Oh dear Mr. Cohen

Nick Cohen has done one of the rather predictable little rants about working conditions in China.

The suicides at the vast Foxconn plant in Shenzhen ought to shake outsiders. They ought to make them wonder about the human cost to the 420,000 workers who make those nifty iPhones and iPads which so delight savvy westerners. Workers sleep in corporate dormitories, where an ever-shifting population of migrants makes it hard to form friendships, let alone relationships. The basic pay is $130 a month and overtime is essential. Most work 12 hours a day under the eyes of a fanatical management. One man killed himself after supervisors allegedly tore into him for losing a prototype iPhone.

No, I\’m not about to try and claim that I\’d be happy to work for that sort of sum: no, I\’m not about to try and claim that everything is just hunky dory and that manufacturing workers in China have it easy.

However, I do want to make a slightly different point. That things are indeed getting better.

Firstly, please have a look at this Paul Krugman essay, Ricardo\’s Difficult Idea. Aside from being one of the prime examples of what makes him (on those increasingly rare occasions when he is not being simply a shill for whatever the Democratic Party wishes to do) one of the very finest writers upon economics, he explains beautifully what it is that determines wages:

- Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model — workers can earn more by moving into the industries in which you have a comparative advantage — simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn\’t happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists.

Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, \”what would happen if people who work for such low wages manage to achieve Western productivity?\” The economist\’s answer is, \”if they achieve Western productivity, they will be paid Western wages\” — as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible. (And he is likely to offer those Bangladeshi factories as a counterexample, missing the distinction between factory-level and national-level productivity).

Wages are not set by the productivity of what a worker is doing. They are set by the productivity of what the worker could be doing if he wasn\’t doing what he is doing. It\’s that old opportunity cost thing again. The price of something is what you give up to get it: in the case of labour it\’s not what the labourer is producing, it\’s what the labourer could be producing elsewhere that determines the cost.

As an example, the barber in Manhattan is using pretty much the same technology as the barber in Mumbai: scissors and a comb to cut someone\’s hair. They process roughly the same number of heads per hour and or day. Their productivity is roughly equal: yet the barber in Manhattan gets a multiple of the wages of the one in Mumbai.


Because the barber in Manhattan has a near endless number of other jobs which pay high wages as a result of the generally high productivity of labour in Manhattan: the barber in Mumbai has a near endless choice of low paid jobs to move to as a result of the generally low productivity of labour in Mumbai . The wages of each are set not by their productivity, not by what they themselves produce, but by the possible wages and productivity of alternate uses of their labour.

Now let\’s look at what is happening in China:

Just a year after laying off millions of factory workers, China is facing an increasingly acute labor shortage.

As American workers struggle with near double-digit unemployment, unskilled factory workers here in China’s industrial heartland are being offered signing bonuses.

Factory wages have risen as much as 20 percent in recent months.

Or a couple of years back:

For years, Yongjin Group has earned a decent profit selling lamps and furniture to the likes of Wal-Mart (WMT ), Home Depot (HD ), Target (TGT ), and Pottery Barn. But lately the company has seen its margins shrink to 5% — half what Yongjin made when it opened its factory in the steamy southern Chinese city of Dongguan 14 years ago. Why? Labor shortages are forcing the company to boost wages. Last year salaries surged 40%, to an average of $160 a month, and Yongjin still can\’t find enough workers. \”This business needs a lot of labor,\” says President Sam Lin. \”This is a very tough challenge.\”

My apologies that I cannot actually source this but I have seen a report which says that Chinese manufacturing wages have been rising 14%, year on year, for well over a decade. They are now four times higher, after inflation, than they were.

The general productivity of labour in China is rising and therefore so are the wages paid to said labour.

Cohen points out that labour unions are near useless in China: that the government is the same old Communist Party that has been screwing the workers for the past two generations. Neither are, of course, desirable. And yet the conditions, the pay, of the workers continues to improve, get better at a rate not seen in this country for many a generation. This might count as an interesting lesson for those here at home really: it ain\’t the unions or the government which make the working class better off. It\’s competition among capitalists for the profits that the working class can make them which does.

Or, in short, economics trumps politics, each and every time. Which is why this is so absurd:

Like good consumers, we obey too. Not that we should. It would be heartening if people could shake themselves and say that the iPad is just another computer, which we do not need and will not buy unless Apple persuades its suppliers to improve workers\’ conditions. Until we do, the hypocrisy of the Chinese communists is our hypocrisy as well.

It is the very fact that billions of us are purchasing the products of Chinese labour which is improving the pay and conditions of that Chinese labour. For as we do so, the general level of productivity in the Chinese economy is rising, leading to that most desired of all outcomes,. as Paul Krugman points out:

\”if they achieve Western productivity, they will be paid Western wages\”

The more you want conditions to improve in China, the more you should be buying from there.

16 comments on “Oh dear Mr. Cohen

  1. But Apple could pay the workers more, couldn’t they? And charge more for the product. I’d have thought it might be an idea to sell two versions – one where the workers aren’t badly mistreated and one where they (apparently) are at different prices, and let the market decide.

  2. Ten workers from a plant employing 400,000 have committed suicide. Apart from the obvious suicide clustering phenomena (think Bridgend), the actual suicide rate in China is something in the region of 25 per 100,000, making the suicide rate amongst Foxconn employees 1/10th of the national average.

    Apple = Saves Lives.

    Not a bold enough headline?

  3. The big point being missed, here as in so many other places, is that the alternative for the Chinese worker is not a better paid job with better conditions, but aworse paid job with worse conditions. Hence the frequent subtext that these sweatshops must be closed down when put into effect make things worse for the people that are supposed to be helped.
    So often I hear people blessed with very fortunate life choices who cannot imagine how severely limitted is the choice avaailable to many. They seem to suppose thaat closing factories (and indeed brothels, and all enterprises offering conditions less than they haave available) will result in all those people having a better life- in fact the people know which side their bread is buttered, and have already got the best life available to them at the moment.
    As to charging extra for Ipads, didn’t BA offer an alternative high fare for those who wished to offset their carbon consumption? take up was minimal I recall. So though many people will tell you they are ready to spend more to help the poor- when it comes to paying a lot of them shut up. Raising the price of Ipads will mean less of them sold- and the factory workers will be forced into lower paid jobs with even worse conditions.
    I think the fundamental problem here is that Mr. Cohen quite literally doesn’t know how lucky he is.

  4. I’ve never seen Nick Cohen write a piece complaining at the plight of Chinese farmers working their own land, backbreaking toil for longer hours than factory workers, earning less than factory workers.

    (to preempt the pendants: yes, I know they don’t own their land)

  5. Doing a bit more research, there have been 10 suicides amongst staff this year amongst the much smaller workforce at France Telecom, and 35 over the previous 2 years.

    Why aren’t I reading articles about the abuse of workers in Western Europe and the awful consequences of the French capitalist system?

  6. “I’d have thought it might be an idea to sell two versions – one where the workers aren’t badly mistreated and one where they (apparently) are at different prices, and let the market decide.”

    It works so well with organic veg, after all.

    Oh, wait…

  7. “awful consequences of the French capitalist system?”

    The French have a system?? And it’s capitalist??

  8. The key to this issue, Mr. Cohen actually mentions in his own article: “the ever-shifting population”

    As bad as conditions are, they are better than the alternatives (working in the fields as Kay pointed out), and people don’t tend to stay in the sweatshops for long. What tends to happen is people work a few years in a sweatshop to build up some cash, or to pay for a child to go through university before moving on to a different job. Friedman’s treatment of Hong Kong sweatshops in the first episode of “Free to Choose” and the more recent coverage of Nike sweatshops in “Globalisation is Good” are instructive. Friedman points out that every nation goes through a “sweatshop phase” as the marginal productivity of labour rises. Attempts to prevent the “sweatshop phase” also prevent rising out of it.

  9. Friedman points out that every nation goes through a “sweatshop phase” as the marginal productivity of labour rises.

    True. When I was a kid all cheap toys were made in Hong Kong. When I was a teenager they were all made in Taiwan. Now Taiwan makes laptops and computer components and the cheap toys are made in China.

  10. Economics does not trump politics.

    Economics, and by extension economists, have made such a glorious fucking mess of our world that the discipline should be treated with all the respect due to phrenology and its practitioners as more intellectually inclined bearded ladies. Economics is a pile of fermenting stoat shite from start to finish.

  11. …….Economics, and by extension economists, have made such a glorious fucking mess of our world ……..

    Someone hasn’t been paying attention. You may as well have ranted against technology after Hiroshima.

    Certain economic decisions or ideas may or may not be responsible for the mess we are in, but economics most certainly isn’t.

  12. Quick question:

    There’s 420,000 workers in that factory. How many suicides have there been and over what time frame?

    Now the kicker of a question that just might put everyone on their bums: How does the calculated rate compare to the background value for China as a whole?

    What is being punted as some sort of capitalism driven epedemic might just be Chinamen topping themselves as per normal.

  13. I like Martin’s quote, that “Economics is a pile of fermenting stoat shite from start to finish.” Quite why your Timmy quotes so liberally and credulously from so many discredited economic canards is a mystery to me. Having said that, I don’t have a particular beef with this particular article. Having now said that too, how about a blog explaining how it is that China’s economy is so successful in the face of some of the most draconian capital controls on the planet?

    Tim adds:

    “how about a blog explaining how it is that China’s economy is so successful”

    Because if you start at the level of medieval peasantry you can catch up with the advanced world pretty much by just stopping doing entirely stupid things like socialism.

  14. Pingback: Forgive Me For Not Leaping For Joy… « Back Towards The Locus

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