Why do China’s people spend so little compared to Americans? A major reason is that China’s workers are paid so little for their work.
That pretty much sums up an article on “The Frugal Republic” by James Surowiecki in the December 7 New Yorker.
“While [China’s] boom has been extraordinary, ordinary workers have not reaped the gains one might expect,” Surowiecki writes. “In the past decade, in fact, the share of GDP that goes to wages has actually fallen, while the share that goes to profits has risen.” Further, only a small fraction of the workforce receives unemployment benefits, and pensions are underfunded and haphazardly administered.
No wonder, then, that household consumption in China accounts for 35% of GDP, only half the rate of the United States, as the New Yorker financial writer points out, adding:
“Ultimately, all China’s barriers to higher consumption are a product of the fact that for the past three decades the entire economy has been focused on one thing: making stuff. The Chinese and American and American economies are mirror images of each other.”In short, China makes things; the United States (and other countries) consumes them. An unsustainable imbalance, meaning that it can’t last.
A drawing accompanying the New Yorker article shows a Chinese woman packing fancy high-heeled shoes coming off an assembly line. The worker is in her bare feet, shoeless.
As early as a half century ago, many unions foresaw that kind of umbalanced result from free trade – workers deprived of their share of the benefits from working in the international economy. The unions argued for adding a “social dimension” to trade agreements.
What if their idea had been accepted then? Wisely implemented, it could have served as a guideline for a half century of trade agreements more balanced than the worker-unfriendly policies that now prevail.
The idea is not dead, but it needs updating for the 21st century. Since the global economy has exploded, especially in the past 15 years, the original concept would have to be buttressed with a set of other provisions ensuring that the complexities of globalization and its various institutions serve the common good.
Toward that end, the International Trade Union Confederation and its Global Union partners last month prepared a statement of priorities for the WTO Ministerial Conference held in Geneva November 30 to December 2. The conference was not a negotiation session, so it is impossible to know for sure what effect the statement, and the 60-member union delegation promoting it, had on the ministers.
One positive sign: in summing up the conference, its chairman cited “trade and social issues” as among the “new” topics that the WTO needed to address to conclude the stalled Doha Development Round next year. A high-level preparatory group is to meet in mid-December to consider those issues.
But it could be too late. New WTO policies take years to adopt, more years to enforce.
At the Geneva conference Ron Kirk, the U.S. Trade Representative (USTR), emphasized that trade can, and should, help the economic recovery “right at home – particularly in terms of creating the well-paid jobs that Americans want and need.” (See “In Geneva and in Washington the call is for Jobs, Jobs, Jobs.”)
In an interview with the Associated Press, Ambassador Kirk voiced his impatience with WTO procedures. “The whole notion of everything taking 10 years, 15 years, and 20 years is just antithetical to me,” he said. “The world changes too quick. Competition is too fierce. The consumers, businesses, workers can’t often wait 20 or 30 years just to get a result.”
Will the Obama administration, having become more job-conscious, set its own job-creation link to trade? It’s a safe bet that experts are pouring over all the options, before checking where WTO boundaries may or may not exist.