How do we reconcile this: On Sunday, an article in the New York Times provided the most extensive reporting so far of rising labor shortages in China -- by one estimate, export-oriented industries are short 1 million workers. According to the Times, "Experts say the shortages are arising primarily because China's economy is sizzling hot, tax cuts have helped keep people working on farms, and factories are continuing to expand even as the number of young Chinese starts to level off [due to China's one-child policy]."
Meanwhile, a fascinating piece of analysis from the U.K. Guardian summons up the ghost of Karl Marx, and boy does he look ready to rock. "[Marx] argued that labor-saving capital investment would limit demand for labor, while also bankrupting small-scale producers, in agriculture for example. They would swell the labor supply, creating a permanent 'reserve army of labor' that would prevent real wages growing as fast as labor productivity. Workers would thus spend an increasing proportion of working time producing profits for capitalists -- a falling share for labor or a rising rate of exploitation, in Marx's terminology."
As the Times' Daniel Gross noted, also on Sunday, something pretty close to what Marx predicted appears to be happening right now. Workers' wages in the U.S. and Europe are growing nowhere near as fast as corporate profits or productivity, especially as compared with what happened during previous periods of economic growth. The obvious reason: the exploitation of the billions of new workers who have joined the global economy, mostly from China and India and the former Soviet bloc, in the last 20 years. Capital is in the driver's seat, labor is under the whip, Marx predicted it all.
But even with these observations, hardly a day goes by without another couple of economists publishing papers purportedly proving how free trade and/or offshoring benefit the economies that engage in it. Just this week, New Economist pointed us to a typical offering, "How Does Investing in Cheap Labor Countries Affect Performance at Home?: France and Italy." The authors found that "the available evidence does not find that investments or a broader transfer of production to cheap labour countries has a negative effect on performance at home." Quite the opposite, it boosts employment and productivity.
What many of these papers fail to drill down on is what kind of employment is boosted, and how the profits that accrue from that increased productivity are distributed. Workers with advanced skills may find more demand for their labor, but meanwhile, the majority of lower-skilled, lower-educated workers come under ever more wage pressure. Marx would be unlikely to be impressed, and if he had a blog today, would no doubt be excitedly pointing his readers to a compelling critique of neoliberalism and free trade by economics professor Martin Hart-Landsberg in the March issue of Monthly Review.
I was nodding along to Hart-Landsberg's analysis for most of the way until he reached the end, when, as all discussions of globalization inevitably flow, he took on the question of China. Hart-Landsberg appears to view China as simply another pliant operating arena for multinational corporations, and argues that transnational capitalism brings with it no benefits. This seems suspect to me. For one thing, he asserts, citing his own as yet unpublished work, that "foreign dominated export activity [in China] has done little to support the development of nationally integrated production or technology supply networks." That's a highly disputable point. I think the evidence is pretty clear that China has been using foreign direct investment to help ramp up a major domestic technology infrastructure. But nonetheless, Hart-Landsberg makes good points about rising economic inequality in China. His bottom line, that the enrichment of "a relatively small but numerically significant upper income group of Chinese, who enjoy greatly expanded consumption opportunities ... [has] been largely underwritten by the exploitation of the great majority of Chinese working people," is undeniable.
The pivotal, all-important question, both for China and for the rest of the world, is whether the massive exploitation and inequality currently taking place in China is a stage similar to what occurred in Taiwan and South Korea in the '70s, '80s and '90s, where export-oriented growth led to a broadly based rise in living standards, or whether China's huge size -- its massive reserve army of labor -- means that such exploitation is a permanent state of affairs. If we are to believe economist Stephen Roach, as noted here last week, China's leaders are intent on reducing dependence on exports and focusing on domestic demand. But reorienting China's economy in that direction requires lots of consumers with money to spend, which in turn means that China cannot treat its hundreds of millions of peasants as a reserve army of labor, but as a future middle class that participates equally in China's economic growth.
Current reports of labor shortages in China could be a blip in the road, or a sign that a potentially positive major tectonic shift is beginning to rumble. Much depends on whether China's leaders are sincere in their commitment to reduce increasing inequality and boost living standards in rural and inland areas. They may not be -- like ruling classes everywhere, they may end up, or already be, co-opted by the special interests of the elite.
But if anyone should have a clear view of what might happen if they fail, and end up with an economy where too much wealth is concentrated in too few hands, it's China's leaders. They don't have to look to Marx for dire predictions. Chinese dynastic history has long provided evidence for how easy it is to lose the mandate of heaven when the masses are suffering. The first emperor of a new dynasty usually comes to power on the back of some form of redistributive program (such as ensuring peasants have their own plots of land to farm). But over the the course of each dynasty, wealth and land inevitably became concentrated in the hands of fewer and fewer.
And then it is time for a new mandate.