How China is tearing up the rules on globalisation and wages


11:20 am - February 17th 2011

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contribution by Owen Tudor

Yesterday’s FT contained a fascinating article reporting that China’s wage rates have increased in real terms by over 10% a year in the last decade (ie they have more than doubled since 2000), but that productivity has risen commensurately.

There are huge lessons here for trade unions addressing what has been one of the most persistent agenda items for the International TUC: the impact of China on everyone else’s living standards.

First, the data undermines some of the glib generalisations of both the anti-globalisation left and the pro-free market capitalists.

The fact that China has by and large not lost businesses as its wage costs have soared past other Asian economies (except, instructively, in low price, low margin, labour intensive industries like mass textiles and shoes) demonstrates that capital does not simply race to wherever living standards are lowest.

As the Germans demonstrate most clearly, capital goes where labour is most productive – and that doesn’t automatically mean cheap. China has kept and grown its high value, high margin ICT business, and companies with significant investment in infrastructure (often externalised in industrialised economies and the new China) will be reluctant to leave.

Second, the story told does not fit the easy narrative that Chinese workers are voiceless, powerless automata. The TUC has engaged with the official All-China Federation of Trade Unions for some time (not without criticisms from union movements who give greater priority to either anti-communism or human rights).

And our experience is that change is happening from below and within – not what is supposed to happen in communist monoliths. Experiments in collective bargaining are tentative, and not quite what we would expect.

But Kevin Brown’s FT article contains a telling sentence:

Chinese officials are seeking to head off a repeat of last year’s labour unrest amid fears that persistent and rising inflation could provide a further irritant in wage discussions.

Although the unrest is nothing new, the idea of “wage discussions” certainly is.


Owen Tudor is head of the TUC’s European Union and International Relations Department.

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Reader comments


1. So Much For Subtlety

“Second, the story told does not fit the easy narrative that Chinese workers are voiceless, powerless automata. The TUC has engaged with the official All-China Federation of Trade Unions for some time (not without criticisms from union movements who give greater priority to either anti-communism or human rights).”

So the TUC wastes its time talking to the toothless, useless Communist Party puppet Unions? Amazing. They may as well talk to tame unions owned by the bosses. The fact is Chinese workers are voiceless and powerless. Anyone who tries to form an alternative non-Communist Union is jailed. I notice the TUC is doing nothing for independent Trade Unionists. Instead they are giving prestige and face to the PR front of a repressive mass murdering totalitarian dictatorship.

The TUC would have spent its time better if it defended Apartheid South Africa.

This is entirely consistent with what free market liberals have been saying for some time: http://timworstall.com/2010/08/19/ive-said-this-before/

The tendency is not for wages to race to the bottom, but for lower real wages to rise during globalisation. Of course, Chinese workers could have an even better deal if you didn’t have to be politically connected to start a business. Still, it is an improvement.

“The tendency is not for wages to race to the bottom,”

Quite, we find this even in Marx. As long as there are capitalists competing for the profits they can make from the workers labour then wages will rise as productivity does.

It’s only when we have monopoly buyers (monopsonists) of labour that we don’t: which is of course why Marx warned against monopoly capitalism.

Trades unions have sweet FA to do with it: as of course the Chinese experience shows.

Try explaining that to all the American workers who have lost their jobs over the last decade as their jobs have gone east. The middle, and working class are falling backward in the US. The rich have got much better off, but the rest not so much.

China’s increase in wages is from a very ,very low base. And is still lower than what it was in the West. America is now competing against the Chinese thanks to its new idea of bringing back slavery. It now forces prison workers to produce increasing amounts of product at a fraction of the cost that “free workers” would be paid.

What a great advert for free market capitalism. China, a military dictatorship, and the prison population of America. Way to go capitalism.

It’s probably worth pointing out here that many of the wage rises over the past few years have come from local authorities mandating rises in the minimum wage, at an average of around 20% year on year, rather than from employers competing for labour. Government policy over last year’s strike wave – when it encouraged employers to meet at least some worker demands – also sent a signal that the state was not prepared to act as an enforcer for employers, as it had been in the past.

The government minimum wage policy is also partly designed to push employers who can’t or won’t pay out to western China where the arrival of displaced enterprises from the Eastern seaboard actually causes a rise in local wage levels, so you get an across the board improvement.

@sally:

So, richer people (i.e. Americans) are paying to improve the living standards of people worse off than themselves (i.e. Chinese labourers).

I’m confused.

Isn’t this what socialists want?

” How China is tearing up the rules on globalisation and wages ”

They are not tearing up the rules, they are following the pattern of all catch-up growth to the letter.

A large developing capitalist economy starts with a huge section of the population working in agriculture and a relatively small industrial sector. Lots of your population working in inefficient subsistence farming will always mean the country is relatively poor vis-a-vis industrial societies. We used to be poor when we had 80% of the population working on farms. Now we are rich with 1.5% doing it and producing more.

Adding capital to the small industrial sector generates outsize returns because inefficient processes can be made efficient by investing the capital in machinery etc and there is a huge pool of cheap labour that can be attracted from the agricultural sector. The workers move from agriculture to the industrial sector because the wages are higher. At this point Western liberals tut and call them exploited for getting higher wages than they enjoyed subsistence farming. The high productivity that the firms enjoy from labour and capital produces high GDP growth. However, workers can’t bid up their wages because of the huge army of workers who are still in agriculture. ‘ You want a pay rise? There are plenty of workers who would jump at the chance of your job.’ So firms can compete selling the products at a low cost and the outsize profits from the high productivity growth go to capital as labour are in a weak bargaining position.

Until one day the seemingly endless stream of labour from agriculture begins to exhaust. There may still be millions in agriculture but pretty much everyone who wanted to move has moved. The economy has now reached the Lewisian Turning Point.
http://en.wikipedia.org/wiki/Arthur_Lewis_%28economist%29

Labour bargaining power now begins to rise as firms are forced to compete with each other for scarcer labour. Wages begin to rise and the proportion of national income that goes to capital falls and labour gains. Now if firms want to retain their high profitability they need to be more creative to generate productivity growth. The easy profitability from capital and cheap labour is eroding. Moreover, the expanding industrial sector even when they could hold down wages will have seen a growing service sector as workers spend their wages. However, when bigger returns go to labour services grow even faster in response to workers higher incomes. This results in more competition for labour between expanding services and the industrial sector. I struggle to see how this refutes free-markets as it is entirely what one would expect.

They might not be a popular country for lefties but check out Chile over the same period.
http://yglesias.thinkprogress.org/2011/02/egypt-fact-of-the-day/

yes, as Richard W says, “Wages in China behaving exactly as expected” might have been a more apt headline.

on the subject of China “losing business” as wages rise – clearly established factories with established supplier relationships might lose some business if costs hence price rise, but we’d expect that to be quite small given fixed costs of switching suppliers and tremendous trade infrastructure China has built, giving it the edge over potential competitors. This is a dynamic process that happens quite slowly – the thing to watch is whether fresh investment switches out of China. Of course China is big an investment can switch to low-wage regions for a while:

http://www.chinadaily.com.cn/bizchina/2010-07/06/content_10069557.htm

(isn’t it funny how when investment moves to low wage countries that’s called a “race to the bottom”, but when governments set up regional development agencies to direct investment at high unemployment low wage regions that’s called progressive industrial policy)

Despite the promises, things aren’t improving at Foxconn. No sign of wage increases and cuts in hours actually materialising but they have installed anti suicide nets on the dormitory blocks

So Adam Bell does away with the nation state in one click.

Be sure to tell the tory flag wavers.


Reactions: Twitter, blogs
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    China's wages are up 10%/year in real terms over the last decade. Workers slowly getting more rights too. http://bit.ly/fZ6Grh

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    Yesterday’s FT… http://bit.ly/gD6Mc1

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