West? I don't know, I'm asking you and I'm willing to bet that the East is gaining less than the West is losing.).

Many businessmen, economists, and investors will tell you the Middle Class will have to produce goods more efficiently with new technology or at a higher quality. Once again, I'd say it's not that simple. Even wage slaves in the 3rd world can use new technology to manufacture goods more efficiently, and the quality of goods coming out of the 3rd world is increasing all the time. They are also able to train their employees for much cheaper.

I'd also like to argue that 3rd world countries that utilize wage slaves aren't more efficient but the companies are merely taking advantage of currency differentials and lower labor standards (willing to work longer hours for less). Taking advantage of wage slaves is nothing more than exploitation and it causes a race to the bottom in terms of wages for the Middle Class and even for the Wage Slaves in the 3rd world. See, even the wage slaves in one 3rd world country must compete with wage slaves elsewhere. The new business models employed by businesses have no concerns about sustainability or loyalty or paying fair wages to increase the standard of living of their employees around the globe. Even countries like China will run into this problem eventually. As wages begin to increase in China, companies will start looking to other countries that have cheaper wages and they won't hesitate at shifting manufacturing if it will increase profit margins.

Sustainability is lacking. Think about it. As the Middle Class is less able to buy goods and services, the same companies that left the West still want to sell items at a premium price to the West. At the same time, wages in the 3rd world won't be creeping up very fast either. So, the companies that are trying to sell goods and services will have to continually look for ways to make their product/service cheaper in order to find customers or they will run the risk of shrinking due to lower sales. Job losses from the current economic woes are occurring worldwide, including China! Yes, the shrinking Middle Class in the US and other Western Nations is even bad for China! (Honestly, who else would buy some of that useless junk other than us? Though, much of it I know we shouldn't be buying and economically we may not be doing so in the future.)

What I'm trying to say is, with the low wages many companies pay their employees in the 3rd world, many will have a hard time buying their goods, and the West, which has traditionally bought these items will slowly stop doing so too. It begins to look like it's a race to the bottom. This race also negatively affects many companies - and it isn't even the fault of many businesses. They simply CAN'T compete with companies in other nations unless they move their manufacturing too. It's a double edged sword - For the entirety of this article it sounded as if I was harping on businesses, but many of them are forced, due to free competition that has opened up with other nations, to move operations to take advantage of the wage slaves to effectively compete with their foreign competitors.

I'm all for free competition. That being said, there are several problems with free competition on a global basis at the moment. Currency manipulation that occurs and helps one country wage economic war on another is a problem. I know, it works both ways and we're certainly guilty of doing this ourselves, but when one country purposefully manipulates its currency to keep it lower than another to give it a trading advantage, there is nothing the average person can do to compete... free competition? How do you compete when the average employee or company can't do anything and is now playing on an un-level playing field?

Another problem with free competition in the world is many countries do not have proper labor standards to protect their population or help increase its standard of living. How is a Western worker supposed to compete with (wage) slaves in another country that work for almost free? Free competition only exists where there are common rules/regulations - without some common labor laws, free competition as we have meant it isn't possible and that is why it is unsustainable, in my opinion. We want the economy to grow and the people of the world to have an increased standard of living. We all know that due to technology, the world is increasing its standards of living - but on an economic basis I don't see this occurring as well as it should. See, the West has seemingly done alright so far, while the rest of the world has begun to industrialize. I don't believe the West has done well. I think much of the "success" in the West over the last decade or so has been due to debt and isn't really success at all - We still have to pay that money back eventually! No economy can be completely self-sustaining while requiring tremendous amounts of debt to finance itself. Debt has hidden from the world the true effects of globalization and "free trade" without a level playing field. It's just now coming home to roost and the world will feel the effects. Why is China willing to take on so much US debt? China has benefited from the unsustainable world economy that has been built on the backs of the US consumer being financed with debt. See, even China isn't completely sustainable as it relies heavily on the West which is currently unsustainable. Vicious circle.

Don't take my word for any of the above - I know it's poorly written, and I'm having a hard time trying to get my point across. Yes, there are major flaws with my reasoning and argument - go ahead and point them out because I really only want to start some discussion on this issue (and I clearly don't "get it", so help me!). In general, I don't think the world economy is sustainable when the ONLY thing we are competing on is price and some countries have an advantage due to low standards of living (practically slaves... I mean, even slaves earn food from their work, and many of these so called "free" people are basically wage slaves that earn just enough to eat!). The Middle Class rose during a period where companies wanted to pay their employees a good fair wage and that notion seems to be eroding and companies are now abandoning this practice. I don't foresee massive wage cuts (though there will be some) - I foresee inflation without adequate increases in wages. The Middle Class will continue to erode without quite realizing its happening due to the masking effects of inflation. As the Middle Class erodes, the race to the bottom will seemingly continue.

I believe the free market works when there are some common rules/regulations that allow a level playing field across nations - the trick is doing so without creating an all powerful (and scary) world government or world currency controlled by a handful of elites. I know, fair free trade/competition is easier said than done, but I don't think our current experiment with "free competition" (or "free trade") on a global basis is occurring as we intended it. We need some of the best economic minds to come up with viable solutions that will ensure REAL free trade across the globe without concentrating power in the hands of the few. We certainly have some work cut out for us. Heck, perhaps there is no such thing as free trade since there seems to be a cost associated with it. Perhaps what we are looking for is fair trade? (not that we've been fair to the rest of the world either). I don't know and I think I need some help to understand what the best course of action would be.