Monday, July 25, 2005

A Race for the Bottom or a Race for the Top?

We are used to discussing the dynamics of globlization leading to a race to the bottom, in terms of industry seeking locations with the lowest operating costs. It may seem counter-intuitive to ponder economic factors that lead industry to seek locations that, instead of having the lowest labor costs, promote higher productivity. Paul Krugman writes of the economic forces that contributed to Toyota's decision to build a new plant in Ontario, Canada instead of Alabama:
But last month Toyota decided to put the new plant, which will produce RAV4 mini-S.U.V.'s, in Ontario. Explaining why it passed up financial incentives to choose a U.S. location, the company cited the quality of Ontario's work force.
...
But there are other reports, some coming from state officials, that confirm his basic point: Japanese auto companies opening plants in the Southern U.S. have been unfavorably surprised by the work force's poor level of training
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