Competing with China

In his State of the Union Address, President Obama briefly mentioned America’s struggle to compete with China. He claimed that American workers were “the most productive in the world” and that, on a level playing field, America would always win.  

He said he was establishing a task force to uncover the ways in which China was trading unfairly. But the playing field is not level, American workers are not, in fact, the most productive workers in the world and we already know how China is playing unfairly.

What we really need is a plan to address the problems we already know exist. In this New York Times article, writers Charles Duhigg and Keith Bradsher leave their readers asking the question I wish the president had addressed. That is “How can the United States compete in trade with nations who have less restrictive labor laws and little concern for human rights?”

Currently, it is cheaper for companies like Apple to outsource jobs to places like China. It isn’t hard to see why. Chinese companies do not have the same labor laws as we do and they do not place the same value on human rights. So companies can demand longer hours from overseas workers, without offering greater compensation. Or, as Duhigg and Bradsher put it:

Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Ok. But where does that flexibility and diligence come from? Conditions like these:

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

Well, maybe that’s not so bad. Maybe American workers are too pampered. Maybe cutting down on breaks would be good for productivity. It’s not like anyone’s really getting hurt.  Except that they are. Consider this event, covered in a follow up article, once again, by the New York Times:

When workers in the cafeteria ran outside, they saw black smoke pouring from shattered windows. It came from the area where employees polished thousands of iPad cases a day.

Two people were killed immediately, and over a dozen others hurt. As the injured were rushed into ambulances, one in particular stood out. His features had been smeared by the blast, scrubbed by heat and violence until a mat of red and black had replaced his mouth and nose.

This is horrifying. But, as one Apple executive in the Times story puts it “The speed and flexibility is breathtaking. There’s no American plant that can match that.” He is right. If American companies treat their employees well, they probably cannot compete with Chinese factories in terms of speed and flexibility.

So if Americans want to bring jobs back to America, they face a difficult choice. We can either or do away with our current labor laws and allow American companies to treat their workers poorly or we can start restricting trade and penalizing companies who choose to bring their manufacturing operations to China.

From where I sit, the first option is unthinkable.  But the second comes with its own negative consequences. It would probably mean that consumers would have to pay significantly more for items they are used to buying relatively cheaply.  That might mean less consumption and less spending when the economy is already suffering. Production of many items would become slower. Many businesses that operate overseas might end up having to close their doors.  And if Americans take back their manufacturing jobs; workers in China would lose their sources of income. I am probably overlooking a number of factors here, but this, I think, is the problem that really needs a solution.

Comments

[caheidelberger]

Drying up Chinese workers' income sources would be the surest route to internal revolution and overthrow of the current "Communist" regime, would it not? Shall we risk social upheaval in a nation of over a billion people with nuclear weapons at their disposal? (I'm game!)

[larry kurtz]

Ms. Flint: Statehood for the tribes, Mexico, Quebec, Cuba and Puerto Rico would cause the Chinese to wake up and smell the Tsingtao.

[Donald Pay]

I think you've set up a false choice. In fact China updated its labor laws in 2008, and, more importantly, is starting to implement them. This is one reason we're seeing some American corporations bring some jobs back home.

http://www.thedailybeast.com/newsweek/2008/02/13/chinese-union.html

American labor law has been one of the major facets of American exceptionalism, and one that help build the middle class. It's one of the ideas that help bring down the Eastern bloc and it's one that many countries, not only China, would like to emulate. I'm not sure why conservatives reject the the idea that we should export our progressive labor law that made the middle class possible.

[Miranda]

Cory: That's a good and fair point. In your view, then, the solution is to leave the situation as it is?

Mr. Kurtz: I knew I was overlooking something!

Donald Pay: Thanks for the link. I am glad to see that China is making some progress, but the are still nothing like America's. Note that your article is from 2008. The articles I link to are from this year. I am not making a case against labor laws. Above, I say doing away with them is "unthinkable." However, I do think American companies who employ US based workers will have a hard time competing against those with less restrictive laws. If you disagree, I am eager to hear your reasoning.

[citizen2000]

Multi-national companies are no longer good citizens of their communities because they are now stateless. It used to be that a company was a member of the community and you could identify a company as an American company or a German company, etc but now they are looking for the cheapest labor, the least restrictive environmental regulations, no unions, or whatever local situation they can exploit.

The problem is that we don't want the kind of America it takes to compete on that stage. The only way to beat that system is with innovation and a great education system but American universities are giving that away too. We need to protect our innovations and the industries they produce or our best export will be the misery we inflict on workers in China and the rest of the developing world. Read more at www.china-threat.com

[D.E. Bishop]

I think there is an option being overlooked. Steve Jobs or Bill Gates might have been worth a few $billion less at their death/retirement if they had been willing to pay their American employees an American wage, rather than outsourcing to China. Their companies might have been worth a few hundred billion less if they had been willing to accept a somewhat smaller profit. A few hundred billion goes a long way when it's a relatively small amount for each worker.

Those amounts of money ought to be embarrassing, when the CEOs claim that they can't afford to keep the work in the USA. Corporations can be good citizens, if they are willing to. Perhaps a new, and real pride in, and love for America is in order. It's pretty clear when a business leader claims to love America, but then undercuts America's economy on a daily basis, that he is lying.

[Mark Anderson]

I believe that we need to look at this differently. I've been told many time that if China would just adopt capitalism, their people would start to become more free. Well, that's not what happened. If capitalism and freedom are not synonymous, then what?

[Ken Blanchard]

Miranda: Great post! I will add some reflections. In order to generate wealth, one must invest something. The only thing that the poor in this world have ever had to invest is cheap labor. The sweatshops of the early British textile industry were terrible by modern standards. They would look to us like the pits of Tartarus. But they were better, especially for women, than the conditions from which the workers fled. The mills were the means by which the British poor rose to middle class status.

As they rose, their labor became more expensive. The textile industry moved to America, and from the north to the south, and then on to other places, always chasing cheap labor. The reason it kept moving is because everywhere it established itself it always raised the condition of the workers and thus made their labor more expensive. That is the greatest engine of social progress the world has ever seen.

China, India, and Southeast Asia are developing by the same means. To really interfere with trade in the name of worker’s rights would be a disaster for most of the world’s workers.

That said, there is no doubt that conditions in Chinese factories are especially grim. Chinese workers are ruthlessly exploited and frequently poisoned. This has a lot to do with the fact that the Chinese system is hideously corrupt and undemocratic. As workers improve their economic status they do not, as they did in the West, acquire political power to protect themselves. For this reason, I very much doubt that China’s labor laws, updated or otherwise, will make much of a difference as Donald seems to think.

Mark Anderson raises a very good question. If China is succeeding in establishing a market economy without democracy, does that mean there is no connection between the two? I remain hopeful. Without eventual democratization, Chinese workers will never escape ruthless exploitation. There is some reason to believe that when the workers are empowered in some way that the state comes to depend on their cooperation, the state will have to give them political power as well. Democracy came to ancient Athens because the Athenian state needed lots of poor men with strong arms to row their war ships. Let us hope that something like that takes place in China.

While I am hopeful, I am not confident. I honestly do not know what to do about the terrible things you mention. I am sure that blocking trade is not the answer.

[Ken Blanchard]

ps. I posted much the same several days ago, but apparently I forgot to feed the spam filter.

[Miranda]

Thank you, everyone, for your comments. I took an unpardonably narrow-minded approach to this problem and I greatly appreciate having the chance to look at the perspectives each of you has offered.

D.E. Bishop: I don’t necessarily disagree with you, but I am not sure what incentive corporations actually have to be "good citizens." And now, after considering the comments of some of the other posters, I am not sure if being a good citizen is necessarily the right thing to do.

Now, if corporations do the right thing, and pay American workers American wages, it might also mean doing the wrong thing, because it puts a Chinese laborer out of work, and, if Cory is right, might even lead to a revolution. On the other hand, if enough American workers lose their jobs, I suppose there could, eventually, be a revolution here as well. If Occupy counts, maybe we have a small one already.

Mark: Good point. Maybe capitalism is just one of the ingredients needed. Perhaps one other is time.

Dr. Blanchard: Thanks for weighing in. After I wrote my original post, I remembered watching a John Stossel segment that made a similar argument. Stossel made a case against buying fair-trade items, saying that fair trade rules could cause sweatshops to close - resulting in unemployment for laborers, rather than employment with better conditions. I found this argument disheartening then and it is still disheartening now, but it does seem logical.

On the other hand, I think there is some reason to keep hoping. It seems strange to think of The Jungle as a cause for optimism, but looking back at Sinclair’s America and then looking at America now (flawed as it may be), shows that things can, indeed, get better. If America had always been blissfully free, constantly respectful of human rights and completely free of oppression, then there would be less room for optimism about China’s future. But Chinese capitalism is still relatively young. Maybe the kind of freedom America has had is something that has to evolve slowly.

[Ken Blanchard]

Miranda: I haven't seen Stossel's piece but I know something about this. Free trade is often administrated by people dedicated to socialism. In the coffee business, these people discriminate against small coffee farmers in favor of large "collectives". These collectives can be as bad as, and are frequently managed by the same people as, the rapacious bosses who used to sell them out to the big companies. I have no faith in free trade goods.

[Miranda]

Interesting. I was not aware of the collective preference. I often like fair trade coffee, but I will think twice before buying it next time.