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Stephen Roach on China

judge wopner

TRIBE Member
good chop from the latest Morgan Stanley commentary section:
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China's emergence and Global Labour Arbitrage

by
Stephen Roach
Morgan Stanley

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(exerpted)

A companion study published by the BLS puts overall manufacturing employment in China at 109 million in 2002 — more than double the total factory employment of 53 million for all of the G-7 economies of the industrial world, combined (see Judith Banister, “Manufacturing employment in China,” from the July 2005 issue of the Monthly Labor Review).

Nor should the arbitrage be viewed as something that just takes place at the low end of the occupational hierarchy. Currently, about 550,000 newly trained engineers and scientists graduate each year from Chinese universities; in India, the count of such graduates is around 700,000 per year. For China and India, combined, this represent a trebling over the past decade in the entry flow into this segment of their high-skilled talent pool — pushing their combined flow of new graduates in engineering and science to about three times that in the United States. Courtesy of IT-enabled offshoring, the global labor arbitrage is now at work in this segment of the occupational hierarchy, as well.

I continue to believe that the hyper-speed of IT-enabled globalization is one of the most destabilizing aspects of the global labor arbitrage. Pressures on workers have moved rapidly up the value chain from manufacturing into once nontradable services. Downsizing and wage compression are no longer just a blue-collar phenomenon. Long-sheltered knowledge workers are now being impacted by globalization for the first time ever. While the economic logic of these shifts is fairly easy to grasp, the sociology and politics are not. Gains in Chinese incomes and living standards have translated into powerful headwinds for wages and labor income generation in the developed world.

Therein lies the dark side of the global labor arbitrage: With economic recoveries in the high-wage industrial world becoming increasingly jobless, or wageless, or both, the destructive forces of protectionism have reared their ugly head in both the United States and Europe. That’s hardly an inconsequential development for a world beset with record current account imbalances.

The power of the global labor arbitrage has not been diminished by Chinese wage inflation. This could well be a key test of the world’s commitment to globalization. For its part, China needs to do a better job in understanding the global implications of its dramatic emergence. And we in the developed world need to do a better job in equipping our workers with new skills and tools to meet the global challenge head on.

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