China’s Cheap labor: It’s part of the solution to our 65 trillion dollar debt

So…what’s with cheap labor in China? Take Shenzhen SEZ, Special Economics Zone. Minimum wage here is 4.66 yuan/ hour or $ 0.60/hour.

A SEZ is an area often designed to attract foreign investment. And so it has in Shenzen SEZ. For an overview of some of the working conditions, see here.

Often, living quarters are deducted from pay. For example, in the article linked above, workers at Foxconn, worked 60 hours a week and receive $32, for which they get a bunk bed in a dorm that they share with 19 other workers. By my reckoning, they are paying $4/week for the bunk. Foxconn, by the way, churns out Ipods for Apple.

Now, those who defend this side of globalization often tell us how wonderful these people must feel to be making 60 cents an hour, working 60 hours a week, with 2 ten minute coffee breaks each day. Oh, and those two breaks are the only time in which they are allowed to talk to one another? And those dorms must be a stupendous improvement over rural living conditions.

As we all know, or should now, China’s lone labor union is government run. And China is not particularly known for protecting its masses. Now that money is at stake, it will be less and less so. And I have not even begun to list the kinds of labor abuses the communist, Chinese regime tolerates. Overtime pay? Working conditions?

Next time you buy an Ipod, ask if it is true that labor costs were .60/hour.

I was going to write an article about a Fed report Is the U.S. Bankrupt? Bankrupt it may be and most probably is, but morally bankrupt are its corporations and leaders and globalization policy.

In defense of my wild-eyed scream of protest, I tender the following from the Fed report:

What’s more, the major outflow of the developed world’s capital to China predicted in the short run by our model does not come at the cost of lower wages in the developed world. The reason is that the knowledge that their future wages will be higher (thanks to China’s future capital accumulation) leads our model’s workers to cut back on their current labor supply. So the short-run outflow of capital to China is met with a commensurate short-run reduction in developed-world labor supply…
Doing so could well show that trade with China, at least in the short run, explains much of the relative decline in the wages of low-skilled workers in the developed world. Hence, we don’t mean to suggest here that all United States, European Union, and Japanese workers are being helped by trade with China, but rather that trade with China is, on average, raising the wages of developed-world workers and will continue to do so.

[Embolding mine]

Sooo….the outflow of capital from Western companies to China, FDI, does not come at no cost. Remember how delighted economists and capital was over China’s entry into the WTO? Ahhh….free trade. The writer knows there is a hitch. Watch how he handles it. Read carefully his last sentence.

When I read that last sentence, I found it confusing at first. “Is on average?” “Will?” Funny shift going on there, hiding the real problem. Whose wages are being raised or will be raised? And how? Do we have to wait for China’s sole labor union to pump for higher wages and better working conditions? You mean to tell me, that our entire economic future is contingent on one governmental labor union?

To tell you the truth, the Chinese government will stay only one step ahead of the riots. Any changes to working conditions or minimum wage will come only when real unrest occurs. Anyone who thinks differently…you fill in the blanks. And I remind you: Shenzhen SEZ, is not some out of the way spot with no government eyes watching.

I want to return a minute to that Fed report. Below are the solutions to our 65 trillion dollar debt that this report recommends:.

  • Eliminate social security “at the margin by paying in the future only those retirement benefits that were accrued at the time of the reform.”
  • Institute a medical voucher system for all citizens, based on their age and health. Those vouchers could be used to purchase health insurance for the following year. (Keep the insurance companies. Chuckle.)
  • Institute a 33% sales tax, replacing corporate taxes, personal income taxes, estate and gift taxes. Use a rebate for the poor so that in effect they would have no sales tax. Ok…when do they get the rebate? After or before they starve? Or do we give them poverty cards
  • Continue to tap Chinese productivity.

Yes, you read that last bullet correctly: China’s productivity is our savior; it is part of the plan to deliver us from our 65 trillion dollar debt. Is the writer of this report asking us to continue investing in China, moving our factories and skills there for the sake of productivity? Shall we move everything, including our research labs? If you ask me, continued investment in China is part of the reason for our 65 trillion dollar debt. Cheap labor has its costs, here and now, as well as in China.

Less someone accuse me of misrepresenting the Fed report, let me provide some of the ways that the report says China can help us:

  • Chna can serve as America’s saver and, consequently, savior, provided the U.S. government lets growth outpace its spending and provided China is permitted to invest massive sums in our country. [I.e., Unocal. Maybe they would like a thruway?]
  • If successive Chinese cohorts continue to save like current cohorts, if the Chinese government can restrain growth in expenditures, and if Chinese technology and education levels ultimately catch up with those of the West and Japan, the model looks much brighter in the long run. China eventually becomes the world’s saver and, thereby, the developed world’s savior with respect to its long-run supply of capital and long-run general equilibrium prospects. And, rather than seeing the real wage per unit of human capital fall, the West and Japan see it rise by one-fifth by 2030 and by three-fifths by 2100. These wage increases are over and above those associated with technical progress, which we model as increasing the human capital endowments of successive cohorts.

So many “if’s.” By 2030, wages will rise one-fifth? Three-fifths by 2100? Inflation adjusted? What I want to know is: In China, have wages increased as a share of GDP?

If you ask me: America is broken…and with it all the globalization models. We sold our trade policy to the WTO and to corporations, whose profits, by the way, take down an increasingly larger share of our GDP. Labor arbitrage is the name of the game that is being played…and played with Fed approval. America will pay a price for this arbitrage; already is paying a price for it. And I have not even mentioned the tax and environmental arbitrage that China offers.

Next time you buy an Ipod, ask that question: Is it true that sweatshop labor made this thing? Enjoy.