"It is an old maxim and a very sound one that he who dances should always pay the fiddler," said Abraham Lincoln, and paying the fiddler is indeed what is taking place among all of those who rationalized the systemic abuse of the Chinese working men and women as preferable to stepping up to the tougher task of manufacturing management.
"Some 2,000 workers clash with police as they stage a strike outside the Taiwan-funded KOK Machinery rubber factory in Kunshan, in east China's Jiangsu province on June 7, 2010. Dozens of striking workers have been hurt in clashes with police in China and a fresh labour stoppage again halted Honda's production, in the latest unrest to rock the 'workshop of the world'."
The strikes at the Honda plant and a couple of supplier plants have cooled, but the matter is not yet resolved. The $130-$150 a month most Chinese workers make just doesn't cut it, and the $30 a month or so the manufacturers are offering to quell the masses isn't enough to fix the problem. At the heart of the problem is a very basic statistic. Before the Chinese manufacturing boom, 57% of China's GDP went to wages. As the Chinese economy boomed, that number has fallen to 37%. The folks doing the work have not shared in the spoils. The notion that China has moved to a free-enterprise economic model is nonsense – the government merely outsourced the right to oppress the populace. Rather than state owned manufacturing, it has been licensed to private owners – capitalists to be sure - both foreigners and a few well-connected Chinese, who have been able to use the strong arm of communist control to squeeze huge production volume out of the workers.
The jig is up. Strikes are illegal in China, as are labor organizations other than those controlled by the government, but the Chinese leadership is not only looking the other way, they are running out to the front of the parade pretending as though they are leading it. They are a bunch of guys old enough to remember what happened in Poland in 1988.
No one understands the implications of Chinese wage increases on the order of 20-70% better than Apple's fair haired boy Terry Gou. The Taiwanese friend of the Beijing power brokers and owner of FoxConn has become enormously wealthy, and has come under a blizzard of criticism for the treatment of workers. While publicly expressing concern for the workers and announcing big pay increases, FoxConn is quietly moving to more automation, cutting benefits, and moving production away from China to places like Viet Nam where the workers are still content with near slave wages. Notice whose plant is in the background of this BBC video filmed in Hanoi. He knows that all China has to offer is low labor cost – that contrary to his statements about the quality FoxConn provides, rendering them irreplaceable to Apple and the like - the increase in costs from China will offer to Steve Jobs on a silver platter the chance to belatedly seize the high moral ground and bail out of FoxConn out of false concern for workers. To understand just what a miserable human being Gou is – and typical of the sort of 'capitalist' the Chinese have jumped into bed with – his response to the rash of suicides has been to cut the benefits paid to the dependents of employees who opt to jump out of dormitory windows rather than face another day on the job at FoxConn.
The house of cards that is the 'Chinese miracle', so widely admired by American and European academics and financiers is collapsing all around. Inflation is fueling the worker pay issue, the economic debacle in Europe is hammering the yuan and Chinese prices, and Americans are fed up with China's blatant protectionism in the form of currency manipulation. The Chinese are bitterly decrying talk of forcing the Chinese to play it straight with their currency, calling the Washington gang a bunch of "baby kissing" incompetents. They don't seem to realize that Americans know full well that the Senate is comprised of baby-kissing incompetents – we elected them so we know just how incompetent they are – but that doesn't change the fact that China is trying to buy the world's manufacturing base at our expense and we are not happy.
The events to date have been fairly easy to predict. From their basic instability, the core labor problem and the way guys like Terry Gou operate it has been building to this point all along. What comes next is a little tougher to predict. In the end, only an end to their communist dictatorship will enable China to succeed. The current system of treating their citizens like the old southern slaves who were rented out by their owners to other local businesses for a profit is unworkable and unsustainable. It could go one of two ways – and either one poses problems for the likes of Walmart who is China, Inc's biggest customer. The workers can prevail and wages will rise dramatically – which means the costs at Walmart and the cost of an iPod rise dramatically – or the corrupt power base can try to keep things under control by force, which means more strikes and perhaps even another Gdansk shipyard scenario – which mean big supply chain disruptions.
No matter how they see it, the Chinese gravy train has derailed and global manufacturing is in for a major upheaval. The only companies exempt from the impending chaos – and the ones most likely to prosper – are those that resisted the siren song of China. The companies that looked internally to simply find ways to hone their value proposition instead of running off to China for a free lunch are home free. Everyone else had better come up with a new plan in a big hurry because the Chinese music has stopped and the fiddler is demanding his due.