"There are only two ways of telling the complete truth—anonymously and posthumously."Thomas Sowell

Monday, April 03, 2006

Market Forces and the Chinese Economic Transition

Market forces always work to whatever extent that governments let them, and they always tend to work toward long-term good. Case in point: China, where labor shortages are working to slow growth in the nation's economy. An article in today's New York Times notes,

Persistent labor shortages at hundreds of Chinese factories have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods.

The Well Brain International factory in Shenzhen, China, an appliance maker, has improved salaries and benefits to try to hire more workers.

The shortage of workers is pushing up wages and swelling the ranks of the country's middle class, and it could make Chinese-made products less of a bargain worldwide. International manufacturers are already talking about moving factories to lower-cost countries like Vietnam.

At the Well Brain factory here in one of China's special economic zones, the changes are clear. Over the last year, Well Brain, a midsize producer of small electric appliances like hair rollers, coffee makers and hot plates, has raised salaries, improved benefits and even dispatched a team of recruiters to find workers in the countryside.

That kind of behavior was unheard of as recently as three years ago, when millions of young people were still flooding into booming Shenzhen searching for any type of work.

A few years ago, "people would just show up at the door," said Liang Jian, the human resources manager at Well Brain. "Now we put up an ad looking for five people, and maybe one person shows up."

The Times article points out a potential negative consequence, higher prices for consumer goods in the United States. Here again, however, market forces solve the problem without government interference, as the article notes: lower-labor-cost nations such as Vietnam and India will step up their production, and the Chinese economy will shift to higher-end products, allowing costs for those items to drop in the United States.


Kathy Hutchins said...

The Times article points out a potential negative consequence, higher prices for consumer goods in the United States

These higher prices might be offset by a certain reluctance on the part of American consumers to stock their gourmet kitchens with "Well Brain" brand appliances. Well Brain? Is that a transliteration of a Chinese phrase, or another example of Engrish?

Tlaloc said...

"and they always tend to work toward long-term good."

I'd LOVE to see you support that statement.

Tom Van Dyke said...

Perhaps the day is soon coming that "Made in China" will become a hallmark of quality rather than derision, like "Made in Japan," as opposed to some other third-world buttboil.

Japan's workers, after a good 30 years of paying antlike postwar dues, woke up one day and demanded to be cut in.

Oooops. All societies and orders become victims of their own successes, eh? Lifeboat rules cannot be enforced forever, especially after everybody notices you've hit land.

Since "capital" as we know it was founded on land in the first place, on property rights and more specifically real estate, and is the only commodity that cannot be replicated by either genius or labor (and so is the only one that has true limits), it will be interesting to see how the ChiComs deal with a zillion people per square foot.

Perhaps they'll hire Al Gore as a consultant against urban sprawl.

Since the ChiComs have already made a joke of the concept of intellectual property and thereby taken themselves out of the innovation game (Thomas Edison was quite the entrepreneur---genius is 99% perspiration, and no one works hard for the fun of it), it seems they are working on a busted flush, and are reduced to stealing chips.

But eventually, everybody else in the game gets wise. China is so 2005. A couple of my lawyer pals are opening up Vietnam. Now that's where the action is.