Realist, not conformist analysis of the latest financial, business and political news

A Gross Misunderstanding Of What’s Going On

How fast can you build the factory?

It’s a pity that economic education isn’t a little better. For if it was we’d not get confusion like this.

Fuyao is the world’s leading automotive glassmaker. Based in China’s Fujian province, the company surprised many by exporting Chinese jobs to, of all places, America. In 2014 its billionaire founder, chairman and owner, Cao Dewang, saw the symbolic power in buying the gutted GM factory and rehiring scores of former employees such as Lamantia to make glass for the windscreens of motor vehicles manufactured in the US.

One way this reverse globalisation could work, the chairman thought, was if the American factory workers took home less than half of the old GM wages. It was a bitter pill to swallow, but Daytonians were so desperate for jobs that they eagerly applied. Starting pay between 2014 and 2016 was $12 (£9.30) an hour. They thought this would soon rise rapidly.

Wages, you’ll not be surprised, didn’t rise.

So, why not? Start with the Chesterton’s Fence thought – why did GM close the factory? Because other people had lower labour costs, the factory simply couldn’t compete with them.

Note something very important here. Lower labour costs is not the same thing, not the same thing at all, as lower wages. The latter is how much does each worker get. The former is how much does the labour embedded in each product get? It’s entirely possible to have higher wages per worker and lower labour costs. In fact, that’s normal – the bloke driving the JCB gets a higher wage than each shovel equipped navvy while the ditch gets dug at lower labour cost using the JCB.

This is in fact how civilisation advances, we find more efficient – sometimes just using more capital, sometimes just doing the thing more cleverly – ways of producing stuff using less labour. That extra labour then goes and produces something else and we’re collectively richer by that new production.

The implied point here being that old ways of doing things can be on the wrong side of that process. Too labour heavy given the new methods used elsewhere. Thus, to compete with the lower unit labour costs of the new each worker in the old gets a lower income. The answer being that all need to move to the new system, using that less labour.

But there’s more:

There was a time when working people in western, industrialised countries could get jobs that – in exchange for their skills and sweat and muscle – afforded them a decent middle-class life. Those jobs paid enough for families to send their kids to college; to buy them musical instruments, swimming lessons, braces. American Factory shows that those days are over.

Yep, factory work isn’t doing that any more. And it ain’t China either, or only at the margin if it is. We’re using more machines to do this work. The people are trying to compete with the robots, a race they’ll not win. There’s simply nothing here that we’ve not seen before – say, the introduction of the power loom. It’s just the way that advance happens.

Blue-collar people in China and western countries are on opposing trajectories. Prospects for Chinese workers have risen steeply, while employees in British and US factories have endured successive losses in income and financial security. These realities manifest in differing levels of acceptance about hard work for low pay.

In China, a normal working week can include six or seven 12-hour days. Few may enjoy the rigorous schedule, but adhering becomes easier when everyone else is willing to work just as hard. Completing tasks with speedy efficiency is on some level a national duty, part of building their country. Americans in our film bristled at the idea of working such long and frequent shifts, especially when earning a fraction of their past wages.

The answer is go do something else. The average – median – wage in the US economy is $27 an hour or so today. That’s true of services as well as manufacturing. The unemployment rate is 3.5% or so, at generational lows.

Go do something else.

But here’s where we see real and horrible confusion:

The chasm of global income inequality is greater than ever, and we must fight for better lives for industrial workers wherever they are – whether they be in the US, the UK, China or anywhere.

It isn’t though, is it? They’ve just said it isn’t. Chinese workers are on the up, inequality is reducing. Chinese and American industrial labour outcomes are converging – that’s a reduction in inequality.

And, umm, isn’t this what we were told must happen for all those decades? Global inequality must reduce? It is, ain’t that grand?

0 0 votes
Article Rating
Notify of

Newest Most Voted
Inline Feedbacks
View all comments
4 years ago

No comments allowed, I see.

Gavin Longmuir
Gavin Longmuir
4 years ago

“Since 2013, the nonprofit Jobs to Move America has created more than 2,500 positions around the country, at times prioritising women, people of colour, veterans and former prisoners.” Hiring from the shallow end of the labor pool? That is where the lower wages are. Change in the labor market puts stress on society, because to a large extent ‘We are what we do’. Economists who say, in effect, ‘Don’t worry — the Invisible Hand will take care of it’, may be right in the long term, but we should not be so casual about dismissing the problems involved in change.… Read more »

4 years ago
Reply to  Gavin Longmuir

Of course it is sustainable – in a closed economy with the government in control. One may have to build a wall to keep people in …

Would love your thoughts, please comment.x