"There is no way of keeping profits up but by keeping wages down" (David Ricardo)

Essay by icleaveUniversity, Bachelor'sA-, May 2004

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There is no way of keeping profits up but by keeping wages down.

-- David Ricardo, On Protection to Agriculture (1820)

This essay seeks to go one step further in the context of David Ricardo's quote by arguing that totalitarian political systems offer a way of keeping profits up by keeping wages down and inversely, in a democratic system wages will have a tendency to rise and thus, profits will decline.

When looking at David Ricardo's quote within the context of both totalitarian and democratic political systems, two assumptions have been made. Firstly, wages are lower in totalitarian political systems then in democratic political systems simply due to the differences in political structure; in stating the obvious, workers may be denied a say in how they are governed in a totalitarian system to the benefit of governing individuals. This is in contrast to a democratic system where politicians must garner voter support.

Workers would then have the ability to exercise their collective voting power and influence their wages through elected politicians that may garner support with worker-favourable governmental policy such as an increase in the minimum wage rate. Secondly, companies that operate in a totalitarian environment would experience higher profits due to low wages. As Vernon (1966) has pointed out with the PLC, if the major input into a production process is non-skilled labour, the cost of that labour and wage differentials across national boundaries becomes a major location decision factor thus it is fair to reason that companies faced with rising wages would eventually seek out other lower wage locations regardless of the political system.

When testing these assumptions within an Asian context, inter-country comparisons are fraught with difficulties including among other things cultural and psychographic differences that may have an 'apples and oranges' comparison affect. In the hope...