Battle4Liberty

Labor unrest is becoming more widespread in China. Earlier this year, 10 workers at Hon Hai Precision Industry Company in Shenzen jumped to their deaths, a tragedy allegedly linked to poor working conditions in the factory. Hon Hai is the world’s largest contract electronics manufacturer and is a supplier to companies like Apple and HP.

Historically, labor unions have been largely controlled by firms in China, but some are beginning to demand substantial wage increases. For example, Honda  encountered a strike earlier this month at an auto parts factory in southeastern China. Workers sought a doubling of wages at the plant, but most accepted the company’s increases of 11 percent in pay and 33 percent in the food and housing allowance, a total package of about $211 monthly per worker. Honda was able to end the strike in a matter of days.

According to a New York Times account of Honda’s effort to end the strike (www.nytimes.com/2010/06/14/business/global/14strike.html), “A factory manager with the voice of an auctioneer counted off the minutes until the morning shift started and exhorted the strikers to return to work, using lines like, ‘We won’t give your job to the new workers if you come in now’…In the last five minutes before the gates closed, all but half a dozen strikers went back into the factory, stricken looks on their faces. Some strikers had stayed home from the rally, and may have lost their jobs.”

Events such as these give rise to many on the left (and a few on the right) who decry cheap labor in China. They claim that Chinese workers undercut American labor and have contributed to the current unemployment problem in the US. Two inconvenient truths are overlooked with this emotional response.

First, low wages were prevalent in China long before unemployment in the US rose to the current level. Our economic downturn was initiated by the government-induced mortgage crisis and has been exacerbated by the massive spend-and-tax policies aof the Obama administration. Blaming the Chinese (or anyone else) for the problem is scapegoating.

Second, all companies in the US should be free to do as Honda did in China. Workers should be free to organize as they wish and strike if they believe their wages are too low. Faced with a strike, a company should be free to negotiate with the union OR hire permanent replacements and dismiss striking workers. If suitable replacement workers are available at the existing wage level, then the union demand is—by definition—too high. Many on the left argue that allowing companies to hire replacement workers invalidates the union’s right to strike. In reality, having the ability to fire striking workers is a company’s check and balance on the union’s right to strike in the first place. Strikes can be devastating to a firm, and capitulating to union demands every few years can have a crippling cumulative effect. Just ask GM.

I am not suggesting that tough negotiations with the Chinese are not in order. The Chinese are not free traders, and their manipulation of the yuan-dollar exchange rate has contributed to high trade and budget deficits in the US. Some see the Chinese government’s recent announcement of a shift toward more flexibility in its currency peg as a positive sign. However, the yuan will probably appreciate in the 3-5% next year under the revised approach, far less than would occur if the currency were allowed to trade freely.

Low wages and labor disputes are a part of the market. Companies and workers can sort out these issues on their own with limited government involvement. We shouldn’t focus our attention on low wage rates in China. Remember, cheap labor translates into lower prices, so Americans benefit from low cost production in other countries. Our key concern with China should be with the country’s managed trade approach, and we should insist on a rapid shift to an open exchange rate so that our economy can operate more efficiently. Unfortunately, criticizing China for its heavy economic intervention is difficult to do with a straight face when own current leadership is doing much of the same.