Good News for Globalized Workers

The era of cheap Chinese labor is ending.

At least since the days of Ronald Reagan, American workers have been worried about their factories and jobs being exported overseas.  Back then it was Japanese car companies that would put us all on welfare.  As companies realized that Japan was not exactly a cheap place to do business, Ross Perot's "giant sucking sound" warned of jobs being exported to Mexico instead.  Today, of course, it's China and India that do all our work.

Has cheap labor all across the world destroyed American jobs?  Of course; as far back as the 60s, textile manufacturing was driven offshore to places like Pakistan, destroying factory towns in the South.  Yet today, the Southern U.S. is more economically vibrant than it was back then.

Your humble correspondent once was involved in the IT industry, but that field is not quite the same automatic conveyor to upper-middle-class status that it was in days gone by thanks to thousands of Indian and now Chinese code-factories.

Certainly there used to be a lot of toys manufactured in America; now you'd search hard and long to find any American mass-production of playthings.  It's all "Made in China."

Offshoring work is not entirely without advantages; it makes buying everything cheaper for those who still have paying jobs.  The famous "Wal-Mart Effect" is credited with having kept down inflation by at least 1% per year for decades.

Moving On Up

Less often credited, though, is what's been happening to the Third World economies where our factories moved to.  For all the lefty fulminating against sweatshops, we've previously written about how good sweatshops are for the poor.  Starving peasants dream of a job in a sweatshop because it's better than the life they would lead otherwise.

Tedious jobs sewing Barbie's dresses is having precisely the same effect in China that tedious jobs digging British coal in 1830 or toiling in the Amoskeag textile mills in 1880 did: It made the whole society richer and the workers became more demanding.

The Economist reports:

[Chinese] manufacturing workers toil for a small fraction of the cost of their American or German competitors. At the bottom of the heap, a "floating population" of about 130m migrants work in China's boomtowns, taking home 1,348 yuan a month on average last year. That is a mere $197, little more than one-twentieth of the average monthly wage in America. But it is 17% more than the year before[emphasis added]

We often hear about the limitless hordes of Chinese that will drive world wages down to subsistence level.  Not so: Chinese companies in China are already having such a hard time finding qualified workers that they had to raise wages 17% in one year!  When was the last time anyone's wages went up 17% in the U.S., other than as a result of public-sector-unionism and political corruption?

American wages are holding steady or declining.  As the article says, Chinese wages are 1/20 of American ones, but the magic of compound increase is truly astonishing.  If the 17% increase holds steady, as the Economist seems to imply is not unreasonable, wages will double in a mere four years to 1/10 of American ones.  Then double again in another four, to 1/5.  Then in another four, to a bit less than half.

Put this in perspective: today, parts of Europe earn less than that, and we don't worry that our economy will be destroyed by jobs going there!

Why not?  Because Europeans buy our goods just like we buy theirs.  For every BMW or Mercedes some American yuppie shells out for, there's a European family driving an Opel (owned by GM) or Ford Mondeo.

Our trade deficit with China is a problem because most Chinese are too poor to buy anything we make.  Analysts who worry about China are making the mistake of assuming things will always stay the same - hungry Chinese peons slaving away for pennies making everything we want.  Perhaps they have not heard of Phelps Adams' observation:

Capitalism and communism stand at opposite poles. Their essential difference is this: The communist, seeing the rich man and his fine home, says: 'No man should have so much.' The capitalist, seeing the same thing, says: 'All men should have as much.'

Communist China now has more capitalists than it does Communists, every last one of whom wants to have everything the rich world has, and a whole lot of them are well on the road.  China as slave-labor workshop to the world is dying; in its place comes China as first-world trading partner, both buying and selling.

The bottom line?  Before the end of President Palin's second term, we will no longer be concerned with massive movement of jobs offshore to China's low-wage factories - because like Japan, Korea, Singapore, Hong Kong, and Taiwan before them, they won't be low wage anymore, and they'll be buying our stuff just as we buy theirs.

Instead we'll have something else to complain about; we'll let you know what that is as soon as we figure it out.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
Reader Comments
"Before the end of President Palin's second term..." Reading tea leaves or making an endorsement?
August 18, 2010 9:16 AM
Love your synonym for 10 years lol...
August 18, 2010 10:21 AM
Just a shameless bid for comments. And look, it worked! :-)

Seriously, I think we're a little far out from 2012 for either tea leaves or endorsements. In 2006, who had heard of BHO?
August 18, 2010 2:18 PM
It's the law of comparative advantage, and history has proven it's positive economic effects over and over: New York trading with Mississippi never made either state poorer, neither did trade between the US and Japan, and on and on and on. The only things that make free-trading individuals poorer are laziness and out-of-control governments plundering their profits and restricting their trade.
August 19, 2010 10:49 AM
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