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The End of Cheap Labor In China
hackingbear writes "In the past decade, real wages for manufacturing workers in China have grown nearly 12% per year. The hourly cost advantage, while still significant [comparing to the West], is shrinking rapidly. The changing economics of Made in China will benefit both the rich and poor world. Countries like Cambodia, Laos, India and Vietnam are picking up some of the cheapest labor manufacturing left by the Chinese. And there is already evidence of at least the beginning of a shift in manufacturing operations returning to the US. Perhaps we will soon stop picking at 'Made in China' but instead complaining 'Made in Vietnam/Cambodia,' while serving the flood of Chinese tourists stocking up on brand-name merchandises on US tours and Chinese students paying high tuitions to our cash-strapped universities."
It amazing to watch all of the people saying China is going to take over the world. It is like they have been asleep for the last 20 years. All centrally planned economies go broke including ours. China will be a basket case in the next 20 years.
I love Jesus, except for his foreign policy.
People move from subsistence farming to factory work, capital investment raises their marginal productivity, employers have to compete for workers, and wages rise. It's the same thing that happened in England and the United States in the late 1800s and early 1900s.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
Arbitrage is always temporary.
Ian Ameline
"The changing economics of Made in China will benefit both the rich and poor world."
It won't help the U.S! We keep demanding cheap goods, no matter how poorly made they are, and the only way to get that is to take advantage of poorer countries and manufacture overseas. Of course, that means there are no manufacturing jobs anywhere in the country, so in another few years, the only place in the U.S. where anyone will be able to shop or work will be Walmart.
On the one hand, you have the iPhone--built in China and it's an absolute miracle of modern technology. Have you SEEN one of those things on the inside? Rows and rows of tiny little dots on a board and I can't even guess what any of it does. I'm sure, given U.S. labor costs, it would cost a lot more than it currently does.
On the other hand, I don't know where to buy decent clothes. I bought a 12-pack of socks a couple weeks ago and three of them were mis-sewn. Every time my wife buys a 3-pack of underwear for the kid, she takes them out of the package, washes them, and 1 or 2 will come out of the washer--their first wash, having never been worn--with the waistline frayed.
I'm not saying that everything that is (or was) made in America is automatically great, but wouldn't it be great if people DID give a shit about the quality of what they made, and that the money would stay within our borders? But I think the opportunity to do good has passed. I saw Schmatta a few months ago and that, too, is depressing as hell. It's the story of New York's fabled garment district and it ends with some fun stats: 40 years ago, 95% of clothing sold in America was made here. Today, 5% is.
The only thing America has now is an entertainment industry and bullshit I.P. laws. Oh yeah, and prisons and wars. And a bailed-out, fucked-up auto industry that somehow managed to learn almost NOTHING after they started loosing their asses in the 80s. (They started to regain their composure a bit in the 90s but then they just started making SUVs.)
Maybe I've seen Jerry McGuire too many times but I really would be happy owning fewer things that held together better and I would be more than happy to pay more for that. My parents bought a microwave within a few years of when they first became common (early/mid-80s) and it has been replaced exactly once, and that replacement is still in use. Sure, new ones cost less than $100 at Walmart now, but I've bought 3 or 4 since buying my house in the late 90s. I don't care if it costs less overall to live like this--money isn't everything. The Great Pacific Garbage Patch should make anyone stop and think "hmm, maybe rampant consumerism isn't the way to go."
PS: we also, as a country, need to stop looking down on blue-collar work. Not everyone needs a college degree. We really need to have trade schools at the high school and college levels.
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Africa will more than likely be the next big development store. China is quickly running into the gambit of 'too expensive' even by other standards. Vietnam beh maybe, but I doubt it. Generally 'shifts' in manufacturing happen every 10-20 years(though the last time it happened before that it was the industrial revolution, and moving everything from europe to north america). Last time it was mexico and latin america. Then it was china and se-asia. But china in and of itself has a more serious issue with an artificially controlled currency tacked with seriously out of whack housing and commodity prices to the average person.
Om, nomnomnom...
Let's see China pull this off without constantly manipulating their currency to boost the manufacturing while keeping pollution half of what it is currently over those same 10 years. It's okay, because when inflation hits, the sh*t will hit the fan in China (look up the economic trilemma and see where China's weakness is... for the USA, we choose not to peg our currency to fix our trade gap).
I have never let my schooling interfere with my education.
People who oppose globalization should really think about this. In a couple of decades, the globalized economy has elevated a nation of a billion people from the bottom rung of world socioeconomic status to the solid middle ground. No question, the elevation of China has had some negative impacts on the economy of the developed world, but not so bad, really: the US economy has not collapsed during the process, and its manufacturing industry has been weakened but survives. No question, the process has had some negative impacts on Chinese workers, but nothing compared to the servitude, abuse, and death of the West's own industrial revolution. And finally, no question that political freedoms in China have not changed with the economic times, but I consider the *ability* to communicate a prerequisite to the *freedom* to speak, and the Chinese government may soon realize it has a tiger by the tail in that regard.
And consider on the other hand, the positives. A billion people are now able to live in comfortable housing, free of disease and pestilence, able to travel across the continent and participate in global dialogue. A good chunk of these billion people are now in a position to buy US-made products like World of Warcraft, Ford Explorers, and a million things made in China, but designed in the US by 3M, IBM, and Microsoft.
A rising tide may not lift all boats, and it surely doesn't lift all boats equally, but still, a billion boats is a damned good start.
Have you actually been there? (I just got back.) Shanghai is an interesting place, that's for sure. Wages for university educated and skilled people there are rising quickly. (You can't use unskilled farmers as programmers.) At the present rate of growth, they will match North American wages for equivalent work in about 4 to 5 years. Now I'm perfectly prepared to entertain arguments that the present rate of growth is unsustainable, so lay them on me... (And explain how they won't also depress wages here.)
Ian Ameline
With technological advances I would hope Chinese workers see some of the benefits from high tech production facilities combined with new infrastructure.
The US has a minimum wage well over $5/hr and for long hours manual labor it's about $10/hr for minimal skill work. In China it's now approaching what? $1/hr? Wow, a whole 14% increase in that per year? So in 15-20yrs their wages will compete with ours. I'm sure the petroleum costs just to ship products here has been a bigger burden to manufacturing companies.
People say they are taking over, yet I still haven't seen anything new from China, it's all designed in the US and Europe. Until we start importing high speed trains, I see China just as a jewel of cheap labor. Let's hope at some point they are developing high tech products for us and cheap manufacturing leaves, but I think it's going to be another 20 years before that happens.
'nuff said.
China will simply move the cheap manufacturing to Africa.
You don't think china's been buddying up with East African nations for nothing do you? They've had a military medial ship there for six months late last year spreading China's good will.
China is not dumb, not in the slightest, they've been preparing for the growth of their economy for at least a decade and manufacturing will not start to move for at least another decade, China intends to branch into the more advanced side of manufacturing such as aircraft and high tech. Much the same as Japan and Taiwan did, when I was a lad, "made in Taiwan" was not a symbol of quality, now days Taiwan makes some of the highest quality electronics in Asia (along with Korea and Japan) so why can't China do the same thing? Unlike the other poor Asian nations such as Thailand or the Philipines, China does not have a incompetent leadership mired in corruption.
So chances are, in 15 years we'll still be buying Huawei modems, except they will have "made in Tanzania" written on the side.
Calling someone a "hater" only means you can not rationally rebut their argument.
A once-proud nation with a free and well-functioning economy is reduced to a pathetic mess, with a small number of very wealthy individuals and a huge masses of the poor.
I was having trouble deciding whether to mod jcr up or reply to this braindeadedness.
Huge masses of poor? In the US? The only way you can come to that conclusion is if you don't even know what poor is. I don't need to show you, but this is poverty. In America, homeless people are fat, and the only reason they are homeless is because they have serious mental or emotional issues.
In America, we have 'poor' people, as measured by the poverty line, but the poor people have refrigerators. They frequently have cars. They definitely have shoes. I'm not saying that everything is perfect here, or that there aren't people who have money problems (the primary problem people will run into in that case is healthcare), but in America, we have it good. If you don't think so, you really need to get out of the country and see the world.
"First they came for the slanderers and i said nothing."
Once you get out of South Africa and Egypt there is no infrastructure for manufacturing in Africa. Even with 15-25 years of solid investment and construction, there won't be infrastructure for manufacturing in Africa outside of Egypt and South Africa.
China isn't investing in the Republic of South Africa or Egypt, they are investing in places they can strip bare of mineral wealth.
Outsourcing is like water: it flows downhill, and the landscape changes. China isn't the base of the hill any more.
This is why outsourcing is not a bad thing. It's the global economy attempting to equalize itself. Don't ban it, don't fight it, embrace it.
Wishful thinking much? Western economists have been predicting the death of China since the mid 90's. Everything from over heating to under heating, from over population to declining population have been bandied out as the potential causes. There is also blaming China for oil price spikes when it was American speculators who was manipulating the markets. If I am an American, I would not be rejoicing at this news. It means that China is maturing and moving up the tech tree. China also has an advantage that the US doesn't: an autocratic oligarchy, the best form of capitalist governance.
Oh, I see. So as long as there's *some* shithole in the world whose poor are worse off than ours, we shouldn't be concerned about it.
No, there is a baseline. If you have shelter, running water, easily access to transportation (bus or car), refrigeration and communications (like a TV and phone) then no matter how "poor" you may appear on a ledger somewhere, you are doing OK compared to much of the human population through history.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Move to Cambodia, or Vietnam, or Thailand or Laos and their economies will also grow and you'll see their currency appreciate in value as well, leading to the same issue. In the mean time you'll need to live with greatly reduced infrastructure and shipping capacity as compared to China.
And yes, I do a lot of work in Asia, and live half my life in Shanghai supporting manufacturing in China, Thailand, and Vietnam.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
Keep in mind, we aren't talking about the cream of manufacturing. That's what China wants to keep. We are talking fabrics. China makes the tread and cloth, then sends it to Africa for poor women to sew into t-shirts. All you need is a sewing machine, and semi-reliable power.
Once that starts, the infrastructure starts improving. Also, stable governments will get more support than smash-and-grab raiders, as there is actually something that's financially worth protecting.
China's interests in Africa are natural resource related. As other posters said already.
Secondly, Africa has a simple reason that it does not develop well economically: no political stability. Say what you want about the Chinese government, at least it's a fairly stable, safe and thus predictable environment to work in, and that's all businesses need. You do not need your own private army to protect your business, like you do in many African countries. There are no people walking around the streets with an AK47 over the shoulder.
Africa, as it stands, has no proper infrastructure, no stable government, corruption issues that are far worse than China's, and so on. It's just not an easy environment for businesses. And yes I know I'm generalising here, there are countries in Africa that have a working government.
Incidently, this morning I just read about problems for textile factories. There is talk about a cut in the VAT rebate they can get from 15% to 11% on exports (they have to pay 16% VAT - so effectively their VAT goes up from 1% to 5%). A large number of factories has indicated they would probably close, as they lose competitiveness. Wages go up, the Yuan goes up, raw material prices are high. And that wages go up is not as much a result of improved productivity, it's more a result of labour shortages. There are currently huge labour shortages in China, especially the coastal regions. And that's what's driving up wages most.
Furthermore they mentioned the next destination is probably not Africa, but, surprisingly, Europe. At this moment production costs in Romania are already lower than in China. Add to that the obvious advantages of sitting closer to your market, I wouldn't be surprised if very soon more European producers will set up shop there.
Other Asian countries indeed seem more likely candidates, but with few exceptions infrastructure is a major issue. Indonesia for example only has a few short stretches of highway around their capital, making transport slow. They also don't have any main ports, and are limited to feeders and shipping via other ports such as Singapore. Vietnam is in slightly better shape, Bangladesh is a total mess.
And about moving up the ladder: you're absolutely right. The government wants it, but it's going to take a long time. Other than heavily government supported industry (you mention airliners already, don't forget railways: the US is shopping in China for high-speed rail technology already) there is not much happening as yet. It is still Taiwan that's doing development, design and marketing, Hong Kong that's doing finance and logistics, and China that's doing manufacturing. Not much new coming out of China yet, they're still in the "copy" stage, and a lot of quality that comes out is poor at best. It's very much time they move on to the "copy-and-improve" stage but I haven't seen this really happening yet.
Target says to Wal Mart:
"The Lord says he can get me out of this mess, but he's pretty sure, you're fooked"
- Dan.
~ People that think they are better than anyone else for any reason are the cause of all the strife in the world.
It was less about cost of wages and more about investments... Multinationals want to parlay their Western profits into East Asia... the fact that the get to stick it to the "lazy union workers" is secondary to the wall street guys.
They have spent 30 years siphoning off the profits from "unions" to brand new shiny factories filled with college grads.. While demanding western workers work at 30year old factories with little capital improvements in the last 20 years... And take a pay cut too. I constantly hear from co-workers from India, China, Brazil how great the company is in their country... Some of the things they brag about were TAKEN AWAY 20 years ago, or even things American companies would NEVER do for "factory workers".
Of course the average life expectancy in these countries is just about 65, they are floating about 5-10% on retirement... Not like the western countries where there are more people on social security than in K-12 school now. In the 1980's and 90's the US let companies "eat their seeds" no amount of "paying cash" will compensate for the compound interest lost, with fewer employees to pay in due to outsourcing, the weight is crushing.
Living in the Midwest this is exactly what the "business government" is trying to do... Many states have budget problems but those don't really effect education and such because those used to be separate "hats". These are the same "successful" businessmen that outsourced for 20+ years now trying to raid the "mattrress money" and blame it on the employees. I think the current leaders in Govt think RoboCop was a manual not a satire of bad capitalism.
The main reason to move labor out of US and the other Western countries is not wages. It's not wages.
Wages are just a cherry on top of the proverbial cake. The main reason to move production and capital out of the West is because production and capitalism are punished in the West by the forces that are fighting free market capitalism with every breath they take.
Government intervention: income/payroll/capital taxes and business regulations are the main culprits, not wages.
Wages are only a matter of the market demand/supply ratio, and if the jobs were just moving towards the lower wage locations, then this would immediately precipitate to workers increasing the supply and wages would automatically lower, and the smaller amount of dollars in the hands of workers in local areas would push prices for housing down, as well as other prices for products/services in that area.
The prices must come down when there is an oversupply and lack of demand, this applies to labor just as well as to any good/service.
So wages are a tiny, really the least significant reason for moving production capacity out of US and the West. The main reason for this capital flight is the atmosphere that is created by the political system, which caters to the majority of the population - workers, and does this to the detriment of the minority - employers, but in the mobile world, the capital also become mobile, so punishing the employers in this case only causes them to be mobile and to move.
There are basically no private unions left. The reason for it is simple: unions eventually destroy the business. They drive wages up, but worse than that: they cause the business to have too many obligations, liabilities, that make the business uncompetitive. The above-average benefits, the above-average pensions, medical plans, etc. etc. (not vacation time, it's a misconception that vacation time is significant, as it is not the employer who pays for vacation time, it's the employee, who takes less cash home in exchange for more vacation.)
The unions act as a small version of a government, so now they are only left in government, where they are slowly and surely driving the entire government system out of business. In government there should be no unions in the first place, as the unions in government are negotiating with politicians for their benefits, not with employers - tax payers.
Of-course unions are only a small part of the problem, the main problem is the mob mentality, that the politicians are catering to, as they pass more and more legislation, more and more business related laws, which drive competition out of the system, create monopolies/oligopolies, push prices up, decrease quality, inflate the money supply to support the ever-increasing appetites of the monopolies/oligopolies and the mob to the 'free lunch'. So when you destroy the opportunities to do business, destroy ability to compete, destroy ability to save (inflation), destroy ability even to enjoy your business (all the regulations turn a businessman into part of government bureaucratic machine, soulless, joyless), you cause capital flight.
Capital flight is the reason that jobs disappear of-course. Capital is not printed cash, capital is ability to produce. Capital is ability to exchange with others for tools/materials/products they produce so that you can produce as well.
The government has destroyed ability of people to tend after themselves, to make their own living by producing, and instead it pushed people to become mindless consumers living on credit. Realize, that credit should not exist to provide people with ability to buy consumables.
The reason to have credit is to provide businesses with opportunity to invest into more production capacity, not to provide consumers with more money to spend on finished consumer goods. The reason for it must be obvious: credit must be paid back with interest.
Buying consumer goods does not generate interest and certainly it does not provide one with opportunity to p
You can't handle the truth.
I usually find myself on the other side of the debate on slashdot when "yellow-peril" fear/hate mongering gets out of hand. However, in this case, I feel the need to balance the other end of the wheel. All those things you cite *are* indeed unique experiences in Chinese history. But I think it would be insincere to conclude that Africa is lacking in the same type of experiences in the span of it's more recent history.
Remember that a great deal of the Cold War fought by proxy between east and west went down in many parts of post-colonial Africa. Many of these local conflicts were heavily sustained by the same ideology that produced the Great Leap Forward, etc. Command-style leadership is nothing new to most regions of Africa.
On the other hand, a large number of the more stable nation-states in Africa eventually wised up to the need for independence from both sides of the Cold War. As marginally effective as it actually turned out to be, the Non-Aligned movement emerged as an attempt to balance all aspects of the different operating philosophies between east and west, forging a path that does not capitulate either side. It is reasonable to draw a parallel between this and the blending of socialism/capitalism exemplified by "Socialism with Chinese characteristics". With that said, Africa is almost unanimously represented in the organization. For one example of how eastern and western resources have been integrated, many African military have equipment and weapon systems from both east and west working side by side. A cynic may point to the fungibility of cold hard cash when exchanged for good from either side. However, I think one needs to appreciate the subtleties of good business and acknowledge that Africa already knows how to play in the camps of different parties that have different rules.
Economic reform is perhaps the best/strongest argument you have made here. But I would like to point out that in this area, China isn't *that* much further ahead than the rest of the pack is many critical areas. Corruption and lack of industrial regulatory oversight is still something that China has a *lot* of room for improvement. At present, the difference in the size of the economy is the most important factor here.
The way I see it, the major difference and the fundamental root of the issue is that compared to China, Africa is so much more culturally/ethnically fractured. On this point, I sometimes surprise many of my liberal friends when I tell them I cut Bush a lot of slack for calling Africa a nation. In order to emerge as a world power, it truly needs to become and function like a unified nation in the same way China did post-colonialism. Unified by the shared history and culture of the Han ethnic group, the Chinese people did finally emerge as a nation of consequence after the collapse of the Ching imperial dynasty. But this was a painful and costly process that occurred over two world wars and a drawn out civil war that cost millions of lives. And despite the unifying effect of a common identity, I don't think many foreigners actually appreciate the linguistic distance between speakers of different dialects. Without the benefit of the common tongue Mandarin, I might as well be a medieval Spaniard outside my birthplace of Nan Chang.
So there you have it: I think the one critical thing that Africa doesn't have going for it is a more compelling sense of "Pan-Africanism". Unless all the people of the continent are willing to back a common course for the future, none of the existing infrastructure achievements such as numerous hydro-electric dams, irrigation projects, etc. can be utilized to the fullest extent of their capacity.
Stay sentient. Don't drink bad milk.
By this logic almost any bad situation can be justified simply by pointing to someone who has it worse. As a society we should aim higher. try to achieve prosperity for all. Beyond the moral reasons it makes people less likely to steal your stuff or mug you if they feel there is some fairness and they have a genuine prospect of earning a living wage.
You should not write the poor off as having mental illness either. The poverty trap is very real and good people can get stuck in it. It is also no coincidence that the children of poor people tend to be poor too. Yeah, if you get lucky you can break away. Yeah, sometimes poor people bring it on themselves. But I still think most people in that situation are willing to work hard to get out of it, life isn't that simple.
const int one = 65536; (Silvermoon, Texture.cs)
SJW, n: "Someone I don't like, and by the way I'm a fuckwit" - AC
China will rule the world - make no mistake, this will happen a lot sooner than you think. But, the industrial cycle of gimme cheap, cheap, cheap is driven by mostly US values which praise Walmart above all and export US/European/Australian jobs offshore so that a few corporate powerful bastards can get rich at the expense of the mass of gullible ignorant bastards. You reap what you sow... US citizens never understand that pollution in China is attributable to US companies operating there.... that slave labor wages in Chinese factories are pretty well dictated by US corporate need - and that - when it all goes belly up, The US and other western countries can either choose to support their countrymen and pay what things really cost (while re-importing jobs) OR - pay the next lot of powerful bastards who will move their operations to some other peasant oriented society for another generation of sweat shop exploitation... The cycle is historically clear - your sweatshop subjects are going to kick your ass in about 20 years from now... but the powerful bastards don't care - they are already on their yachts....
The problem with this equation is that Chinese people are still not for the most part affluent enough to be able to move into a consumer based society - they need to work just to keep a roof over their heads. If the Chinese government starts sending their jobs abroad, civil unrest will follow immediately afterwards.
Also, what's to stop western companies just bypassing China and doing the same thing wherever China goes?
Actually, many in the US are homeless not because of mental health issues, but because of the justice system, and then leads to mental health issues.
Go to jail, do not ever find a real job again unless you are staggeringly unlucky. What else have you got other than going back to jail or living on the street?
I used to work with an organization that trained homeless in useful work skills and tried to find them jobs and get them on their feet. Overwhelmingly these were men, overwhelmingly they had followed a trajectory similar to "had a good job, went to jail (almost always for drug offenses, and almost always for ridiculously small quantities), got out and nobody would hire them because of their record"
Not to say that your larger point is not dead on - we have SOME poor people in this country, but the vast majority considered poor by our standards are quite well off compared to real poverty.
Since I can't tell them apart, I treat all ACs as the same person.
1. China is a centrally-planned economy with highly manipulated currency.
2. The US economy stayed solid between 2001 and 2008 because of federal deficit spending not the work of the US private sector.
3. The private debt in the US jumped dramatically in the last decade or so to compensate for stagnating and declining wages.
4. China is substantially more repressive than the West was during its period of rapid industrialization. Extrajudicial punishment and execution are far more common in modern China than they have been in the West since the end of the feudal era.
To put it succinctly, the US is living in denial on credit and China is nothing more than a highly efficient banana republic.
We vote with our dollars folks believe it or not.