Monday, September 1, 2003

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Not a good sign for free markets

Alas, Glenn Reynolds' prediction about the politicization of outsourcing seems to be coming true. Even though the election is more than a year away, President Bush seems fully prepared to pander to protectionist sentiments. From ABC News:

President Bush announced Monday he is creating a high-level government post to nurture the manufacturing sector, which is bleeding jobs in states crucial to his re-election.

On a rain-soaked Labor Day trip to a factory training center, Bush said he had directed Commerce Secretary Don Evans to establish an assistant position to focus "on the needs of manufacturers." Keeping factory jobs is critical to a broader economic recovery, the president said, his outdoor venue ringed by cranes, backhoes and bulldozers.

Bush said the nation has lost "thousands of jobs in manufacturing." In fact, the losses have soared into the millions: Of the 2.7 million jobs the U.S. economy has lost since the recession began in early 2001, 2.4 million were in manufacturing. The downturn has eliminated more than one in 10 of the nation's factory jobs.

The president attributed the erosion to productivity gains and to jobs flowing to cheaper labor markets overseas. He suggested that jobs moving to foreign shores was his primary reason for creating the new manufacturing czar.

"One way to make sure that the manufacturing sector does well is to send a message overseas, (to) say, look, we expect there to be a fair playing field when it comes to trade," Bush said.

"See, we in America believe we can compete with anybody, just so long as the rules are fair, and we intend to keep the rules fair," Bush said, his audience of workers and supporters cheering. (emphasis added)

Let's be clear -- creating an assistant to the Commerce Secretary will have zero effect on manufacturing jobs. Stimulating domestic economic growth is the best way to affect this sector of the economy. The creation of such a position is pure politics. So maybe the protectionist sentiment is pure rhetoric.

What worries me is that the politics of this phenomenon suggests that Bush will be unable to ignore demands for greater barriers to foreign trade and investment. To understand why, go read this Chicago Tribune story on the effect of globalization on rural labor. The key grafs:

For decades, growth-minded rural towns have vied to attract manufacturers by offering tax breaks and other incentives. The expansion strategy is based on what economists call the "multiplier effect": When a new employer comes to town, the influx of new payroll money creates jobs throughout the local economy, as workers begin buying new homes, cars, and other goods and services.

Now, with manufacturers closing U.S. plants and switching production to cheap-labor sites in Mexico and China, the multiplier is working in reverse. The attribute that has long made manufacturing so attractive to communities--its ability to spark an outsize number of new jobs--is magnifying the economic disruption caused by manufacturer pullouts.

Rural communities' strategy of seeking growth through manufacturing "is colliding full force with a globalizing economy," said Mark Drabenstott, an economist with the Center for the Study of Rural America at the Federal Reserve Bank of Kansas City.

Bush, in order to win, desperately needs rural voters. He cannot and will not ignore this constituency. Which means more protectionist rhetoric and more protectionist policies to come.

[But don't these articles also highlight real economic pain?--ed. Yes, but these article are also emblematic of the "lump of labor" fallacies that I discussed last fall. Blocking either investment or trade flows will do nothing but act as a massively inefficient subsidy for manufacturers. It's a disastrous policy. So what policies would you propose?--ed. You mean besides letting the market sort itself out? Based on this article, introduce subsidies for plastic surgery (link via Virginia Postrel)].

posted by Dan on 09.01.03 at 10:32 PM


I listened to that speech live and in person today and thought Bush's point was forcing foriegn markets to open up their protective markets - not to close up our protective markets.

FWIW that would seem to be a better solution because it would appeal to both the rural (Richfield) voters by helping out the manufacturing industry by closing the trade gap and the free marketers by increasing the number of real markets.

Whether or not this is possible or practical (getting markets like China or Central America to open up more) isn't the point. If it fails Bush still has the rhetoric that should sustain people until the job recovery phase of the economic recovery kicks in. If it succeeds he's unbeatable.

Especially if he removes the steel tariffs.


posted by: RK on 09.01.03 at 10:32 PM [permalink]


there's no free trade with China as long as the yuan is pegged at 8 and a fraction yuan to one dollar.

You're sophisticated enough to understand that pegged fiat currencies are import tariffs and export subsidies by another name, aren't you?

posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]

David's right--I heard China is working its currency at our expense. But pushing to reduce trade barriers, whether tariff or non-tariff, in foreign markets can only help. The US is also guilty of some of that, of course, but I thought these kind of trade issues were supposed to be sorted out through Nafta and the WTO. Or at least you could present your gripe to seek redress.

Maybe for Bush's new position he could simply pick a career/job counselor. Show them how to go to school, get training to move up, or simply get out of manufacturing.

posted by: paul on 09.01.03 at 10:32 PM [permalink]

It's not just the manufacturing sector -- services are being affected too. I'm outsourcing my students to third world production facilities, namely Oxford. :-)

posted by: John Lemon on 09.01.03 at 10:32 PM [permalink]

I don't understand why China is so afraid to let the yuan raise in value.

1. The labor is so cheap, that even if it was more expensive they would have market share.

2. Imported raw materials would become much cheaper. (For example, aluminum used for extruding has to be imported as Chinese raw materials are not good enough quality.)

3. Import business would take off. Sure, these don't employ millions of workers, but they do employ truck drivers, salesmen, etc. (Consider all those Univeristy Grads having hard time finding a job in China: let them sell imports.)

posted by: Aaron on 09.01.03 at 10:32 PM [permalink]

As I posted on my site, even China is outsourcing to India.

posted by: James Hudnall on 09.01.03 at 10:32 PM [permalink]

I see two main reasons for maintaining a fixed exchange rate.
1) Lloyd Bentsen was wrong. You CAN devalue yourself to prosperity. The Chinese are doing it, at the expense of the rest of the world.
2) Maintaining the exchange rate results in a large amount of foreign currency available to the Chinese government. It is a de-facto tax and tariff. This works as long as the yuan is stronger than the currency it is tied to.

posted by: Dishman on 09.01.03 at 10:32 PM [permalink]

There seems to be an assumption here that the jobs being sent across the Pacific are 'manufacturing' jobs.

I am a manufacturing engineer for a large computer company - 5 years ago I worked in a US factory, but now I just monitor foreign factories. Our domestic board and system design engineers are extremely busy today . . . as they educate/guide foreign design teams at Outsourced Design and Manufacturing companies. High internet bandwidth trivializes the collaborative process - huge CAD files are exchanged on a daily basis between a single US DE monitoring progress and guiding the contracted team of designers in Asia. Once a quarter the GM takes a tour through Asia on a shopping trip for ODMs. We snub Korea because we can get a design team in Taiwan for half the cost.

The savings in conversion and raw material costs were squeezed out years ago - is cheap foreign manufacturing really shocking news to anyone? In the last few years, tooling for sheet metal has exited the US and I would call that old news as well. What is new now is that we are seeing savings on DESIGN costs sufficient to take a system development NRE budget (design headcount, pre-production tooling, development hardware) down to just 20% of what it would cost domestically.

Per employee productivity for our group is spiking through the roof while the number of jobs available in our group drops or remains flat.

Our ability to innovate is what keeps us competitive, but if the innovation is distilled down to a discrete, non-fungible resource, those of us that are fungible will fight for the scraps. What I fail to see captured here is the distinctly different nature of the jobs being lost . . . this is not about manufacturing. It is about foreign IT/programmer/HW design teams climbing the food chain while the US designers train their replacements.

posted by: Calvin on 09.01.03 at 10:32 PM [permalink]

I live in Rockford, Illinois a typical metal bashing town. We take steel and make stuff out of it.

Outsourcing was putting pressure on us but we were holding our own and starting to come back.

Until Bush put tarriffs on steel in order to save steel mill jobs (news - the mills at Weirton are closing any way).

We have been devastated. Absolutely killed. A buddy of mine who still has a little business left just bought a used surface grinder that normally would cost $2,500 for $250. It is like that all over town.

I was going into business refurbishing old CNC machine tools which would have helped lower manufacturing capital costs. There is no point in it now. Several years of effort and struggle wasted. I expect to be out on the street soon.

If we try to protect our industries the way many of you want the costs in other areas will cause us to fall further behind. Protectionism from world market prices leads to a downward spiral.

It has been tried in steel. It did not protect the steel mills and the steel users are now no longer competitive.

And SURPRISE. We know who did it to us. BUSH.

Protectionism is a recipe for disaster for any place that has to compete in a world market.

posted by: M. Simon on 09.01.03 at 10:32 PM [permalink]

How is it that letting outsourcing countries use child labor, create environmental messes, provide few health benefits and on and on isn't also a tax on the US and a subsidy to those nations?

I understand that improving their economies will in the long run improve their conditions and even the global economy.

But in the long run we're all dead.

Why is it protectionism to insist that foreign countries not use child labor, and not create environmental disasters, etc.?

posted by: jerry on 09.01.03 at 10:32 PM [permalink]

If the Ds run Lieberman he gets my vote in a heartbeat.

1. He is a capitalist - he likes the tax cuts
2. He has been pro-war all the way
3. Unlike Bush he is a social liberal

Now because of how Bush has handled the war I might have favored him but the steel tariffs soured me on him. Given a reasonable alternative Bush will not get my vote.

Bush is right to be concerned about the non-union small town America he has done so much to hurt. Catering to the Unions has gotten him nothing and has hurt him with his core.

Stupid move for a usually smart guy.

posted by: M. Simon on 09.01.03 at 10:32 PM [permalink]


If a guy sells you stuff at below cost is it to your advantage or his?

We used to call such deals between countries reparations.

They amount to a tax on the seller and a subsidy to the buyer.

The Chinese people in effect are being taxed so Americans can have a better standard of living than they could other wise afford.

This is bad how?

We tried protectionism in the 1920s and 30s. We got a world war as a result.

You are right though. Perhaps we should insist that other countries live up to our environmental and child labor standards. How big an army will be required to enforce that policy?

What if third countries buy the cheap stuff and incorporate it into products that compete against ours? Will we be required to monitor every economic transaction on the planet to enforce our child labor laws? How big an army will be required to enforce that policy?

Any protection policy looks good in isolation. The problem in ther real world is that nothing happens in isolation. Every time you push on the baloon there is an effect somewhere else.


Environmentalism and child labor laws are a function of income. Once per capita income goes above $3,500 a year or so those laws come into being without force. Look at what has happened to Japan in the last 60 years as a typical example.

If we stop doing business with the low cost suppliers we will eventually be forced out of the market. Some one some where else will do business with them and get a competitive advantage.

If you think markets can be controlled by laws please explain why our government is doing so poorly with the dope market. After all there are not just laws but guns as well. Why can't the government maintain control?

Sure we can keep out cheap government subsidised foreign steel. Auto prices and the prices of a million other goods will then go up making foreign cars and other stuff cheaper. This helps us how?

The only way out of this economic death spiral is to put the government in control of the whole economy. The North Koreans have proved so well what a good policy that is. The Soviet Union prospered under such a policy. I'm sure we will be equally successful.

posted by: M. Simon on 09.01.03 at 10:32 PM [permalink]

I'm a technical writer working for an I.T. firm that provides services to investment managers. I make, with my bonus this year, around $70k, which is high-average for the New York City area; but I would settle for $20k less than that if I could work from a rural area.

It's mind blowing that so many information services firms think in binary terms: you either have to do the development in high-priced areas such as Silicon Valley or New York City, or ship it all off to India. There are hundreds of really desirable smaller communities in the U.S. with good school systems and lower cost-of-living that an I.T.-oriented company could set up shop in. It wouldn't be as cheap as India, but you wouldn't have the problems associated with outsourcing there either (time zones, inability to retain industry expertise and protect proprietary business processes, limited convertability of currency, cultural differences that drive you crazy in day-to-day dealings).

posted by: Scott Ferguson on 09.01.03 at 10:32 PM [permalink]


If an individual sells you something below cost, once, or even occasionally, it a good deal for you. If, however, he receives subsidies so that he can continue selling below cost and drive competitors out of the market, it’s a bad deal over all.

Preventing this obvious market distortion isn’t a question of introducing socialism, it’s an issue of maintaining competitive markets. When any given market is allowed to be dominated by a few major actors (which is the logical result of a company or industry being kept afloat by government subsidies while it sells below cost), the result is an inefficient market. That’s why we have anti-trust laws.

We *should* be worried about China pegging their currency to ours and dumping cheap steel (though the solution is emphatically NOT the tariffs that Bush imposed), because it will kill our domestic steel industry and leave China as our sole supplier of steel.

Leaving out the strategic concerns, the result of being dependent on one supplier of a vital good is that you pay more than you should for it. Think about the market distortions that our reliance on OPEC has caused (Again, leaving aside the strategic vulnerability our cozy relationship with the cartel has fostered). This is particularly true of industries with high barriers to entry, such as steel, or large-scale manufacturing.

The solution to this is not to impose tariffs, but to pressure China to let their currency float. Then we’ll see whether or not American steel can compete on the global market.

T. Andrews

posted by: T. Andrews on 09.01.03 at 10:32 PM [permalink]

Great post, M. Simon, and a good point, thank you. And best of luck to you.

It's a complicated thing. OK the mills are Wierton are closing, but surely somewhere some mills that might otherwise close or cut back must be staying open because of the steel protection.

And one wouldn't want the US to get totally out of the steel business, I wouldn't think.

Hmmm anyway in political arguments, it's usually not as simple as a policy where everyone wins vs.
a policy where everyone loses. If that were so, politics would be simple, just a matter of demonstrating the most effective policy. It's usually a matter of WHO wins and who loses.

M. Simon you are a businessmen/entrepenuer it appears, and your situation sounds bad, and I wish you the best personally, but on a purely
technical level, if (let's say) the loss of one person's business is balanced by the saving of (say) two people's steel mill jobs, wouldn't that
be a good thing overall.

I don't know if this is the case with the steel protection or not. I'm given to understand that it's not, so in that case OK.

But a REASONABLE level of protectionism is appropriate in some cases. You don't want to have EXCESSIVE tarifs, because at a certain level
that becomes just objectively counter-productive. But protectionistism ought to be one of the arrows in our quiver when we are guiding the economy.

When I bought my first car, around 1984, the Japanese were just killing our auto industry. Reagan imposed, not just a tarif, but an outright
QUOTA on Japanese auto imports -- I couldn't get a Honda or Toyota for ANY price, unless I waited many months, which I couldn't. I would have paid thousands more to buy a Japanes car. For a few years there, they were that much better.

But I HAD to buy a Ford. And it was a piece of s***. The whole experience cost me, personally, thousands of dollars in lost value in various ways.

BUT it was sure a good thing overall. Yeah it hurt but it was for the long-term good of the country, so I can deal with it. Jesus we have plenty of stuff, do we ALWAYS have to have the VERY cheapest price on everything if it means killing off the native industries of our wonderful land?

I mean, letting the United States auto industry be completely destroyed forever because of a shortcoming which lasted only a few years would have helped the United States exactly how?

posted by: some guy on 09.01.03 at 10:32 PM [permalink]

Great discussion, guys. A few points from an upscale consumer with family members directly affected by the current manufacturing crisis. First, many of the consumer products we are so lucky to have coming from China at dirt cheap prices are piss poor quality. Can we talk, toys that are broken before a kid even touches them (suprisingly frequent) but either it was a gift or it was so cheap you just let it go? Now they're making higher end stuff. Great. Have the repairman's number handy, you'll need it. And clothes--they are actually borderline disposable now. I own things that cost more to dryclean than they cost--and I'm a snappy dresser. This is ridiculous. We are drowning in a sea of shitty made cheap stuff and the solution of free marketeers is to let the market send more?

Okay, now to my main beef. You guys are assuming the "market" is somehow driving all this stuff overseas when herd mentality by executives anxiously looking over their shoulder at Wall St. valuations and their precarious stock options is more like it. Is this rational? Yes, for the individual executives, long term health of the companies and country be damned.

And Drezner, you're a hawk right? Me too. So why are you so quick to wave goodbye to sensitive, high-tech manufacturing (vital to national security)? How can you blithely let the braindrain reverse itself in an utterly unpredictable, devastatingly sudden manner?

I'm getting tired of free trade doctrinaires demanding that we all let their little experiment go on ad infinitem when the evidence is that WE are the only country really letting market forces rip (okay, not 100% thank God) and it is hurting as much as helping us.

posted by: Kelli on 09.01.03 at 10:32 PM [permalink]

Jerry and David:

You're subscribing to the fallacy that exports are good for a national economy and imports are bad--mercantilism was discredited in economic thinking long ago.

First, you're ignoring the benefits of inexpensive, decent-quality Chinese goods to the American consumer. Why can you get a decent DVD for $75? Do you think this would be possible if, say, Switzerland manufactured all the DVD's? Wal-Mart is a life-saver for many overstretched American families. Would their prices be similar if the people producing such basic goods were being paid $20,000/year?

Second, China's foreign trade balance, while certainly still positive, is declining rather dramatically as China pulls in more imports, especially from the U.S. and Japan. Go to China and check out how dominant Johnson & Johnson is in baby care products there. Good for jobs in New Jersey, I think. China is far more open than the Japanese economy was in the 1980's, and has so far performed in in relatively good faith to its WTO committments.

China's economic growth is NOT a detriment to the U.S. economy--in fact, it's a boon to both the U.S. and the world economies. If the Chinese economy can transform itself into a middle-income country along the lines of South Korea, or even Malaysia, in the next 20 years, won't it benefit the American economy?

Do you really think we'd do better economically by pursuing a punitive policy against China now and throwing up protectionist barriers, or by becoming (along with Japan) the dominant developed economy supplying high-value added goods and services to China over the next 50 to 100 years?

Do you really want to be locked out of the world's fastest-growing market to save some computer programmers' jobs?
An American start-up software firm I read about in the NYT yesterday (sorry, the name of the firm slips my mind) is supplying distance-learning software to 700 Chinese universites (CERNET)--that also creates and sustains American jobs.

Based on the flow of FDI into China, most large businesses and financiers see China as the best bet among developing countries for future growth and profit opportunities.

To blame the U.S. economy's troubles on shadowy foreign forces might be popular, but it is largely fallacious economically. The primary reasons for the poor U.S. economy (and it's not so poor compared with the European and Japanese ones, our primary competitors) is the hangover from the 1990's investment boom, coupled with rapidly increased productivity in the U.S. economy. Even if business and IT investment was excessive, the U.S. should be able to restructure such assets and put them to better use over the next few years, and rising productivity is a very positive trend, since it means standards of living can rise with fewer inflationary pressures. Indeed, I would argue that the current U.S. economic relationship with China is a huge net benefit to the U.S. economy and consumer.

posted by: Daniel Calto on 09.01.03 at 10:32 PM [permalink]

Some Guy:

Interesting post re your crappy American car and the thousands of bucks it cost you, but I come to a different conclusion than you. I also had an incredibly bad Ford (vintage 1979) that costs me thousands when I was just out of college and dead broke. The Japanese cars were far better than American cars of similar type during that era.

The quality gap is now far less, and consumers have far greater choice, because Japanese competition forced American car makers to build a better product or risk losing huge amounts of market share.

Monopolies and protected markets limit competition and make prices higher than they need to be. Competition is good, and you need free trade for it. Why has the USPS gotten so much better? FedEx, of course.

Kelli, not everyone can shop at boutiques, and cheap goods benefit people even if their quality isn't great. I don't think clothes are borderline disposable either--that's more a reflection of the mentality of an affluent American consumer that a statement of fact.

There are a lot of poor-quality Chinese goods, as you suggest, but China is producing far more medium and high-quality goods than you think, from optical computer mice and many Japanese electronics to very high-quality designer clothes and made-to-order suits (I buy suits in Shanghai and HK and can tell you they're excellent at 1/2 the price of what it would cost in NY). Optical mice used to cost $129 when they were manufactured in Taiwan. Now you can get a good one for $30. Why? Because Logitech moved their factories to outside of Shanghai, where excellent electrical engineers are plentiful and can be hired for $10,000 per year.

You say we're "drowning in shitty made cheap stuff" but there's a very simple option. You don't have to buy it. If the market is supplying it, that means that people want to buy it, even if it doesn't meet your quality standards or you don't want it. To me, your objections seem as much asthetic as economic.

posted by: Daniel Calto on 09.01.03 at 10:32 PM [permalink]

[ Wal-Mart is a life-saver for many overstretched American families. ]

Isn't it a contradiction to assert that below-cost imports dumped into the American market are good for the American economy, yet the sort of people who shop at WalMart may be overstretched?

Why are they overstreched? Could it be a lack of good-paying jobs, just maybe?

Chinese imports subsidized by quasi-slave labor and a peddged currency are not free trade.

posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]

[ Why can you get a decent DVD for $75? Do you think this would be possible if, say, Switzerland manufactured all the DVD's? ]

Swtizerland or the PRC? That a rather restricted set of locations for manufacturing.

How about a nonunion DVD player factory in, uh, Memphis or Des Moines?

posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]

In today's FT:

Home US Print article | Email

IMF backs Snow's call for renminbi float
By David Pilling in Tokyo

Published: September 1 2003 19:38 | Last Updated: September 2 2003 12:43

Beijing on Tuesday ruled out any changes to its fixed currency regime, as John Snow, US treasury secretary, arrived in Beijing.

A spokesperson for the central bank rejected Mr Snow's earlier call for China to float the renminbi. The International Monetary Fund added its weight to the argument, saying it was in China's best interests to move towards a more flexible exchange rate system.

"Such a move would improve the central bank's ability to control money and credit growth, and also help cushion China's economy from domestic and external shocks," IMF Managing
Director Horst Koehler, the IMF's managing director, said in a statement on Tuesday.

In unexpectedly tough remarks on the eve of his visit, Mr Snow said: "We want to be heard on the issue of flexible exchange rates so that American firms [are at] no disadvantage."

His comments on the renminbi, which has, in effect, been pegged at 8.28 to the dollar since 1995, follow intense pressure from US manufacturers who argue that American jobs are being destroyed by cheap imports from Asia, especially China.

The treasury secretary is the latest US official to comment on the Chinese currency. Alan Greenspan, chairman of the Federal Reserve, suggested in July that the renminbi would have to be allowed to float.

Beijing has rejected the rhetoric on the renminbi from Washington. Chinese leaders have given little indication that they are willing to float the currency, which some studies estimate could be undervalued by as much as 40 per cent.




posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]


You make some good points. And yes, part of my objection is aesthetic, but I don't think my points can all be dismissed so easily. First, there is not as much "choice" as you imply remaining in the US market. With industries and retailing both having largely consolidated in the 70s and 80s, THEN shipping manufacturing offshore in the 90s, it is extremely difficult to even find goods in certain sectors (toys for instance) made here. And it's not just China, either--European manufacturers now get most of their goods from E. Europe or China as well. And as for the semi-disposability of these goods, you should check out some of the fashion copy associated with a chain like H&M--this is a commonly used term and is not always meant pejoratively.

But what I really want an answer to is the question of national security. With even the Pentagon resisting calls by lone wolf congressmen (like Dana Rohrback, I believe) to impose a buy American code on weapons systems, how do we avoid a scenario where we are dependent on a potential future adversary (China) for weapons manufacturing? And is it really a good idea to rely for software development and back office services on a country living in a very dangerous neighborhood, and with a simmering ethnic/religious crisis within its own borders (namely India)?

Anyone care to respond?

posted by: Kelli on 09.01.03 at 10:32 PM [permalink]


I take your point on the need to retain expertise in certain critical technologies (weapons systems, etc.) for national security reasons, but don't think we're going to lose such capabilities for a long time. The U.S. has by far the greatest concentration of tech talent on the planet and should remain dominant. As you probably know, 30% of the Silicon Valley companies (at least the ones still standing) were started by Indian or Chinese expats, and the U.S. should continue to attract international talent as long as wages are decent and the lifestyle is good.

Indeed, biomedical research (my field) benefits enormously from "foreign" talent, which often relocates to the U.S. permanently and makes a very substantial economic and intellectual contribution to the country. To me, the U.S., with its openness to competition and immigration, has benefitted from globalization far more than virtually any other economy overall. For a contrast, look at Japan or Germany's sclerotic economies--both nations are hostile to foreigners, hard to immigrate to, and were left in the dust in the 1990's despite many Americans' predictions that they were cleaning our clocks in the 1980's and had all the answers.

David, your accusations that all Chinese goods are made by "quasi-slave" labor and that they are sold in the U.S. "below-cost" are overdrawn or simply wrong. Chinese businesses want to make money just like you and I do, and don't sell things lower than the cost of manufacture and stay in business for any length of time.
Chinese factories are fairly harsh--so were factories in London in the 1800's and factories in Massachusetts in 1910, or textile mills in South Carolina in the 1950's.

Indeed, the U.S. was the low-cost manufacturing center from colonial times well through the early 20th century, and there have been economic relocations going on in, say, textiles for 2 centuries (London to North England to New England to the U.S. Deep South to Mexico) Why is a move to China different? Someday it too will lose out to Burma or Vietnam or North Korea as a low-cost manufacturer. I have plenty of faith that Americans can and do compete superbly in a global economy--we're innovative, creative, diverse, and forward-looking. To me, China's rise is more of an opportunity for us than a threat. Do you really want to become more like Japan (1% growth rate for the last 12 years) or Germany (11% unemployment)? Stifle free trade to protect "our" workers jobs and see what happens...

Earning $100/month doing 12-hour days six days per week might suck to you and me, but it's a lot better than being a subsistence farmer in Guizhou earning $200/year. China is getting wealthy manufacturing things for the world. Would you deny the Chinese their chance to do so just because the U.S. is already free and wealthy? Even if China didn't make DVD's, do you really think they would cost as little if manufactured in Memphis? If there was no Chinese manufacturing at all, DVD's would still be made in Mexico or Poland or elsewhere.

My wife's grandparents and parent suffered almost unimaginable deprivation growing up in Shanghai, and their grandniece lives like any middle-class teenager in Osaka or Seoul. Is this bad, and if so, why? Has the U.S. economic position deteriorated in any way over the last 15 years, or are we still the richest and most powerful major nation on earth?

What's your beef? We have large numbers of people coming into the U.S. legally and illegally because of the vast economic opportunities here--it's not like our economy is moribund. Why are you so worried about China in particular? They're making the same stuff that Mexico and Taiwan and earlier Tokyo and Seoul made. I'm no great fan of the Chinese government, but don't they have the right to set their own economic policies? Or should they just do whatever benefits manufacturing workers in Ohio and Pennsylvania, or wahtever John Snow and the IMF say?

posted by: Daniel Calto on 09.01.03 at 10:32 PM [permalink]

[ I'm no great fan of the Chinese government, but don't they have the right to set their own economic policies? ]

"I'm no great fan of Hitler's/Stalin's/Pol Pot's/Kim Il Sung II's regime, but don't they have the right to set their own economic policies?

posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]


[ Indeed, the U.S. was the low-cost manufacturing center from colonial times well through the early 20th century, ... ]

Is that factually true? I think not.

posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]

Tuesday, September 2, 2003

The Policy for Freedom in China

Promoting Human Rights

Enforce the Ban on Slave Labor Products
Despite a putative ban on the importation into the U.S. of goods made with forced labor, the Customs Service has documented that Communist China's notorious "reform through labor" Laogai prison camps continue to export goods to the United States. H.R. 2195 is designed to keep slave labor products out of the U.S., authorizing needed funding for genuine enforcement of the ban on slave-labor products. The legislation also calls upon the President to strengthen international agreements to improve monitoring of slave-labor imports.

Demonstrate American Commitment to Religious Freedom
The People's Republic of China routinely persecutes Muslim Uighurs, Tibetan Buddhists, and Christians--clergy and worshipers alike--arresting those who attempt to attend church services and forcing countless faithful into an underground life of fear. Meanwhile, state-approved church leaders inform on unsanctioned religious activities. H.R. 967 targets those Communist officials who engage in religious persecution, banning their travel to the U.S. (by prohibiting the expenditure of any U.S. taxpayer money in support of their travel, and--subject to a presidential waiver--denying them visas).


posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]


I already know about the laogai labor camps--instead of disagreeing with my points, or answering them with your own, you're just throwing rhetorical bombs.

A comparison of Cultural Revolution China with today's North Korea might be reasonable, but a comparison of today's China with today's North Korea is not. China has a hugely successful economy, while North Korea has seen 3 million people starve over the last decade.

China suffered hugely in both the Great Leap Forward (1957-58, in which 30 million starved so that Mao could consolidate control over the party apparatus) and the Cultural Revolution, and virtually all Chinese I know are about as Communist as I am.

Kim Jong Il=Hitler=Pol Pot=Stalin=Hu Jintao? What doesn't compute here? Your post demonstrates either 1) muddled thinking or 2) an irrational hatred of China.

One minute the Chinese are arch-capitalists cynically manipulating the global economy throgh their currency peg, the next they're hyperleftist incompetent murderers along the lines of Kim Jong Il and Pol Pot, willing to starve and slaughter their own people to make an ideological point. Which one is it?

posted by: Daniel Calto on 09.01.03 at 10:32 PM [permalink]

Let's do another Google:

TIME Magazine: China - Labor Lost
... That exposes economic migrants to exploitation by ruthless factory bosses. ... The worker
from Hubei holds a sweat-stained copy of China's Labor Law, 2000 between ... - 29k - Cached - Similar pages

Economic Migrants

China Can't Keep 'em Down on the Farm

By Neil Gough | Shenzhen

The beacons of prosperity in China—Shanghai, Beijing, the Pearl River Delta—are irresistible to residents of the impoverished interior provinces. But when they make it to a place like Shenzhen, across the border from Hong Kong, the bright lights grow less attractive. Lian (not her real name) is one of more than 5 million migrant workers here in China's richest city. After two years in a local sweatshop making TV transformers, she and 50 of her 160 co-workers quit when their boss decided to move them to even bleaker premises. Lian, now jobless and without welfare, is sharing a room with her 16-year-old brother, who hopes to go to school. "Sometimes I despise this place, this city," she seethes. "Everybody's out for money." Taking the 1,500-kilometer train ride home isn't an option. A year ago her father gave up the ghost of the family farm; the last she heard he was working in construction in nearby Dongguan. Maybe she shouldn't have quit. The $3 a day was better than nothing.

Lian is an economic refugee, part of one of the largest migrations in human history. More than 100 million people have abandoned the dirt-poor countryside, with 30 million alone heading to the Pearl River Delta, mostly to find low-level factory jobs. They do so illegally: China uses a draconian residential permit system to keep people in their places. That exposes economic migrants to exploitation by ruthless factory bosses. Li Liming, a 24-year-old from the southwest province of Sichuan, has worked six years in factories along the Pearl River Delta. He remembers his first job on a Dongguan production line when he was fresh from the countryside, netting more than a dollar a day. "Sometimes it was 30-hour shifts. The only way you could get a break was to faint," he says. "People would turn their eyelids inside out to stay awake."

Workers at Shenzhen's Zhufeng Electronics Factory—some of them in their early teens—endure 90-hour weeks, more than twice the legal limit, making telephones for export to South Korea. They live in a company dorm: a 10-square-meter room sleeps nine people in eight beds. The sole decoration is a tiny wall calendar suspended by telephone wiring. When a group launched a strike last month, says a worker from Hubei, "The boss said, 'If you're not going to work, then get out of here.' We said we'd leave as soon as we got our backpay, and he replied: 'And if I don't pay you, what are you going to do about it?'" Forging ahead with the strike, they were denied meals, were rebuffed by the local labor bureau, and eventually evicted from the dormitory.

The worker from Hubei holds a sweat-stained copy of China's Labor Law, 2000 between her hands as she speaks. "We haven't got our money. Now we have nothing to eat, nowhere to live."

These gritty factories and cramped dorms are where China's grapes of wrath are fermenting. Shenzhen-based researchers say the plants, though multiplying quickly and for the most part profitably, are paying less now than in 1992—largely because so many workers keep streaming in from the countryside. And while Beijing has taken steps to revise the nationwide residence permit system to give migrants access to social services, the results have been slow in coming. For now and the foreseeable future, migrant workers are China's largest group of disfranchised citizens.

Li Liming isn't sure what he'll do next. He has a small amount of money and a friend he can stay with for a few weeks. But, he says, "I want to try and do something for myself." Sitting on the corner of a busy intersection at dusk, eyeing the gray Shenzhen skyline, he adds, "I have nothing to my name," quoting the title of a popular song that became a post-Tiananmen anthem of destitution. "Working in factories these past few years, I've come to realize there's no way to get ahead. The factories are crazy places, and being stuck in there month after month you lose all grasp on the outside world." One fact Li and his fellow migrants know all too well: they can't go home again.

posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]


Last post. Let's agree to disagree. I myself, way back when, said that Chinese factories are harsh. I have no illusions about the great beneficence of the Chinese government nor about the poverty of the average Chinese. In Beijing, near the old Summer Palace district at the edges of town, there are tens of thousands of economic migrants living in tents by the river in dire poverty. They pick trash as a way of surviving, and the government does nothing whatsoever to help them. China is not, nor will it be soon, a free and prosperous place. Nevertheless, there has been a substantial increase in both personal space and economic opportunity for ordinary Chinese over the past two decades, especially in the cities, and it is a great improvement over the barking madness and sheer waste of lives and effort during the Cultural Revolution. Would it be better if China remained like North Korea, or does the world have a stake in making sure China is a relatively reasonable member of the international community?

BTW--parting shot--look at the editorials in both the NYT and the WSJ today. They never agree on anything, but both say the U.S. emphasis on the currency peg is misplaced--scapegoating for a sluggish economy. I predict that politicans, both Democratic and Republican, will jump all over this issue in the 2004 election--good politics, faulty economic analysis in my book. I agree with Daniel Drezner's initial post that emphasis on this issue this is a bad sign for free markets.

The U.S., if anything, must be more aggressive in further reducing its existing trade barriers, especially in agriculture. Robert Zoellick is to be commended for working on this issue tirelessly for the upcoming Doha round. If we want to help the poor countries of the world, we ought to dismantle our ridiculous agricultural barriers and try to pressure Europe and Jpan, whose barriers are even more egregious, to do the same.

posted by: Daniel Calto on 09.01.03 at 10:32 PM [permalink]

"How is it that letting outsourcing countries use child labor, create environmental messes, provide few health benefits and on and on isn't also a tax on the US and a subsidy to those nations?"

It's their children at work, and their environment getting polluted. So it's not a tax on us or a benefit to us, inn fact it's not our business at all.

We value children and the environment highly enough that we've chosen to protect them. It's a cost of doing business here, and it's a non-tangible part of the pay every American gets - the knowledge that our children and environment are being protected.

Other countries don't, (or more fairly can't afford to) value them as highly, which is just another way of saying life is cheap there, which is just another way of waying they're poor.

You wouldn't like their wages any more than you'd like their working conditions. Right or wrong, saying you shouldn't have to compete with the one is no different than saying you shouldn't have to compete with the other.

posted by: ralph phelan on 09.01.03 at 10:32 PM [permalink]

Turn their eyelids inside out? Is that possible?

posted by: Çelik Anson on 09.01.03 at 10:32 PM [permalink]

I'd like to repeat the refrain that it is not just "manufacturing" jobs that are being lost in "rural" areas.

In the KC MO area, Sprint (primarily, but a few others, i.e., Aquila [sp?]) -- have taken a huge chunk out of the local economy. Sprint, in part due to market competition, but, in my opinion, in even larger part due to CEO fraud and malfeasance (and, per MCI/WorldCom, it is appearing that even market competition was based in large part on fraud).

I'd also like to see discussed the ramifications of TIF (tax incremement financing and other tax abatements) that were given to these companies only a few short years ago.

It is not exactly "free market" economics, is it?

posted by: cj on 09.01.03 at 10:32 PM [permalink]

[ One minute the Chinese are arch-capitalists cynically manipulating the global economy throgh their currency peg, the next they're hyperleftist incompetent murderers along the lines of Kim Jong Il and Pol Pot, willing to starve and slaughter their own people to make an ideological point. Which one is it? ]

Both at the same time.

posted by: David Davenport on 09.01.03 at 10:32 PM [permalink]

"labor market will not regain strength until new positions are created in novel and dynamic economic sectors"

just what novel and dynamic sectors have not shipped jobs overseas?

posted by: John Smith on 09.01.03 at 10:32 PM [permalink]


[China has a hugely successful economy, while North Korea has seen 3 million people starve over the last decade]

What exactly constitutes "a hugely successful economy" in your opinion?

posted by: Mike Corn on 09.01.03 at 10:32 PM [permalink]

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