Browsing the blog archives for June, 2010.

Labor Unrest in China

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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.

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Alvin Greene for Senate

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Democrats in South Carolina recently chose Alvin Greene to take on Jim DeMint this November for a US Senate seat. Greene, who is unemployed and currently faces felony obscenity charges, never seriously campaigned for the office. The legitimacy of his win has been challenged by notable Democrats from SC Congressman Jim Clyburn to Obama advisor David Axelrod. State Representative Todd Rutherford even questioned his intellectual fitness for the post. Others have played the “hanging chad” card, suggesting that the vote was somehow manipulated and otherwise did not reflect the real intentions of the voters.

Much has been said of this debacle, but few seem to be asking what I believe is the most important question: What does Greene’s victory say about the intellectual fitness of South Carolina Democrats?

I’ve heard some interesting theories. Some have suggested that voters might have selected Greene because his name was the first on the ballot. Others have argued that Greene—an African-American—might have enjoyed support from a large African-American voter base in a primary where many voters did not know much about Greene or his opponent, Vic Rawl. Someone even noted that the name “Alvin Greene” contains an unusually high proportion of vowels, although I haven’t figured out how this could have influenced the results.

Regardless of the explanation you find most appealing, we must come to terms with one key fact: The majority of Democrats in South Carolina were perfectly willing to select a candidate on the basis of one or more factors other than his fitness for the position. If a case could be made for mass voter ignorance, this is it.

I hope Greene stays in the race. As Al Gore once reminded us, every vote must be counted and respected. South Carolina Democrats have made their choice. May the best man win in November.

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What Hillary Clinton did not say

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According to Hillary Clinton, the rich aren’t paying their fair share of taxes, not just in the U.S. but throughout the world:

“The rich are not paying their fair share in any nation that is facing the kind of employment issues…whether it’s individual, corporate or whatever…taxation forms,” she told an audience at the Brookings Institute last week. But it’s what Clinton did NOT say that is most revealing. For example:

What is the definition of rich? Perhaps it’s the top 10% of wage earners, anyone making over 200K, or the entire middle and upper classes, all of whom could be “rich” by global standards.

How much should the rich pay? Is 50% of their income enough, or do we need to go higher?

Why should the rich pay more? The wealthy already pay taxes at higher rates and on higher amounts of income, and most of their taxes support programs for those in lower income brackets.

Why not just cut government spending instead? Is she really suggesting that the current level of government spending and intervention in our lives is justifiable and worth sustaining with higher taxes?

What, if any, additional government programs are needed? If we can continue to tax the rich, why not keep expanding the government even more? Don’t forget her $5000 baby bond idea in 2007.

What would happen to economic growth and development if taxes on the rich were raised to balance the budget? Raising taxes takes money out of the private sector that could be used much more efficiently to grow the economy and create jobs.

Clinton didn’t address these questions because the answers aren’t really important. She also didn’t consider the fact that confiscating 100% of the income from millionaires would not even be sufficient to balance the current budget. To her, it’s all about politics, class warfare, and economic philosophy.

Clinton did note an alleged correlation between high tax rates and high economic growth in Brazil, suggesting that we should follow the Brazilians as a means of growing our economy. Of course, she did not note some important distinctions, including the fact that Brazil doesn’t have Freddie and Fannie facilitating a housing crisis in the name of social justice. While its economy has grown, the notion that Brazil’s current approach should be the model for developed nations to follow is entirely without merit. History tells us that—other things being equal—low taxes and economic freedom foster growth. This has certainly been true throughout U.S. history.

At least Clinton was honest, but her solution to our economic woes—like Obama’s—is straight from the old liberal playbook—more government and more wealth redistribution. Karl Marx couldn’t have said it better himself.

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