Re: Economic reform policy: Some views and proposals

["Gary Santos" <evs@xxxxxxxxxxxx>]

It's not so much the alternative to "sweatshops versus no jobs" as it is the
terms of trade under under which consumption in the importing countries are
being supplied TODAY.

There is a history to this from my recall of the last three decades and, in
that context, both William and Henry are correct in their assessments.

Development by encouraging "for export direct investment" in the 1970's was
quite a darling of a source of employment in countries whose domestic
economies could not create the needed jobs. You give us your capital, we
give you cheaper labor and materials. That was the deal. And, it worked for
the Japanese who was the leader in this effort, at least, in East Asia.
Everyone was happy except probably US business as Japanese business outpaced
their American counterparts. There was even an ascendancy of Japanese
culture (over American) in the 1980's if we all recall. Japan prospered as
did the East Asian economies, peculiarities among the individual countries
being qualifying factors.

America's reaction (revenge?) was to compromise ideological differences with
China who by the late 1980's was ready to open itself to the world, if my
interpretation of history is correct. Meanwhile, the
debt-financed-Japanese-expansion finally blew up in a spectacular $100,000
per sqm real estate boom-bust starting in 1990. (Henry might have written a
more detailed history to this and, if he did, I would certainly want to read
it.) But, things were not bad yet as the exchange rates in those times were,
in my judgment, not exploitative. So, William is correct. Development via
export industries raised standards of living.

Things went from good to terrible when the 1997 Asian Crisis hit. The
prosperity in East Asia, financed by low cost dollar debt and portfolio
flows into the region, disappeared as capital fled and exchange rates
depreciated by 50% roughly as the US adopted the strong dollar policy
starting 1995. (Why it had to do so escape me. Anyone?) China's depreciation
from 5.8 to 8.3-8.4 plus unimaginable low priced exports certainly also gave
pressure starting 1994. (I sent also a 2001 article to the list on the
renminbi issue which I think is becoming more relevant.) It would certainly
help the rest of East Asia if China went back to 5.8 as this would allow the
rest of the region some room to get cheaper imports like capital equipment
and food (soy and wheat) not to mention oil. The minimum wage in the
Philippines prior to the devaluation was $10 per day declining to $5.20 as a
result of competitive devaluations (including the Yen, Aus$, Taiwan$) ending
only in 2001. It's been nearly 6 years since 1997 and, Henry's correct,
that's enough pain for the region.

Sad thing is with the renminbi pegged, the decline of the dollar starting
2001/2 was not and won't be felt in East Asia with everyone competing for
the US consumer. And, while China's businessmen are benefitting from its
exports, its labor, raw materials and environment are being, well, for a
lack of a better term, "exploited".

There must be a more equitable way, a more even handed way to share the
wealth being created.

The problem is the US consumer has to suffer with an imported inflation
remedy and all East Asian economies have grown overly dependent on him. The
pie will foreseeably shrink and no one will make the first move. So, we're
stuck with the status quo until some miracle economic drug for each
country's predicament is invented. On one hand, are US and Chinese economic
interests and, on the other hand, the rest of the world.

Meanwhile, the US consumer seems to be tiring all by himself. Europe, too.
Japan, same as before.

Too much wealth concentrated in too few hands with common wages too low --
that's the basic problem I think.

----- Original Message -----
From: "Clifford Poirot" <cpoirot@xxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Friday, May 02, 2003 3:00 AM
Subject: Re: Economic reform policy: Some views and proposals


I am curious what alternatives to sweatshops people propose. Is the
alternative a "sweatshop" vs. no job, or sweatshops vs. some regulated
alternative? How would this be put into practice in a place like China?

-----Original Message-----
From: Henry C.K. Liu [mailto:hliu@xxxxxxxxxxxxxx]
Sent: Thursday, May 01, 2003 12:36 PM
To: pkt@xxxxxxxxxxxxxxxx
Subject: Re: Economic reform policy: Some views and proposals




William F Hummel wrote:> Also I wouldn't be so hard on low-tech "sweat
shops" in nations
> where the average wage is lower than what so-called sweat shops
> offer.  The US had sweat shops and child labor in large numbers
> in the late 19th and early 20th century.  For those in high wage
> nations, it is easy to forget that the move toward higher wages
> and living standards is necessarily evolutionary.  There are many
> examples -- Hongkong, Korea, Taiwan, Malaysia -- where this
> evolution has dramatically changed the economic landscape.  Note
> how much faster their GDP growths rate have been compared to the
> current leading industrial nations.  But it takes time.
>

Since 1997, wages in most of Asia have bern falling as in most of the
Southern Hemisphere.  In Indonesia, wages have fallen 60%.

Also sweatshop manufacturing has been going on for six decades in the
Third World, and in China for 25 years.  That's quite time enough.

As for GDP, it can turn declining economies into statistic boom towns
because it neglects factor income.  China receive $50 billion in FDI
last year which finances about 70% of its exports, and records a trade
surplus of over $100 billion.  That means China received a mere $30
billion for its low wage labor, environmental abuse, not to mention that
the SARS virus began in one of these sweatshop villages.

Henry C.K. Liu