Additional evidence that the economic crisis was a symptom of global labour shifts
Last year I posted this piece reporting a new paper from two academics and picked up by Econobrowser proposing that the larger cause of the economic and banking crisis was the shift in global labour supply. Translation; outsourced supply chain to Asia, whether services or manufacturing at such low labour rates and high avaialbility created artificially high demand because everything became so cheap to the west that it threw the economy out of kilter by creating artificially easy supply.
I will continue to leave that result to the economists to debate. Meantime post crisis we have a situation where China had to fire millions of workers that created the goods that we no longer buy in the west. China also has to create domestic demand which can’t happen on cheap wages, so 30% wage increases are being demanded by workers and unionization is taking grip. The flip side of western economic debt is the $8 trillion cash surplus that China cannot spend fast enough. The only way is to pay workers more and let them spend it.
There is a trend here that is fascinating as the world economic balances rebalance. Here are some additional snippets from the analysis which in deference to Stratfor I cannot produce in whole. Please feel free to subscribe if you like this stuff. Suffice to say the outcomes of the credit crisis are only just coming to light now as western economies come to terms with a cost structure (cheap Asian imports) that was temporary. What is next?
Enjoy and for banks to consider – how do you develop products that work in the climate we might expect when costs, taxes and interest rates are all high? Welcome to the near future.
China: Spreading Labor Unrest | Stratfor (registration required)
Chinese workers staged a brief strike June 15 at the Toyota Gosei plant in the northeastern city of Tianjin, the latest in a growing number of labor protests throughout China. The strikes are raising concerns in Beijing, but not because of the resulting wage increases, which are key to spurring domestic consumption as part of the country’s economic restructuring. The central government is more concerned about grassroots movements spreading out of control. As for the wage increases, the government just wants foreign-owned companies to foot the bill first, and it is happy to have a tool like the All China Federation of Trade Unions to exert this pressure.
On the same day, U.S. fast-food chain KFC signed the company’s first collective labor contract in China, agreeing to raise workers’ wages by 200 yuan (about $30) per month in Shenyang, Liaoning province.
These ideas are not entirely new. Beijing has called several times for requiring a trade union presence in many private and foreign businesses, with the most notable move occurring in 2006, when Beijing called for at least 60 percent of foreign-owned enterprises operating in China to have trade unions by the end of the year.
strikes by migrant workers at foreign-owned manufacturing facilities demanding wage increases and a spate of suicides at a Foxconn plant in Shenzhen, Guangdong province.