Wednesday, 5 October 2011

What Is The Real Cost Of That Chinese T-Shirt?

I’ve had it! I’m going on strike! I refuse to wear another garment or footwear made in China. No more! Clothing shops in Europe and the United States are filled with nothing except products made in China. Only with great difficulty and perseverance can I find anything that is made within 500 miles of where I bought it. The iconic American outdoor gear shop L.L. Bean may as well be in downtown Beijing. I couldn’t find a single American made product the last time I was there. Time to take a stand.

Now, of course, I realize that this means I will probably go around barefoot wearing a barrel – assuming I can find locally made straps to hold the barrel up. It also means that I will have to give up most forms of modern communications: no cell phone, no television, no computer, and none of the other seemingly essential do-dads that take up so much of our time and isolate us so effectively from each other.

I should eat OK, but I’ll probably have to cook the food over a fire in some cave and resort to some primitive refrigeration system to keep things cool. On the plus side, I could still have a very good car.

I have nothing against the Chinese. They are industrious, hard working people trying desperately to correct the horrible economic mistakes of Mao’s regime in just a few short years. And they’ve got more than a billion people who have decades, if not centuries, of pent up demand.

The Chinese Are Not The Problem

My problem is the Western companies who labor under the illusion that we will all be better off  if they close factories in Europe and America, open them in China and export the theoretically cheaper products back home. However, there is a problem. Wages in China are rising rapidly. They still would not satisfy any worker in Europe or the US, but the direction is clearly up. Also working against the current wage differential is any potential re-valuation of the Chinese currency, the renminbi, against the US dollar. Such a revaluation would make Chinese products that much more expensive for American companies and consumers.

Unfortunately, the response to this change in China is not to move the factories home. The parent companies simply look for cheaper places like Bangladesh, Vietnam or Cambodia to set up shop – places that do not place too much importance on environmental damage, safety or child labor.

The biggest problem, however, is the dislocation in Western economies. Economists can talk all they like about globalization, productivity, and the constant need to improve technology. All of this is true, but it does not eliminate the real, and the very pressing problem created every time a local company In Ohio or France pulls up stakes and moves to China or another Asian country.

The lobbyists talk until they are blue in the face about how total jobs really aren’t lost because those manufacturing jobs are replaced by accountants, freight forwarders, retail clerks, etc. Tell that to a local mayor who has to close schools because his town’s tax base has just been eroded as the major employer closed down. A drive through once thriving places in the American Midwest or parts of Italy or France will demonstrate this devastation.

Unfortunately, there are no easy answers to this issue. One thing for sure is that the solution does  not lie in self-defeating protectionism. It is impossible simply to pull up the drawbridge  and shut out the world. That is bad politics and worse economics. Exporters in the US and Europe need to keep markets open.

Private Gains, Public Losses

But there should be some realization that the companies leaving one place for cheaper labor elsewhere are simply privatizing their gains and socializing their costs. Their own profit margins may indeed increase. But the costs for the rest of the taxpayers and ordinary citizens shoot up sharply. Who pays for whatever re-education is provided for the work force? Who makes up the loss of tax revenues? Who compensates the teachers, police and firefighters that have to be laid off? And, worst of all, who pays for the social upheaval, the desolation that follows such a move? These are real costs with real, unfavorable, consequences.

If a company wants to take advantage of lower wages, however fleeting those may be, let it go. The only way to prevent such a move is to introduce Chinese wages and working conditions into Michigan or Ohio. And I don’t think that is going to happen any time soon.

But there should be some recognition, some payment toward meeting the social costs that such a move entails. Corporations love to talk about having ‘multiple stakeholders,’ but unfortunately these so-called stakeholders never seem to include the communities they leave in the middle of the night.

Maybe the companies should include in their cost/benefit analyses the real costs of their move. Maybe they should help pay for the local consequences of their moves. Perhaps that move to a lower-wage country would look less attractive if the companies actually acted on their own ‘corporate responsibility’ public relations.

But most of all we the consumers need to re-think the real cost of the cheap Chinese garment. Are we really saving anything if our communities are destroyed and our friends and family unemployed? Are those lower prices at WalMart really worth the high long term costs involved? 

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