Whether you have a high or low opinion of Globalization, you can’t deny that it’s here to stay. Politicians in westernized countries may be pressured by their constituents to resist change, but global pressures from the WTO and other organizations are pushing countries to relax their tariffs and open up their boarders to change. More significant, however, is the role of Multinational Corporations who, in their quest for increased profits, seek to outsource as much labor as possible to cheaper locations.
The concept of moving production from an expensive country, such as the US or Western Europe, to another more efficient or cost-effective region is not new. For decades, industries ranging from textiles to electronic equipment and cars have been seeking cheaper forms of labor in China and South America. The outsourcing of services, such as technical support or programming, is a more recent development thanks to advancements in communication and other technologies. This has resulted in a boom in countries like India and the Philippines. We tend to think of both these forms of outsourcing as being limited to occurring in Western countries, but recent reports have shown that the outward flow of jobs is not limited to rich nations.
A recent NYT article outlines how Infosys, a huge services company in India, is expanding it’s business into China. American and other rich countries choose Infosys and their cheap Indian labor when they are looking to reduce costs in their home countries. ‘Reduce costs’, of course, generally means the layoff of American workers. The huge boom, which has resulted in Indian cities like Hyderabad, has led to high wages (by Indian standards) and also a high employee turnover rate. To stem the rising costs, companies like Infosys are looking at alternatives, such as China.
From the article: ”Today, options for people are increasing in India so rapidly,” Mr. Shamanna said, ”that hiring has become a matter of who’s willing to overpay the most. When you look at the numbers of engineering graduates coming out of the Chinese universities, this becomes a very attractive place for us.”
The result is double-outsourcing which, in addition to allowing even more Western jobs to migrate away, also results in lower wages for Indian employees. Indians are truly going to get a dose of their own medicine.
This twice-removed phenomenon is not limited to services, but also involves the manufacturing sector. The Washington Post reports that this is also occurring in the aforementioned China. We tend to think of Chinese manufacturing as being the absolute bottom of the scale when it comes to costs; but in China, where the economy is rapidly heating up, businessmen are finding that the arena is too competitive. Increased wages for factory workers, coupled with the Chinese governments inability to keep the lights on during the boom, are influencing business owners to find alternatives. More and more are choosing Vietnam.
From the article: “It’s a bit like the United States and Mexico,” said Deng Weiwen, general manager of TCL (Vietnam) Corp., the local arm of the giant Chinese television maker, which established a factory outside Ho Chi Minh City in 1999. “China and Vietnam complement each other.”
Complementary may be one way to describe it; exploitative may be another. A Chinese businessman whose company outsourced their motorcycle factory to Vietnam said “Here, the workers can really accept hardship [...] whatever requirements you set out for them in a day, they meet.” (WP article). While the lower minimum wage in Vietnam is one advantage, another attractive feature is the absence of safety and environmental standards (both of which the Chinese government is becoming more strict about).
So what does this all mean? Is this the “race to the bottom” which Pearlstein mentioned in his article A New Politics Born of Globalization? It certainly could be perceived that way. In the US-India-China example, services are being outsourced in a search for the lowest cost of labor. MNC’s like Intel and Microsoft are driving companies like Infopath to curtail the growing (yet still very low) salaries of Indian employees by outsourcing even further. China, who hardly receives praise for it’s safety and wage standards, faces competition from neighboring Vietnam. Astonishingly, the environmental spillover costs of certain industries (considered too high in China!) are acceptable in Vietnam. The resulting effect of these migrations is that MNC’s force the world to find the absolute rock-bottom price of labor.
When “race to the bottom” finishes, will the result be a universally poor society? Probably not. Globalization is hardly over so it’s difficult to predict the future, but we can take examples from Western countries to find an answer. Industrialized countries, while resistant to the outsourcing of jobs, usually prosper when less-desired manufacturing jobs move abroad, and instead base their economies on more ‘cushy’ services jobs. It’s yet to be seen if this kind of prosperity will happen when said services jobs leave also. So the question isn’t “is there a bottom?” in this race, but instead “is there a top?”. Will countries and citizens continue to innovate and benefit when MNC’s move jobs abroad? Or, instead, will all this prosperity end when the MNC’s can’t find any more countries whose citizens are willing to work for $18 a month?
We’ll have to wait and see…
Just uploaded some of our Pics from our trip to Cabo San Lucas this Thanksgiving. Click 