The China Syndrome

More than 1,200 workers from the Tieshu Textile Factory in the Chinese city of Suizhou peacefully blocked railroad tracks this February to protest corruption among factory managers that had cost them nearly $25 million in pay, pensions and investments.

Hundreds of police broke up the demonstration, beating many and arresting six for ​“disturbing social order.” It’s not unusual: Employers increasingly refuse to pay workers what they’re owed — nearly $40 billion in 2002.

The violation of labor rights is the dark side of China’s economic boom. But it’s not just a problem for Chinese workers. It’s also a problem for Manitowoc County, Wisconsin, and Mexican workers in the maquiladora assembly plants along the country’s northern border, as hundreds of factories have moved to China.

In a global economy, an injury to Chinese workers becomes an injury to workers from Wisconsin to Ciudad Juarez. That’s the argument of a groundbreaking trade initiative filed by the AFL-CIO in March. By asking the president to impose tariffs on Chinese products, to negotiate a binding agreement with China to enforce labor rights, and to insist on labor rights protections in all trade agreements under the World Trade Organization, the labor federation is the first to employ a 1988 provision in U.S. trade law that defines systematic denial of worker rights as an unreasonable trade practice.

The petition, prepared by Columbia University law professor Mark Barenberg, argues: ​“China’s unremitting repression of workers’ rights takes wages, health and dignity not only from China’s workers. It also displaces and impoverishes workers — and their families and communities — in the United States and throughout the world.”

The petition argues that suppression of labor rights, including an apartheid-like pass system that subjects rural migrants working in urban factories to a regime of bonded labor, depresses wages below what would exist in a free labor market, giving manufacturers there unfair advantage. As a result, using an economic model employed by the U.S. International Trade Commission, the petition argues that the United States has lost as many as 727,000 jobs to China.

Mark Levinson, chief economist of UNITE, the main apparel and textile union, argues: ​“This is not simply about U.S. jobs. I wanted this to be our vision of the global economy. This is not a protectionist petition. If anything, it’s a critique of the prevailing approach to globalization.” Without worker rights enforced everywhere, he says, a country like China drives wages to the bottom, which are now often as low as 15 to 30 cents an hour for migrant factory workers. As the petition states, ​“the denial of labor rights reduces wages and economic growth, increases inequality and hampers democratic development,” while primarily benefiting a ​“narrow elite.”

All workers theoretically belong to the All China Federation of Trade Unions. But despite some signs of life, it remains ineffective and largely controlled by the Communist Party and factory managers. As Australian National University China expert Anita Chan reports, monthly minimum wages (set locally) have steadily fallen below guidelines set by the national government, and neither the minimum wage nor limits on working hours are being enforced.

The key to China’s distinctive suppression of workers, however, is the hukou, or household registration, system. Workers with a rural hukou, the vast majority of new factory workers, can’t compete for better jobs or receive the housing, health and pension benefits reserved for urban residents. They must obtain a bewildering variety of expensive permits to get urban factory jobs. Often these rural migrants — typically young and disproportionately female — pay for jobs. If they leave, they risk losing their ​“deposits” and permit fees, which together can amount to many months of wages. They effectively become bonded labor, powerless in the face of demands by their employers and confined to the factory and grim dormitories.

“The entrenched myth in China is that peasants will tolerate any degree of suffering, whereas leaders of the Communist Party are most fearful of movements among discontented urban workers,” Barenberg said. Wealth is still transferred from the impoverished countryside to stabilize the cities, but rural migrants now are exploited when they come to town. With as many as 350 million peasants in dire poverty, every year more rural residents enter the workforce than the total of manufacturing in the United States.

Because of this huge supply of labor, Nicholas Lardy, a China expert at the Institute for International Economics, argues: ​“I just find it quite frankly very implausible that if Chinese workers have the right to organize, they could raise their wages by the amounts suggested [in the AFL-CIO petitition]. … Their wages are going to be a teeny fraction of U.S. wages regardless of institutional arrangements.”

Barenberg argues that Chinese wages would rise significantly if minimums were enforced and if workers were not chained by the hukou system. He concludes that ​“China’s labor repression lowers manufacturing wages by 47.4 percent to 85.6 percent,” and consequently lowers the price of exports by 11 to 44 percent.

“Sure, millions of jobs would go to China even if China were enforcing worker rights,” Barenberg acknowledges. ​“But on the economic margin a lot of jobs would not go to China.” Lardy agrees that if enforcing worker rights brought big wage increases, China’s export advantage would shrink.

As foreign investment flows into the country and peasants into the cities, the ​“supply shock” of Chinese manufactured goods is likely to be devastating — especially when quotas for exports of apparel and textiles to the United States and Europe end in December. The United States may lose 650,000 apparel and textile jobs, including about 1,300 textile plants, over the next two and a half years. But according to U.N. Development Program data, dirt-poor Bangladesh and Indonesia will lose up to 1 million apparel and textile jobs to China, and Central America and the Caribbean could lose half that.

Bush has 45 days from the filing to decide whether to review the case. For the sake of politics he might accept a review, but for the sake of his corporate buddies it’s certain he will do no more. If Senator John Kerry, who offered a somewhat sympathetic reaction to the petition, wins, this could be the first test of whether he’s willing to adopt a new vision of a more equitable global economy.