One of the most bruising critiques of China's emerging role in the global economy holds that the nation is not only taking the jobs of manufacturing workers in rich countries, but is also simultaneously battering the livelihoods of workers in the poorest regions of the world. In this fomulation, China is a kind of black hole, combining cheap labor, economies of scale, and ever-increasing technical sophistication to suck the life force out of everyone else.
If one were to judge by the press coverage of a new report from the United Nations Development Program unveiled in Cambodia last Thursday, "Trade on Human Terms: Transforming Trade for Human Development In Asia and the Pacific." the worst fears are being realized. "China's Boom a Threat to Neighbors, UN report says," blasted the Wall Street Journal. Since the removal of international quotas on textiles two years ago, China's clothing and textiles industry has boomed, but some of the poorest nations in Asia have seen their once thriving textile sectors decline. Since these same nations are also some of the leading practitioners of trade liberalization in the developing world, the conclusion is hard to avoid: the poor are getting screwed by free trade.
A close look at the chapter of the report that deals with Asia's evolving textile markets reveals a more complicated story than the headlines, however. Most countries in Asia have continued to experience growth in textile exports since the end of quotas. Understanding why some of those countries are succeeding, even in the shadow of the Middle Kingdom, is useful.
For one thing, China isn't the only beneficiary of the end of quotas. China has gained the most, but India is also growing fast. This is worth noting, because, as the report points out, the dismal performance of Nepal, which has seen its textile exports contract more than any other Asian nation, is largely due to the withdrawal from Nepal of Indian textile entrepreneurs, who had previously set up offshore operations in Nepal to take advantage of Nepal's quota allotment.
Furthermore, many of China's "neighbors" -- such as Cambodia, Laos, and Vietnam, are doing reasonably well. (The worst four performers in Asia are Nepal, the Philippines, Pakistan and Thailand.) Cambodia offers an especially interesting example. According to the UNDP report, (and believe me, the authors of this hugely informative report are not interested in carrying water for free trade evangelists,) Cambodia has experienced success in attracting foreign buyers for locally produced textiles in part because it has made great efforts to improve factory conditions, including voluntarily taking part in an International Labor Organization inspection program. In a world, where, according to the report, "international retailers and garment manufacturers are closely scrutinized in their home countries with regard to the labor conditions in the factories of their suppliers," this has become a selling point.
If true, this is a critical development -- the inclusion of human welfare concerns as part of the calculus of capitalist investment. I've mentioned here a few times before that in a global economy where "branding" is everything, consumers must demand that being "cool" includes treating workers well. That would be a major step forward for civilization. But I always wince inwardly when I write something along those lines, because I'm as cynical as anyone in believing that ultimately, the bottom line is the bottom line, and cheap labor will win out over image. But if the UNDP says that "Cambodia, for example, has already demonstrated how improved working conditions can help boost exports," well, that's my takeaway headline.
The report also observes that China is now the fourth largest market for apparel in the world. It is time, therefore for China (and India) to start acting like developed nations, and start enabling preferential access to their own markets to the least developed countries in the world. The sooner that consumer demand in China and India begins to exert a gravitational pull on the rest of the world, the better. China is already boosting economies in Latin America and Africa because of its voracious demand for raw materials. The next step is to find ways to translate that hunger into an appetite for finished goods.
But the most troubling aspect of the report, which covers far, far more than just the textile industry in Asia, and is worth reading for scores of reasons, has little to do with anything that can be solely pinned on China's back. The most alarming observation is that despite being a region that has seen some of the highest rates of economic growth in the world over the last thirty years, Asian nations have not experienced a similar growth in employment rates. Wages have gone up in many areas -- the report says wages in China are rising by 11 percent a year. Productivity has surged. But employment isn't keeping pace.
There are a number of reasons for this. But chief among them may be the double-edged sword of productivity. As Asian nations ascend the economic ladder, they are becoming increasingly technologically sophisticated, trading in their sweatshops for robots and automated factories. Some labor economists in the United States argue that technological innovation has been much more damaging to manufacturing workers than foreign competition. The data in the UNDP report suggests that the same process is working its way through the economies of the developing world.
Where that will end is anyone's guess.
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