Reports from the Economic Front

by Martin Hart-Landsberg

Archive for the ‘China’ Category

Chinese Economic Woes

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China’s economy is dramatically slowing and this has significant consequences for world growth.

The following figure provides a good visualization of the slowdown and why official statistics likely overstate China’s current official growth rate of 7%.

shrinking chinese economy

As you can see, several key indicators of economic health have fallen sharply compared to their 4 year average.  For example, electricity output has basically stopped growing compared to its four year average growth rate of 5%.  Auto sales are in negative territory as are imports, including of key industrial commodities.

The trend in official Chinese government growth statistics leaves no doubt that the country’s rate of growth is slowing: 10.6% in 2010, 9.5% in 2011, 7.8% in 2012, 7.7% in 2013, 7.4% in 2014, and 7% for the first half of 2015.  But, as DW-Asia explains:

Weaker growth, a volatile stock market and faltering exports have highlighted the weakness afflicting the Chinese economy. Experts, however, fear China’s woes are much more serious than what the official data suggest. . . .

Furthermore, concerns abound about bubbles building up in the economy. For instance, analysts at global bank Credit Suisse believe that China is undergoing a “triple bubble” – a combination of the third-largest credit bubble, the biggest investment bubble and the second-biggest real estate bubble of all time.

Many analysts believe that Chinese growth figures are heavily adjusted to ensure that the country hits announced government targets.  They therefore study the performance of more easily measured indicators of economic activity, like electricity output, auto sales, and imports of key industrial commodities.  These indicators, as illustrated above, are in sharp decline and as the Wall Street Journal reported:

When China released its tabulation of first-quarter growth earlier this month, the 7% figure—the worst in six years—stirred fears of a deepening slowdown.

It also raised fresh doubt about the trustworthiness of China’s own statistics.

“Growth Likely Overstated,” said a Citibank report, concluding that actual quarterly growth could be below 6% year to year, depending on the factors weighed. Other research firms put their numbers far lower, with Capital Economics pegging the quarter at 4.9%, the Conference Board’s China Center at 4% and Lombard Street Research at 3.8%.

China’s recent decision to allow its currency to devalue is one measure of government concern.  The government no doubt hopes that the devaluation will jump-start exports and growth but this is unlikely given the general weakness in demand in most markets.

In fact, China’s economic slowdown will itself translate into a deepening global slowdown.  As the country’s growth slows so does its demand for parts and components produced in other Asian countries and primary commodities purchased from Latin American and sub-Saharan countries.  And as growth in all three regions declines this can be expected to put downward pressure on growth in core countries, especially Japan and Germany, both of whom also rely on an export-led growth strategy.

Written by marty

August 13th, 2015 at 9:00 pm

Signs Of Global Slowdown

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There are growing signs that the global economy is slowly but steadily heading into another period of stagnation.

Global growth since the 2009 world financial crisis has largely been driven by the third world; developing Asia alone accounted for almost 60% of world growth over the period 2009 to 2014.

However, the economic fortunes of most third world countries, including those in developing Asia, are now being pulled down by weak core country growth.  And this development will in turn deepen economic problems in Japan, most Eurozone countries, and even the U.S.

For example, Asian growth has largely been fueled by exports to advanced capitalist countries, in particular the U.S.  However, as a result of core country economic difficulties developing Asian countries have seen their exports plummet. The following figure shows year-on-year export growth for developing Asian countries; the last data point (April 2015) is an average growth rate only for Korea, China, and Taiwan.

export growth rates

The next figure shows that all of Asia’s leading economies are suffering a similar fate, with their exports now barely growing in value compared with growth rates of over 40% in 2010.

NA-CA967_OUTLOO_G_20140427160604

The Wall Street Journal explains what is happening as follows:

For decades, Asia fueled its development by selling products to the West. That engine is now sputtering, threatening to sap the region’s economic expansion. . . .

Today, it is unclear whether exports can still provide that oomph. Overall growth is slowing in many Asian nations, forcing policy makers to ponder whether demand from their own consumers can fill the void.

“That model that Asia had of relying on the trade channel—that’s gone,” said Markus Rodlauer, deputy director for Asia and the Pacific at the International Monetary Fund in Washington.

The following figure shows aggregate exports by destination for six leading Asian economies: China, Hong Kong, Korea, Singapore, Taiwan and Thailand.  The declines in sales to Japan and the EU are especially striking.  However, even intra-Asian export growth has fallen, in large part because of China’s slowing economic activity.

asian-exports

To this point, Asian economic growth has not fallen as much as one might expect given the export trends highlighted above.  Perhaps the main reason is that China’s massive investment spending has, up to now, served to support Asian exports, although at a reduced rate.  But China’s investment first policy has largely run its course, leaving the country with a growing number of empty towns, shopping centers, theme parks, airports, and high-speed rail lines and its regional governments deep in debt.

Here is one illustration of the problem from the South China Morning Post:

When officials reopened the airport on the sparsely populated Dachangshan island off the mainland’s northeast coast after a US$6 million refurbishment in 2008, they planned to welcome 42,000 passengers in 2010 and another 78,000 in 2015.

However, fewer than 4,000 passengers – or just a 10 a day – passed through its gates in 2013, data from the civil aviation authority showed.

Since February last year [2014], China has approved at least 1.8 trillion yuan (HK$2.3 trillion) in new infrastructure projects to counter a slowing economy. The approvals come just as the full costs of the underused airports, expressways and stadiums built during the last spending binge are beginning to emerge.

While construction firms profited from the boom, it saddled provincial governments with US$3 trillion worth of debt, with the most over-exuberant seeing their local economies weaken and become imbalanced towards the building sector.

As noted above, some analysts believe that Asian governments are likely to try and compensate for the loss of demand from stagnate exports by supporting policies to boost domestic consumption.  However, this is extremely unlikely.

To put it bluntly, governments throughout the region remain committed to their export growth strategies.  This has left them locked in competition to attract and hold corporate investment and determined to keep labor costs as low as possible.  The Chinese government, for example, has decided to counter the recent rise in labor activism and wages by engaging in a massive push to replace workers with robots.

As the New York Times reports:

Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the case in the United States and other developed countries. That may make it significantly more difficult for China to address one of its paramount economic challenges: the need to rebalance its economy so that domestic consumption plays a far more significant role than is currently the case.

Another indicator of global fragility is the decline in commodity prices.  Of course this trend is largely a consequence of the previous one.  Asia’s export decline has translated into a decline in regional manufacturing activity and a fall in the demand for as well as price of most commodities.  The following figures from the Guardian illustrate this trend.

gold

crude

platinum

aluminum

copper

iron ore

These sharp declines in commodity prices threaten to dramatically slash rates of growth in sub-Saharan African and Latin American countries, most of whom depend on exports of these commodities to finance the imports they need to support domestic production and consumption.

In brief, growth prospects in core countries are poor.  As a consequence, developing Asia faces the exhaustion of its export-led growth strategy.  And the same is true for sub-Saharan Africa and Latin America.  Compounding global problems is the fact that Germany and Japan continue to embrace their own export-led growth strategies and U.S. growth is unlikely to prove strong enough to ensure sufficient global demand.

In sum, without significant structural changes in most economies, changes that include support for policies designed to boost majority living and working conditions or said differently privilege people over profits, workers everywhere are in for a long period of economic hardship.

Growth Is Not Development: The Chinese Labor Experience

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Growth is not development.  The Chinese labor experience is a good example of this.  In brief, despite record rates of growth, the Chinese economy has failed to generate formal sector jobs.  In fact, there were fewer formal sector urban workers employed in 2010 than in 1990.  All the job growth has been outside the formal sector, which means that a growing percentage of Chinese workers are not covered by the country’s labor law, and their wages, benefits, and working conditions are not captured by official Chinese labor statistics.

From 1979 until 2010, China recorded an average annual GDP growth rate of approximately 10%, a thirty year growth rate unmatched by any other country.  The country’s rate of growth is now slowing, from 10.6% in 2010, to 7.7% in 2012, and 7.4% in 2014.  Of course those are official rates of growth.  According to most analysts, Chinese growth was probably closer to 5% in 2014 and, despite government efforts, likely to continue to slow.

But what about the labor experience?  In “Misleading Chinese Legal and Statistical Categories: Labor, Individual Entities, and Private Enterprises,” a 2013 article published in the journal Modern China, Philip C.C. Huang describes the evolution and application of Chinese labor law, highlighting its relevance for and growth of different categories of labor.  As he explains, Chinese statistical categories recognize four main types of labor activity based on the legal standing of the employing firm: labor by “employee-workers,” labor by workers employed by legally registered “private enterprises,” labor by people in legally registered “individual entities,” and “unregistered” labor.

Only “employee-workers” are considered formal sector workers and covered by the country’s labor law.  The following table, with numbers expressed in units of 10,000, shows that there were almost 128 million urban formal sector workers employed in China in 2010.

Formal sector

Significantly, as the next table illustrates, both the number and percentage of workers employed in the formal urban economy are shrinking.  The number employed in the formal economy in 2010 was less than the number employed in 1990.  As of 2010, only 36.8% of all workers in the urban economy were employed in formal sector jobs.  In short, all the growth in urban employment over recent decades has been in categories not covered by Chinese labor law, which means that those workers are not covered by legally established minimum wage, overtime regulations, and social benefit requirements.

labor trends

Who are the workers employed outside the formal sector?  “Private enterprises” are mainly legally registered small-scale businesses averaging 13-15 people.  As Huang describes: “They are also as a rule not formally incorporated as a limited liability entity with separate ‘legal person’ status and are therefore not considered legal ‘employing units’ that are involved in ‘labor relations’. . . . These small businesses rely mainly on the cheapest labor available, the majority of them on disemployed workers and peasant-workers, who are considered to be only in a casual work relationship with them and for whom they need provide no benefits.”

“Individual entities” include legally registered small scale operations employing one or perhaps two people, usually the owner and a family member or friend.  In the largest cities, these workers are “largely engaged in wholesale and retail trade (mainly of daily necessities and clothing), followed by small and modest eateries and hostels, domestic and other services, and transport work. . . .Regardless, the great majority of the people operating the individual entities come from the ranks of the disemployed urban workers and the migrant peasant-workers.”

“Unregistered” workers are those, as the category name implies, whose work is unregistered and therefore largely illegal or extralegal.  They are primarily “newer and less established peasants-workers working in the lowest levels of the informal economy, as temporary construction workers, janitors, itinerant peddlers or stall keepers, guards standing outside residential compounds and commercial buildings the help in eateries and hostels domestic servants manual transport and loading-unloading workers, and the like, many of whom work in the shadow of the law without permits, truly members of the so-called floating population.”

Unregistered workers “appear in the official state statistical tallies only as the difference between those who have registered with the official state administrative entities and the actual numbers of laborers counted up by the decennial population censuses (which have made every effort to enumerate every person living and working in the cities).”  As we can see from the table above, the number of unregistered urban workers are quickly catching up to the number of formal sector urban workers.

The critical point here is that despite record rates of growth few formal sector jobs have been created in urban areas.  That means that official Chinese labor laws and regulations cover a relatively small and declining share of Chinese urban sector workers.  As a consequence, the great majority of urban workers suffer from conditions far worse than do formal sector workers.

At the same time, things are far from rosy for most formal sector workers.  For example, many companies, especially foreign owned companies, have been actively seeking to weaken formal sector job rights by employing so-called dispatched workers and student interns to avoid paying the wages and benefits mandated by Chinese labor law.  It is therefore not surprising, as recent labor struggles make clear, that even workers in the formal sector have been forced to take direct action to ensure compliance with their country’s labor laws and improve their working conditions.

Written by marty

May 17th, 2015 at 6:15 am

A Critical Look At Capitalist Globalization

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My latest article, on capitalist globalization, appears in the current issue of the journal Critical Asian Studies.   For a limited time the journal is making it freely available.  Here is the abstract and below it a link to the article itself.

 

From the Claw to the Lion

A Critical Look at Capitalist Globalization

Abstract:

This article argues that capitalist globalization is largely responsible for creating or intensifying many of our most serious economic and social problems. It first describes the forces that drove core country transnational corporations to create a complex system of cross-border production networks. It then maps the resulting new international division of labor, in which Asian countries, especially China, import primary commodities from Latin American and sub-Saharan African countries to produce exports for core countries, especially the United States. In core countries, globalization has led to the destruction of higher paying jobs, financialization of economic activity, and stagnation. While the new international division of labor has boosted third world rates of growth, especially in Asia, it has also left the third world with unbalanced and inequitable economies. Moreover, contradictions in the globalization process point to the spread of core country stagnation to the third world. Capitalist globalization has increased third world dependence on core country consumption while simultaneously undermining core country purchasing power. The article ends by discussing a process and program of transformation that highlights the feasibility of an alternative to global capitalism as well as the organizational capacities and institutional arrangements that must be developed if we are to realize it.

The article can be read or downloaded for free here.

Worker Struggles At Samsung

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Our media celebrates the dynamism of our leading technology companies.  The message is that our world would be better if only other businesses could replicate their practices.

Not surprisingly, it is their products not their labor practices that draws the most attention.  Unfortunately, many of the firms on the cutting edge of technology also tend to be leaders in fashioning the most alienating and exploitative labor practices.

It took suicides and strikes to bring attention, if only for a short period, to the dreadful working conditions in the China-based factories that produce Apple products.  See here and here.

Samsung, the leading Korean technology company and Apple’s main competitor, is no better. Samsung has used all means possible to keep its operations non-union.

The following is the beginning of an interview with Sunyoung Kim, the chair of the Samsung Electronics Service Union, about the union’s recent victory, becoming the first recognized union in the company’s 76 year history. The interviewer is Dae-Han Song, the International Strategy Center’s Policy and Research Coordinator. 

Sunyoung Kim: We started the union because of the harsh working conditions. Sometimes, we might work twelve to thirteen hours a day, and still not make the minimum wage. You might come to work on Saturday or Sunday from 8:00 to 6:00 PM and come out on the minus. Why? Because you didn’t get paid, but you still had to pay for lunch and gas. You even had to pay for your own training from Samsung. In addition, our work is dangerous, whether it is installing air-conditioning, or climbing a wall, or working with live electricity. Despite these dangers, the company doesn’t provide any safety equipment. We have to wear neckties even when working with moving parts. They force us to wear dress shoes even when working on a roof in the rain, just for the sake of maintaining a clean and professional image.

Dae-Han Song: How can a person work 12 to 13 hours a day and not even get paid the minimum wage?

Sunyoung Kim: It’s a system based on commission. There is no base pay. You are basically a freelancer. You come in to work, and if there is work you work if there is not then you just stay in the office. However, while a real freelancer can decide whether or not to show up to the office, we have a specified clock in and clock out time. When there is work, we just keep working. In the summer, there’s a lot of work: air conditioning, refrigerators. So, we just keep on working until everything is done. Not only is working such long hours exhausting, it is also exhausting doing so in the summer heat. Sometimes you don’t get home until 12:00 AM and can’t even rest on the weekends. That’s when we make our money that carry us through the fall, winter, spring when there is little work. In these off seasons we might sometimes just get one or two calls in a day and since we get paid by commission, if we don’t work, we don’t get paid.

The complete interview was published by the Korea Policy Institute, an excellent source for information on Korea, and can be found here.

samsung9.14-480x396

 

 

Written by marty

October 11th, 2014 at 12:23 pm

Still The World’s Top Military Spender

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According to the Stockholm International Peace Institute, the United States remains the world’s top military spender. In fact, U.S. military spending equals the combined military spending of the next ten countries.  And most of those are U.S. allies.

Top 15

Although declining in real terms, the U.S. military budget remains substantial and a huge drain on our public resources.  As the following chart shows, military spending absorbs 57% of our federal discretionary budget.

discretionary spending

 Notice that many so-called non-military discretionary budget categories also include military related spending. For example: Veteran’s Benefits, International Affairs, Energy and the Environment, and Science.   We certainly seem focused on a certain kind of security.

 

Written by marty

July 17th, 2014 at 1:04 pm

Capitalist Dynamics And Labor

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The recent International Labor Organization (ILO) Global Wage Report examines trends in the distribution of income between labor and capital.  It finds that:

An outpouring of literature has provided consistent new empirical evidence indicating that recent decades have seen a downward trend for the labor share in a majority of countries for which data are available.

The OECD has observed, for example, that over the period from 1990 to 2009 the share of labor compensation in national income declined in 26 out of 30 developed economies for which data were available, and calculated that the median labor share of national income across these countries fell considerably from 66.1 percent to 61.7 percent.

This trend comes at real cost to working people. Tali Kristal, in an article published in the June issue of the American Sociological Review, provides an estimate of the cost to U.S. workers.   Over the years 1979 to 2007, labor’s share of national income in the U.S. private sector fell by six percentage points.  If labor’s share had stayed at its 1979 level (about 64 percent of national income), the 120 million American workers employed in the private sector in 2007 would have earned an additional $600 billion, or an average of more than $5,000 per worker.   However, as Kristal noted: “this huge amount of money did not go to the workers. Instead, it went to corporate profits, mostly benefiting very wealthy individuals.”

The following three figures, taken from the ILO report, highlight the global nature of this trend.  Figure 31 shows the decline in labor’s share of income for 16 advanced capitalist countries taken as a group and then separately for the U.S., Germany, and Japan.

As the ILO explains:

(W)e observe that the simple average of labor shares in 16 developed countries for which data are available for this long period declined from about 75 percent of national income in the mid-1970s to about 65 percent in the years just before the global economic and financial crisis. . . . The global economic crisis seems to have reversed the decreasing trend only briefly. . . . The OECD, for example, observed: “In times of economic recession, this decline [in the wage share] has typically paused, but then subsequently resumed with a recovery.  The recent economic and financial crisis and subsequent sluggish recovery have not deviated from this general pattern.”

core countries

Figure 32 examines developing and emerging economies and reveals similar labor income trends for different groups of countries.  For example, DVP3, the diamond symbol, represents the unweighted average of Mexico, Korea, and Turkey. DVP5, the square symbol, adds China and Kenya.

Third world

Figure 33 highlights labor’s declining share of national income in China.

China

The downward pressure on living conditions for workers is far worse than the above trends would suggest. These trends just capture the division of income between workers and owners of capital.  Wage inequality has also grown substantially.  As the ILO explains, “If the labor compensation of the top 1 percent of income earners was excluded from the computation, the drop of the labor share would appear even greater.”

One important take away from the above is that capital’s growing profitability is increasingly based on its ability to depress worker earnings.  Figure 36 shows the growing gap between the growth in labor productivity and average wages in 36 developed capitalist countries.  Since the data is based on a weighted average, the trends are largely dominated by developments in the United States, Germany, and Japan.

Productivity

Another take away is that we cannot understand the weakening of labor’s power simply in national terms.  In other words, it appears that every nation is being restructured by a global accumulation process that has enabled transnational capital to use its mobility to undermine the social institutions and solidarity that previously supported labor’s bargaining strength.  And, national states have greatly contributed to this outcome by aggressively promoting free trade agreements.

Written by marty

June 19th, 2013 at 4:38 pm

“Occupy” With Chinese Characteristics

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The Asia Times Online calls it “‘Occupy’ with Chinese Characteristics.” Whether Chinese activists identify with the Occupy Movement is unclear.  What is clear is the growing activism of:

a confrontational vanguard of young people – high school students and twenty-somethings (collectively known as “after 80s” and “after 90s” for their birth years) who appear quite happy to mix it up violently with the cops and cadres.

The most recent confrontation took place on July 28thin Qidong.   Qidong, as the Austalian Socialist Alternative explains,

is located on an estuary of the Yangtze River; across the way stands China’s biggest city, Shanghai. The Yangtze River Delta is one of China’s richest regions, but high speed economic development has come at the cost of severe environmental destruction. For example, more than half of coastal areas in Jiangsu province (where Qidong is located) are categorised as “seriously polluted zones” by the Ocean and Fishery Bureau. The main source of pollution is the industrial wastewater illegally discharged by corporations.

The Chinese government wants to build a new pipeline that would take wastewater from a special economic zone near Shanghai to a major Qidong fishing port on the Yellow Sea.  The pipeline would serve a paper mill and nearly completed pulp plant, both of which are owned by a large Japanese multinational, Oji Paper Company of Japan.  The people of Qidong don’t believe Chinese government claims that the wastewater will be safe and have voiced opposition to the pipeline since 2009 when the government first proposed its construction.  

THE RESISTANCE MOVEMENT IN ACTION

Here is a report from a Japanese newspaper about what happened in Qidong:

About 5,000 people filled the streets in central Qidong before 6 a.m., when the rally began. The protesters began chanting, “Protect the environment” against the dangers posed by a plan for a drainage pipeline into local waters.

But less than 10 minutes later, the crowd broke through a row of police officers blocking the main street and started marching toward the city government building 1 kilometer away. The demonstrators became louder after they reached the building.

Several minutes later, they pulled down the steel gate and swarmed over the premises.

About 2,000 occupied the inner courtyard, several thousand on the street in front of the city government building and many others in nearby structures overlooking the building, bringing the total of protesters to more than 10,000.

Here are some pictures that help to give a feeling for the day’s events:

 

This was, as Socialist Action describes, a well planned action:  

In order to stop this disastrous project, small-scale protests had been occurring since June, but were suppressed by the local government with various means. When China’s summer school holiday began in July, many students in Qidong decided to help build a bigger protest movement. They used social media to spread the information, but also produced many leaflets “To the people of Qidong” and distributed them in shopping centres and other public spaces. . . .

Big banners of petition with countless signatures were carried in the middle of the column, saying “Resolutely Resist Oji Paper Discharging Wastewater at Qidong”. Organisers equipped with megaphones led the chanting: “Opposing Oji Paper, defending our home!” A teenage woman, holding an anti-pollution t-shirt with her mother, marched proudly in the front of the contingent. More people arrived. The demonstration was growing like a rolling snowball.

People were taking photos from the roadsides and posting them online. Within hours, the news of Qidong had spread like a wild fire nationally. . . . Some shops offered free bottled water and bread to the protesters as support.  A 70-year-old woman reproached the cops: “These kids are doing the right thing, don’t disrupt them.” Most of the police personnel who arrived in the morning were local residents, whose families would be affected by the pollution as much as the protesters, so they generally sympathised with the cause. Moreover, they were heavily outnumbered so could not stop the protesters anyway!

Outside the municipal building, the protesters demanded that the government stop Oji Paper from building industrial wastewater pipes. The officials rejected the demand with the excuse that the government would have to pay a great amount of compensation to the company if they cancelled the project. The response enraged the crowd and thousands of protesters stormed the building. They surrounded the party secretary (the highest government official in a city) and asked him to wear an anti-pollution T-shirt. On his refusal the protesters stripped him naked and chased him around.

Large quantities of poker cards, condoms, expensive cigarettes and imported wine were found in those officials’ offices. These things were displayed on the roadside as evidence of government corruption.

The outcome, as reported by Asia Times Online, was a victory for the demonstrators:

The announcement posted on the Qidong municipal website on July 28, the same day as the demonstrations, stated:

After careful considerations, the Nantong City Government has decided to halt the implementation of the Nantong Large-Scale Project for Expelling Standards-Meeting Water into the Sea in Qidong.

An electronic billboard in Qidong displayed a less nuanced, more crowd-pleasing message on the same day, even as demonstrators were gathered in the city center:

After careful consideration, the Nantong City Government has decided to cancel this project for ever. 

MOVEMENT BUILDING

The Qidong protest was no isolated event.  For example, it followed the three day June struggle in Shifang (in Sichuan province, Southwest China) to halt the construction of a copper smelter.  According to Asia Times Online,

In Shifang, activists among a crowd of several thousand attempted to bumrush the municipal government building, but were repelled in a police action that turned into something of a police riot. The result was dozens of serious injuries inflicted on agitators, demonstrators, and hapless bystanders alike, and a marked swing in national popular sympathy toward the demonstrators.

Despite the repression, the activists did succeed in forcing the government to cancel the project.  Socialist Action notes that the Shifang action was itself inspired by:

a 100,000-strong demonstration in Dalian (in Liaoning province, Northeast China) last year, which compelled the local government to promise to move a chemical plant. . . . 

From Dalian to Shifang, then to Qidong, young people dominated. They used social media to organise their actions, their enthusiasm to agitate the masses and their bodies to fight the cops. Many of them were born after 1989, but they have inherited the spirit of Tiananmen Square. Such a generation of youth are not only active in environmental struggles, but also in the strikes taking place in the factories of Pearl River Delta, in the land rights uprisings occurring in the villages of Guangdong, in the battles against police brutality that occur in every city on a daily basis.

There is a lot going on in China that is not reported in this country.  While there is indeed labor repression there is also resistance fueled by the desire of many Chinese to change the direction of their country. Rather than seeing ourselves locked in some kind of zero sum economic competition with China, we should be looking to connect with Chinese activists, sharing experiences and strategies.  After all, we also are in desperate need of a change in direction.

Written by marty

August 6th, 2012 at 5:33 pm

Declining Faith in Hard Work and Capitalism

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The Pew Research Center recently published a report titled “Pervasive Gloom About the World Economy.” The following two charts come from Chapter 4 which is called “The Causalities: Faith in Hard Work and Capitalism.”

The first suggests that the belief that hard work pays off remains strong in only a few countries: Pakistan (81%), the U.S. (77%), Tunisia (73%), Brazil (69%), India (67%) and Mexico (65%). The low scores in China, Germany, and Japan are worth noting. This is not to say that people everywhere are not working hard, just that many no longer believe there is a strong connection between their effort and outcome.

The second chart highlights the fact that growing numbers of people are losing faith in free market capitalism.  Despite mainstream claims that “there is no alternative,” a high percentage of people in many countries do not believe that the free market system makes people better off.

 

GlobeScan polled more than 12,000 adults across 23 countries about their attitudes towards economic inequality and, as the chart below reveals, the results were remarkably similar to those highlighted above.  In fact, as GlobeScan noted, “In 12 countries over 50% of people said they did not believe that the rich deserved their wealth.

It certainly seems that large numbers of people in many different countries are open to new ways of organizing economic activity.  This is a hopeful development.

Written by marty

July 27th, 2012 at 2:21 pm

Apple And The Labor Process

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Contemporary capitalism, driven by the competitive pursuit of private profit, tends to produce a stream of innovative goods and services. Of course this drive for private profit generally ensures that these goods and services will be the ones that are most likely to satisfy the desires of those with the greatest purchasing power.  Less appreciated is the fact that this pursuit of private profit also tends to promote production processes that are based on exploitative work conditions.  A case in point: Apple products.

Much has been written about Apple’s international production system, in which components produced in Japan, South Korea, Germany and the United States are sent to China, where a Taiwanese company, Foxconn, employs hundreds of thousands of Chinese workers to assemble them into final products like the ipad and iphone.   

Much has also been written about the brutal labor regime employed by Foxconn.  What follows are some extracts from a recently published study by Pun Ngai and Jenny Chan on work conditions at Foxconn (Global Capital, the State, and Chinese Workers: The Foxconn Experience, Modern China, 38:4, 383-410).  

While getting ready to start work on the production line, management will ask the workers: “How are you?” (你好吗). Workers must respond by shouting in unison, “Good! Very good! Very, very good!” (, 非常好, 非常好). This militaristic drilling is said to train workers as disciplined laborers. Production quotas and quality standards are passed through channels down to the frontline workers at the lowest level of the pyramid.  

Workers recalled how they were punished when they talked on the line, failed to keep up with the high speed of work, and made mistakes in work procedures. Several women workers attaching speakers to MP3-format digital audio players said,  

After work, all of us—more than a hundred persons—are made to stay behind. This happens whenever a worker is punished. A girl is forced to stand at attention and read aloud a statement of self-criticism. She must be loud enough to be heard. Our line leader would ask if the worker at the far end of the workshop could hear clearly the mistake she made. Oftentimes girls feel they are losing face. It’s very embarrassing. Her tears drop. Her voice becomes very small. . . . Then the line leader shouts: “If one worker loses only one minute [by failing to keep up with the work pace], then, how much more time will be wasted by a hundred people?” . . . .  

Factory-floor managers and supervisors often give lectures to production workers at the beginning and the end of the work day. After working a long shift of a standard 12 hours (of which four hours are illegally imposed, forced overtime), workers still have to stand, for often 15 minutes to half an hour, and listen to speeches, although the content of such meetings remains the same: the management evaluates the production target of the previous shift, reminds workers of the tasks they need to pay special attention to, and reiterates work rules and regulations. Workers know too well that branded electronic products are expensive and there is no margin for mistakes. Several workers at a mobile phone assembly workshop commented,   

We get yelled at all the time. It’s very tough around here. We’re trapped in a “concentration camp” (集中营) of labor discipline—Foxconn manages us through the principle of “obedience, obedience, and absolute obedience!” (服从, 服从, 绝对服从). Must we sacrifice our dignity as people for production efficiency? . . . .  

Foxconn likes to point out that workers have signed written “agreements” for overtime. This agreement is meaningless since workers enjoy no effective protection from being fired for refusing overtime. While the mandatory overtime work in China stipulated by the Labor Law is 36 hours per month, most of the Foxconn workers usually have 80 hours of overtime work each month. In our interviews, workers described “exhaustion to the point of tears.” In our summer 2010 questionnaire survey, more than 80 percent of the 1,736 respondents had “four days of rest or less in a month” during the peak seasons. Our findings are highly consistent with that of the 5,044-person survey conducted by the Shenzhen Human Resources and Social Security Bureau in the same period: 72.5 percent of the Shenzhen Foxconn workforce put up with excessively long working hours to earn extra income (Diyi caijing ribao, June 17, 2010). . . .  

Workers said that after the basic wage was increased to 1,200 yuan in June 2010, a clear increase in production was scheduled and production intensity increased. A group of young workers at the Shenzhen Guanlan factory responsible for processing cell phone casings said, “Production output was set at 5,120 pieces per day in the past, but it has been raised by 20 percent to 6,400 pieces per day in recent months. We’re completely exhausted.”  

The biggest Longhua factory could produce as many as 137,000 iPhones in a 24-hour day, or more than 90 a minute, as of September 2010 (Bloomberg Businessweek, Dec. 9, 2010). Management used stop-watches and computerized industrial engineering devices to test the capacity of the workers and if workers being tested were able to meet the quota, the target would be increased day by day until the capacity of the workers reached the maximum. Another group of workers at the Kunshan factory commented, “We can’t stop work for a minute. We’re even faster than machines.” A young woman worker added, “Wearing gloves would eat into efficiency, we have a huge workload every day and wearing gloves would influence efficiency. During really busy times, I don’t even have time to go to the bathroom or eat.”   

Foxconn claimed that production workers who stand during work are given a ten-minute break every two hours but our interviewees said that “there is no recess at all,” especially when the shipment is tight. In some departments where workers nominally can take a break, they are not allowed to rest if they fail to meet the hourly production target. Working overtime through the night in the electroplating, stamp-pressing, metal-processing, paint-spraying, polishing, and surface-finishing units is the toughest, according to workers interviewed.  

Of course, Foxconn’s brutal production process owes much to Apple’s demands.  Apple has ultimate responsibility for and control over the entire production process and it continues to subcontract with Foxconn because the company has proven its ability to ensure maximum output for minimum cost.  John Smith, in another recently published article (“The GDP Illusion: Value Added versus Value Capture,” Monthly Review, 64:3, 86-102), highlights the nature of the relationship between Foxconn and Apple as follows:

Meanwhile, in what one study called a “paradox of assembler misery and brand wealth,” [Foxconn] profits and share price have been caught in the pincers of rising Chinese wages, conceded in the face of mounting worker militancy, and increasingly onerous contractual requirements, as the growing sophistication of Apple’s (and other firms’) products increase the time required for assembly.  While Apple’s share price has risen more than tenfold since 2005, between October 2006 and January 2011 [Foxconn’s] share price slumped by nearly 80 percent.  The Financial Times reported in August 2011 that “costs per employee [are] up by exactly one-third, year-on-year, to just under $2,900.  The total staff bill was $272 million: almost double gross profit . . . rising wages on the mainland helped to drive the consolidated operating margin of the world’s largest contract manufacturer of electronic devices . . . from 4-5 percent 10 years ago to a 1-2 percent range now.”  

While hundreds of thousands of Chinese workers carry the burden of direct assembly under the direction of Foxconn, Apple itself employs tens of thousands of U.S. workers to directly sell its final products in the United States.  Although conditions differ greatly in the two countries, and the two workforces have vastly different responsibilities, there are noticeable similarities between the conditions faced by both groups of workers–in particular, their relatively low wages, their long work hours, and the intensity of their work.  A New York Times story captures the situation well in its article titled: “Apple’s Retail Army, Long on Loyalty but Short on Pay.”  What follows are some extracts from the article:  

About 30,000 of the 43,000 Apple employees in this country work in Apple Stores, as members of the service economy, and many of them earn about $25,000 a year. They work inside the world’s fastest growing industry, for the most valuable company, run by one of the country’s most richly compensated chief executives, Tim Cook. Last year, he received stock grants, which vest over a 10-year period, that at today’s share price would be worth more than $570 million. . . . 

Managers often tell new workers that they hope to get six years of service, former employees say. “That was what we heard all the time,” says Shane Garcia, a former Apple Store manager in Chicago. “Six years.” But the average tenure is two and a half years, says a person familiar with the company’s retention numbers, and as foot traffic has increased, turnover rates in many stores have increased, too. Internal surveys at stores have also found surprising dissatisfaction levels, particularly among technicians, or “geniuses” in Apple’s parlance, who work at what is called the Genius Bar. Apple declined requests for interviews for this article. Instead, the company issued a statement:

“Thousands of incredibly talented professionals work behind the Genius Bar and deliver the best customer service in the world. The annual retention rate for Geniuses is almost 90%, which is unheard-of in the retail industry, and shows how passionate they are about their customers and their careers at Apple.”

That 90 percent figure sounds accurate to Mr. Garcia, who quit last July after four years with the company, overwhelmed by the work and unable to mollify employees and customers alike. Plenty of technicians do, in fact, like their jobs, which vary around the country, and which pay in the range of $40,000 a year in the Chicago area. Many technicians, though, wanted to leave but were unable to find equivalent work, according to Mr. Garcia and other former managers, in part because of the weak economy. . . .

Kelly Jackson, who was a technician at an Apple Store in Chicago, was thrilled when she was hired two years ago. But she said she was even happier when she quit a year later, having found the work too relentless and the satisfactions too elusive.

“When somebody left, you’d be really excited for them,” says Ms. Jackson, who now works at Groupon. “It was sort of like, ‘Congratulations. You’ve done what everyone here wants to do.’” . . .

Arthur Zarate, who joined Apple in 2004 and later worked as a technician at the store in Mission Viejo, Calif., says his training left him with a sense of ownership and pride. For a while, he loved the job, in large part because it delivered the simple and gratifying sense that he was helping people. There were time constraints on technicians — 20 minutes per customer — but because the store was rarely swamped, he usually had more time than that.

“My customers knew me by name,” he said. “That was a big deal.”

He had already begun to sour on the job when in 2007, he said, his store began an attendance system whereby employees accumulated a point for every day they did not come to work; anyone with four points in a 90-day period was at risk of termination.

“It was a perfectly good idea, but the thing that was terrible is that it didn’t matter why you couldn’t come to work,” Mr. Zarate said. “Even if you had a doctor document some medical condition, if you didn’t come to work, you got a point.” . . .

To meet the growing demand for the technicians, several former employees said their stores imposed new rules limiting on-the-spot repairs to 15 minutes for a computer-related problem, and 10 minutes for Apple’s assortment of devices. If a solution took longer to find, which it frequently did, a pileup ensued and a scrum of customers would hover. It wasn’t unusual for a genius to help three customers at once.

Because of the constant backlog, technicians often worked nonstop through their shift, instead of taking two allotted 15-minute breaks. In 2009, Matthew Bainer, a lawyer, filed a class action alleging that Apple was breaking California labor laws.

“State law mandates two 10-minute breaks a day,” Mr. Bainer said. “But geniuses had these lengthy queues of customers that made it all but impossible for them to stop even for a few minutes.”

The lawsuit was denied class certification in June of last year. Mr. Bainer pursued the matter in separate lawsuits and achieved what he described as “very favorable settlements” for 10 plaintiffs.

Not long after the class-action lawsuit was filed, a technician named Kevin Timmer who worked at the Woodland Mall store in Grand Rapids, Mich., noticed an added step when he logged onto a computer to punch out of work.

“This window popped up and it said something like, ‘By clicking this box I acknowledge that I received all my breaks,’” Mr. Timmer recalled. “The rumor was that was because some guy in California had sued.”

Mr. Timmer said he and other technicians in the store clicked the box even when they didn’t take any breaks. It wasn’t because management insisted they stick around. It was that any down time would slam already overburdened colleagues with even more work.

“We were all in the trenches together,” he said. “Nobody wanted to leave.”

With time limits, several former employees said, came another change at their stores. Technicians had always been able to spend a few hours of their shift in the repair room, providing a little away-from-customers time. In many stores, that ended. Walk-in demand for tech help was so great that when the bar was open, management at these stores decreed, it was to be staffed by any technician in the building. Repairs that could not be done at the bar would wait. As a result, the late shift in the repair room at these stores ended not at 10 p.m., but at midnight. . . .

In recent years, the level of unhappiness at some stores was captured by an employee satisfaction survey known in the company as NetPromoter for Our People. It’s a variation of a questionnaire that Apple has long given to customers, and the key question asks employees to rate, on a scale of one to 10, “How likely are you to recommend working at your Apple Retail Store to an interested friend or family member?” Anyone who offers a nine or 10 is considered a “promoter.” Anyone who offers a seven or below is considered a “detractor.”

Kevin Timmer said the internal survey results last year at the Grand Rapids store were loaded with fives and sixes.

“We discussed it in a monthly meeting and our manager had tears in her eyes,” Mr. Timmer recalled. “She said something about how humbling these results were, that they want to fix any problems, that her door is always open, and so on.”

Similar figures were found in Chicago.

“By then,” Mr. Garcia said, “it wasn’t a surprise to upper management because it was clear that many geniuses wanted to leave. There was a ceiling. It wasn’t a glass ceiling because everyone could see it.”

Mr. Garcia would eventually quit Apple, and walk away from a job that paid a little more than $40,000 a year, when stress-related health issues sidelined him long enough to put his job at risk. He had no doubts that the company would easily find a replacement. 

While Apple is no doubt a trend setter, it is far from unique.  Most of our leading firms continue to rely on harsh labor conditions and appear determined to maintain them.  And while many recent technological innovations do enrich our lives, we should not forget that different social relations of ownership and production would likely produce different innovations, including ones that might well add far more to our quality of life and collective human development than the ones currently celebrated.

Written by marty

July 19th, 2012 at 1:33 am