China’s Division of Labour

How many Chinese people does it take to change a lightbulb? Well, if their Government has anything to do with it, it could be quite a few. The other day in the small supermarket in Dalian’s state-run Friendship Store, I counted 50 uniformed staff. If I look out of my window I can see two elderly men sweeping the dust up and down the same bit of the same road. And it’s also not unusual to find three people staffing a small public bathroom in a public park.

It’s not just public places, though. An average large-sized restaurant typically has up to four women stationed permanently at the door to squawk welcomes and goodbyes at the diners. Big hotels have, in addition to a couple of porters and bell-boys, someone whose job seems to be to ‘help’ people use the revolving doors, which creates obvious difficulties for anyone wanting to get in or out.

Neither is it just Chinese-run businesses. The German-owned wholesaler Metro has literally dozens and dozens of floor staff standing around looking very very bored, while the lucky ones get to whizz around in forklift trucks. They also employ one poor guy to stamp your recept immediately after the checkout staff have given it to you.

I don’t know how the system works. Maybe businesses of a certain size are obliged to employ a certain ratio of people. But the smell from the average Chinese public toilet is enough to tell you that employing all these staff does not result in higher efficiency and a better service – quite the opposite, in fact.

In the supermarket, for example, there are often three or four people in the aisle pointing things out to you and encouraging you to buy them instead of whatever you’ve chosen. However, if you try to find out what the difference is, they can only claim that it is ‘better’. They don’t know why. It’s the same if you try and buy a DVD player, or anything related to your computer. I find that I know more about it than they do. And I’ve been convinced many times that I would do a better job of driving a taxi or a bus than the person employed to do so, despite the fact that I’ve only ever had one driving lesson in my life, and that was a disaster. Even more worrying is coming across articles like this. There is a strong sense that any given person doing any given job in China only has a limited understanding of what they’re supposed to be doing.

Why is this so? I don’t believe any racist nonsense about how the Chinese are any more or less inventive or incompetent than anyone else. My own pet theory is this: After Mao and his henchmen and women had driven anyone with any expertise to madness or suicide, or just plain beaten them to death, there wasn’t that much know-how and learning to go around amongst such a rapidly growing population – and the tradition of passing expertise and wisdom on to future generations had itself received quite a beating.

You can see this clearly in the realms of cultural ‘products’ – although China is the ‘factory of the world’, what cultural exports has it produced in the last few years, apart from those tourist-friendly films celebrating China’s glorious past?

Another enduring legacy of that time is that people don’t seem inclined to challenge anyone in a position of responsibility, even if it’s obvious that they don’t know what they’re doing. Maybe this is an ongoing reaction to a time when nobody’s position was secure, apart obviously from that of the Great Helmsman. The Government soon recovered its authority, and people nowadays tend to regard any form of authority with craven face-saving respect.

So, the Government is desperate to keep people busy, to give them a stake in China’s future and make them believe in the Chinese dream. At least, that’s the charitable point of view. However, in China today those who aren’t lucky enough to find jobs in foreign-owned factories producing inferior-quality goods for export, or unfortunate enough to labour day and night building the unaffordable apartment blocks and hotels that crowd out the skyline of China’s cities, are paid subsistence wages to perform utterly meaningless tasks.

Whatever about Socialism with Chinese Characteristics, I’m sure this wasn’t what Marx and Engels had in mind. And Margaret Thatcher would sleep even less at night at the thought of a public toilet staffed by three salaried employees!

As we all know, low wages are the reason for China’s economic ‘miracle’. And those low wages are the subject of a very interesting article by Andy Xie (it’s the second article on the page), in which he points out that in other fast-developing economies in the past (he talks mostly about South Korea) there was a point at which a labour shortage developed, and wages had to rise.

The crucial point about China, though, is its size. China is starting to run out of land and natural resources – hence the drive to send migrant labourers to Africa to work in Chinese-owned factories. But it will be a very long time before it runs out of peasants prepared to work for very low wages in unskilled jobs. This means that wages will not rise in a country where the supply of labour is basically unlimited and workers are prevented from making demands.

What this means for China, I think, is two things. One is that those new apartment blocks will not rise in price as expected, and there will be some sort of crisis when speculators realise this and stop investing. I think this will lead to big problems for Chinese banks. Andy Xie puts it better than I can:

The fact that Chinese workers benefit little from their productivity gains has profound implications for China’s property market and commodity prices. Property values tend to rise in line with labor income in the long term. Property speculators assume that China’s economic growth will deliver rapid wage growth, and, hence, that they are just front-running Chinese workers in pushing up the prices first, i.e., Chinese workers will buy from them at higher prices with their higher wages in the future. I believe this is an illusion.

The second thing is at some point there will be social unrest related to the failure of wages to keep up with commodity prices. Andy Xie again:

The prices that China can afford depend on wage levels more than the overall size of the economy. The Chinese economy has been expanding rapidly on employment rather than wage growth. In the end, the burden for bearing the costs of raw materials comes down to the income of each consumer. Chinese consumers are just not becoming rich fast enough to catch up with the rapid increase in commodity prices.

But I also believe that all of this has dramatic implications not just for China. China is the ‘factory of the world’ – as we can see right now with the worldwide crisis in the textile industry, companies from other countries will continue to face stiffer and stiffer competition from Chinese exports. And who is going to pay? I think Andy Xie may have just hit the nail on the head with his final point:

In summary, the global financial markets are speculating in China-related assets, in the belief that Chinese prices will rise to OECD levels. I believe that OECD prices are more likely to fall towards Chinese levels.

My own point is this: I don’t think that it’s just commodity prices that are going to fall across the world. Chinese wages are not going to rise to OECD levels. I believe that OECD wages are going to fall torwards Chinese levels.

You know, from a certain perspective, I think that might just be what Globalisation is all about.

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