View From a Height

Rising Chinese Expectation

The Washington Post reports from the Chinese provinces that once-docile workers, merely happy for wages, are now unhappy. If this is representative of larger demonstrations, it could be the end of the beginning for China's rise to great power status.

This spring, a large number of factories faced informal but organized labor action, protesting wages that hadn't kept pace with inflation. That dissatisfaction, combined with the urgings of human rights groups, have encouraged these wildcat actions. (The Communist Party sponsors the only legal labor union, news that should come as a surprise only to those who went to sleep sometime in the 19th Century and are only now waking up.) What's given the workers the leverage to call these actions is the first appearance of labor shortages in these regions.

Looking at these things one at a time, we begin to see some of the choices and binds facing the Chinese government. In the first place, remember that the yuan has been pegged to the dollar, falling as the dollar falls. The Chinese manufacturing economy is probably more dependent on commodities than is ours, so is also being squeezed by the run-up in commodity prices.

Combine that with possible over-building in response to government pressure to grow at 8% a year, and you've got too many suppliers, most not making a profit, being squeezed by their purchasers in the US, and in turn squeezing their employees. The falling yuan may bother Europe because it makes the Chinese more competitive, but with so much domestic competition, there may not be room for them to raise prices.

Look for Wal-Mart to get blamed here. The company is the single biggest importer of Chinese goods to the US. It's got a reputation for leaning on its suppliers, since it competes almost exclusively on price. Wal-Mart has always allowed unions, if workers vote for them, but the Chinese government has trumpeted a public repetition of that policy as a major breakthrough. The goal, of course, is to introduce the official union into Wal Mart, giving the government, although not the workers, leverage with the company.

As for unions, it's a sign of the bankruptcy of the US labor movement that it's NGOs, not unions, that are stirring the kettle overseas. Time was, US labor unions strongly supported overseas organizing, even in the face of foreign government opposition. (Ronald Reagan was able to join with the AFL-CIO in supporting Solidarity, for instance.) Unions ought to see that worker leverage overseas helps their employees here at home.

Instead, they push for regulation by treaty, oppose liberalizing trade agreements, and support tariffs and quotas, thereby becoming one of the most reactionary voices around. Instead of supporting their natural allies in other countries, their policies would depress production, increase costs without increasing benefits, and keep those Third World economies from developing into places where workers can earn a decent living.

Finally, and perhaps most importantly, the Communist Party is starting to run up against the limits of trying to control everything. It is the only legal political party, so it runs the government as an arm. It runs the only legal labor union. The local governments have become investors in business operations, so the Party is both labor and management. With inherent conflicts of interest, the government can't play its Western role as honest broker between business and labor.

No matter what it does, the Party will get the blame. Workers already see a replay of the last chapters of Animal Farm. With the more alarmist views of China as a bottomless job sponge starting to hit up against reality, the Party will also be under pressure from domestic business. But with foreign consumers still driving the Chinese economy, and expansion being the Party's main goal, it's hard to see where they have much room for maneuver.

None of this is to forsee doom, of course. The Chinese have been able to trade off false promises for decades, and with the conventional wisdom being that the 21st Century will be Beijing's. foreign business may yet talk itself into paying higher prices now for tomorrow's illusory profits. Or, they may start to look at other countries with too much labor and not enough capital.