Tuesday, 26 February 2008

Capitalists take control of China - labour left with less

Karl Marx would have a field day. It is clear that capitalism now has China in its icy grip. The workers are, as always, being exploited.

Below is an interesting artcile from the Peterson Institute. I tend to agree with most of the arguments raised. Technological progress has certainly played a part (driven partically by foreign direct investment).

What Is China Doing to Its Workers?

Is the dramatic decline in labor's share of the economic pie ominous?

A silent revolution has been taking place in China. Somehow, without anyone noticing, the capitalists have upended the People's Republic. Over the past few years, they have effected a significant redistribution of income away from workers. This might well be the mother of all redistributions.

Normally, in most countries, the distribution of income between labor and capital changes not at all or very slowly. For example, in the United States, the share of the economic pie going to workers has been, with some small exceptions, roughly stable in the postwar period. In China itself, this share was roughly stable for over 25 years since the Chinese economy took an outward turn in 1978.

But recently there have been tectonic shifts. Between 2002 and 2005, according to Berkeley economists, Chong-En Bai, Chang-Tai Hsieh, and Yingyi Qian, the share of the economic output going to workers decreased by about 8 percentage points, from about 50 percent of GDP to 42 percent of GDP. Which means that China—yes, the People's Republic—now has perhaps the lowest labor share of any major country in the world.


The article concludes:

How might this decline in labor's share—a source of potential social disaffection and unrest—be reversed? To begin with, it is likely that public pressure will force the government to share the large returns to capital with savers, thereby improving household investment income. Most Chinese savers, who have their money in the Chinese banking system, today obtain zero or negative returns. And they have become wise to this large disparity. Thus, the government has been forced to list more firms in the stock market so that households can enjoy some of the high returns that companies are making. Households have also been investing heavily in the real estate market. But this government strategy has limits because stock and real estate prices are exceptionally high, and as they return to earth, households could be left with depreciated assets and poor returns, which might do little to increase their income.

Over a longer period, further economic forces will come into play. New entrants will emerge and bid away the excessive return to capital. But the big question is this: What if these forces are too weak or too slow, and the public becomes impatient? Will the decline in labor's share of the economic pie be reversed through political change? That may be China's big question.

5 comments:

Bill said...

It is now official: Socialism with Chinese characteristics is another term for pure undiluted capitalism.

Richard said...

This is not at all unusual. Korea, Taiwan, and other Asian tigers all engineered major declines in the wage share of GDP during their early stages of industrialization. The flip side of low wages is high return on capital, which encourages the capital accumulation vital to economic development. Of course one could make the case that China has gone overboard with this strategy, given both a huge share of investment in GDP and a huge current account surplus.

Anonymous said...

STOP COMMUNIST CHINA NOW

I find it continually sickening that The News and Internet Business Community has this frightening enthusiasm for China's industrialization.

China is a Communist Country.

China is a sworn enemy of the United States.

China has destroyed job creation the US.

China is not innocent; they are an evil government with sights on our economy.

Why do you News and Internet people love China so much? Are you enjoying being an active participant in ruining the hopes of working Americans while lining the pockets of Communist Chinese Families? Shame on you!

I think Lou Dobbs needs to know how The Internet is aiding and abetting the enemy.

Is The News Media a Communist organization? - We know it is.

The best thing that could happen to China is a few nuclear warheads.

oomu said...

what a bunch of hate !

Anonymous said...

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So don’t fall for their ‘ good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTABLE PR CRAP. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. EXTREME WEALTH HAS MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.