Among all the low-wage nations in the world, China has become the ultimate threat to U.S. workers. The combination of misery-level wages and a highly efficient repressive apparatus, serving a slavishly pro-corporate government, gives China the best “business climate” imaginable for U.S. corporations.
China’s average manufacturing wage levels had been about 3 percent of U.S. wages, below the still-miserable 10 percent of Mexican workers, according to economist Jeff Faux in The Global Class War.
But Wisconsin has just witnessed a major firm moving some production back from China due to sharply rising costs. Master Lock, a subsidiary of Fortune Brands, has brought back three dozen jobs to its highly-automated lock-making operation in Milwaukee, where it now employs a total of 379.
While the initial gain in jobs is very modest, this could potentially lead to other firms re-thinking their long-term strategie built around low-wage labor. It certainly ought to encourage progressive public officials and labor to renew their push for an industrial policy to revitalize our manufacturing base.
Throughout the 1990s, Master Lock had ended the vast majority of production in Milwaukee at its giant inner-city lock-making factory, which employed 1,300 UAW Local 444 members. It shifted the jobs mostly to China, with some going to Mexico.
The shutdown was yet another blow to Milwaukee’s North Side industrial belt, which has also lost tens of thousands of jobs at plants like AO Smith (later Tower Automotive, Chrysler, Johnson Controls, and Briggs & Stratton). The loss of almost 1,000 union jobs added to the neighborhood’s fast-rising poverty.
But Master Local made the surprise move back to Milwaukee after being hit with a series of major cost increases in China:
HIGHER WAGES: Despite the lobbying and exit threats of U.S. corporate leaders, the Chinese government – facing a shortage of workers and a a rising tide of labor revolts at high-profile firms like Honda and Foxconn—has been forced to recognize labor rights. Thirty provinces have raised the minimum wage, some by over 20 percent. Wages are now at about the same level as Mexico, some experts say.
US-based firms had managed to water down a package of labor-law reforms providing worker rights that was proposed in 2006: “American and other foreign corporations that have lobbied against it by hinting that they may build fewer factories here.” But the multinationals could not hold back the mounting wave of worker unrest forever.
However, despite the recent raises in wages, it would be highly premature to imagine that China’s industrial workers are gaining a fair share of the vast wealth they produce.
China – despite all the hype about its emergence as an economic superpower – is “booming” only for a small minority while workers and the rural poor continue to live in misery. “One standard measure of social health is the U.N. Human Development Index,” Noam Chomsky points out. “As of 2008, China ranks 92nd—tied with Belize, a bit above Jordan, below the Dominican Republic and Iran.”
Further, inequality has been increasing: “The labor income share of Chinese G.D.P. declined from 57 percent in 1983 to only 37 percent in 2005. (The ratio has stayed at that level since then.)”
RE-VALUED CURRENCY: Under severe pressure from the Obama administration in response to China’s enormous trade surplus with the US, China has lowered the exchange rate between the dollar and the tightly-controlled value of its yuan. With the dollar now worth 20% less against the yuan, US goods are now more competitive world-wide.
SHIPPING COSTS SOAR: Shipping costs from Chinese ports have quadrupled in the last year.
These jolts encouraged Master Lock to look back at the plant where it first rose to proimince, back in Milwaukee. Unlike many other firms, Master Lock did not entirely shut down its production operations and sell off or demolish its old plant.
The corporation decided that it did not want to be entirely dependent on China, where it leases space in three plants and has about 20 vendors providing parts. Master Local senior vice president Robert Rice explained the corporate strategy, as the Milwaukee Journal Sentinel reported:
“If you divested in capital equipment and put all your eggs in the China basket, it means you could get caught in the China bubble,” said Rice, who visits China four times a year.
“If you get caught in the China bubble, you have to chase production to the next low-cost player.”
Often that means Thailand or Vietnam, which are fine for shoes and textiles. But Rice and others say those nations lack China’s first-world infrastructure, supplier networks and its ranks of university-trained managers and engineers.
These days, Milwaukee can make locks from start to finish that are cost competitive with Asian rivals. Turning everything around, Master Lock even exports locks to China and Europe from Milwaukee, Rice said.
The return of 36 jobs to Milwaukee’s North Side industrial belt represents just a tiny portion of the 80 percent of manufacturing jobs which Milwaukee lost between 1977 and 2002. But Master Lock’s move back to Milwaukee has a much larger significance than the sheer numbers.
It demonstrates that corporations do not become all-powerful in controlling everything affecting their bottom lines once they move operations offshore. Many CEOs may harbor a fantasy of “putting every factory on a barge” to continually seek out the cheapest labor, as former GE CEO Jack Welch memorably put it, but workers will finally tolerate only so much exploitation.
Further, even with all their power to play governments off against each other, corporations like Master Lock still face unpredictable circumstances that ultimately can force them to rely upon the productive base of the US and American workers.
INDUSTRIAL POLICY NEEDED
What would it take to start the rebuilding of US manufacturing with more jobs returning from Mexico and China? Imagine the possibilities if the federal government developed a large-scale industrial policy – spanning training workers in new skills, providing energy savings, and the promotion of products needed by the public sector (eg., transportation and energy-generating equipment), sensible tax policies to reward domestic producers– that would encourage firms to stay in the US, provide decent wages and benefits, and recognize unions.
But such a step toward more economic democracy would surely provoke howls of protest from free-market fundamentalists who want no public voice in the economy – only public subsidies without any strings.
And it would also require a fundamental shift in strategy among CEOs who are convinced that the low road — paying the lowest possible wages and the avoidance of any civic responsibility for needs like health and education — are the route to long-term success.