From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Tue Aug 14 2007 - 14:59:09 EDT
Goldman Sachs published an interesting paper in 2006 by Hong Liang, on investment and profitability in the People's Republic of China. http://www2.goldmansachs.com/hkchina/insight/research/pdf/Global%20Econ%20Paper%20No%20146.pdf Among other things, it says (p. 18, top): "Why are investment returns so high in China? In a classic development model by [William Arthur] Lewis (1954), where there are numerous surplus labourers in the agricultural sector waiting to be absorbed in the industrial sector, the faster the capital accumulates, the more rapid the growth is, and the more the income distribution tips towards profits [Lewis, W.A., 1954, "Economic development with unlimited supplies of labour", Manchester School, Vol. 22, pp. 139-191. http://www.unc.edu/~wwolford/Geography160/368lewistable.pdf]. This model still appears to be a reasonable approximation to China to date, since large migration of surplus rural labor to more productive sectors is far from complete. Therefore, theoretically, capital should enjoy a higher rate of return in China compared with economies with higher capital-to-labor ratios [i.e. a higher organic composition of capital]. Furthermore, the integration of Chinese labor in the global production chain has arguably been accelerated by China's entry into the WTO, and thereby contributed to a higher rate of return on capital and higher income distribution towards capital globally. Similarly, deepening integration of Indian laborers in the global economy may carry this process further for years to come. From China's perspective, the significant improvements in reported corporate earnings in the last fews years are also fundamentally a reflection of significant productivity gains in the overall economy, accompanied by an impressive rise in the non-state owned companies, as well as a substantial restructuring of existing SOE's". But the first argument could also be turned around - what prevents workers, given a high demand for urban labour, including semi-skilled and skilled labour, from levering up wages, through collective bargaining? The answer to that seems to be, that the ability for Chinese workers to engage in collective bargaining for the purpose of raising wages is still very restricted. Indeed, Shanghai Daily reported recently that a migrant worker was beaten to death, while on strike for unpaid wages at a building site in South China's Guangdong Province, and hundreds of other workers striking to get delayed salaries were bashed by thugs hired by the building owner. http://www.shanghaidaily.com/sp/article/2007/200707/20070702/article_321782.htm An exceptional case maybe, but much about the coercion of Chinese workers gets unreported. On International Labour Day this year, more than 400 crane operators and truck drivers at the Chiwan Container Terminal in the boomtown of Shenzhen stopped working, and staged a sit-in outside the container terminal's headquarters. They were unhappy about wages, and accused management of failing to pay them overtime as required by law. One worker said "Many of us have sacrificed our health and spare time to work for the company. We only have one or two days of rest each month. The company should treat us better." Dockers earn about 4,000 yuan (US$519) on average per month, Hong Kong's South China Morning Post reported. The wage is considered high, as government statistics showed the national average monthly urban wage last year was 980 yuan (US$127). http://www.taipeitimes.com/News/world/archives/2007/05/03/2003359263 "According to estimates in the 2002 version of the World Bank's World Development Report, which is most often quoted when discussing PPP, prices in China are only 21 percent of those in the U.S. when converted using the current exchange rate of 8.28 yuan to the dollar, and to equalize the price levels between China and the United States, the yuan must appreciate to 1.74 to the dollar (8.28 x 0.21). In other words, if prices in the U.S. are the standard, PPP holds when the yuan is at 1.74 to the dollar - 4.7 times the actual exchange rate." http://www.rieti.go.jp/en/china/03032001.html So then the purchasing power of a Chinese docker's monthly wage at the actual exchange rate of US$519 would appear to be more like US$2,469 a month at PPP, or $29,638 a year. In reality, that is not so far off from the corresponding US wage. According to US BLS data, the median annual earnings of US crane and tower operators in 2004 were $37,410 (gross) and US industrial truck and tractor operators earn about $26,580 http://data.bls.gov/oep/servlet/oep.noeted.servlet.ActionServlet?Action=empoccp58 In a broader perspective, Andrew Glyn comments: "despite the doubling of the ratio of per capita GDP compared to the USA over the past 20 years, China is still far behind the USA as Korea and Taiwan were before their three decades of rapid catch-up beginning in the late 1960s; it is still well below the position from which Japan started its spectacular growth climb in the mid-1950s. (...) The current and prospective development of China... accounts for all the reduction in the inequality of the distribution of income on a world scale. (...) Despite major increases in inequality within China, the improved living standards of millions of poor Chinese have been more important in reducing income differences on a world scale" (Capitalism Unleashed, OUP 2006, p. 88-89). "Access to this cheap labour could encourage a much higher level of direct investment from the North, in effect an investment drain away from the rich countries. In effect the capital-labour ratio would decline on a world scale, by one-third or more according to one estimate, as the vast reserves of labour in those countries become inserted into the world economy. The result could be a major fall in the share of wages in the rich countries as workers find their bargaining position weakened." (ibid., p. 154). However, the absolute level of wages is less important than unit labour costs and labour productivity (higher, in high-wage countries), and enterprises are unlikely to relocate overseas, if thereby they lose specialised suppliers and welltrained staff at close proximity, while incurring higher logistical costs. Quantitatively, the "threat" of China to Western wages is most probably vastly exaggerated - the real threat to wage-levels is to be found within the West itself, i.e. the reduced ability to engage in collective wage-bargaining and the erosion of workers' rights. Jurriaan
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