The extent to which multi-national corporations are profiting from super-low Chinese wages is often obscured in the rush to point nationalist fingers at China’s economic policies. In the corporate media the subject generally remains a taboo.
One way of shining some light on that profiteering is this: During the mid-2000s, Wal-Mart was China’s fifth-largest export market. In other words, there were only four countries that imported more goods than Wal-Mart, the world’s biggest retailer, did by itself.
By now, Wal-Mart has slipped a bit down the charts because the volume of Chinese exports continues to grow; but the company would remain among the top ten destinations were it a country by itself. Wal-Mart is hardly unique among multi-national corporations, but, true to its general business practices, is perhaps the most ruthless in not simply exploiting Chinese workers but in accelerating the trend of moving manufacturing to the location with the lowest wages.
Other major United States retailers began procuring clothing items from Asian subcontractors before Wal-Mart, but the relentless drive to have the lowest costs forced an acceleration in the shift of production to countries with the most exploitable populations. If a manufacturer wants to continue to have contracts to supply Wal-Mart, then it has no choice but to ship its operations overseas because it has no other way to meet Wal-Mart’s demands for ever lower prices.
Eighty percent of Wal-Mart’s suppliers are located in China. And because the company is so much bigger than any other retailer, it can dictate its terms. Gary Gereffi, a professor at Duke University, said in an interview broadcast on the PBS show Frontline that “No company has had the kind of economic power that Wal-Mart does, to be able to source products from around the world. … Wal-Mart is able to transfer whole U.S. industries to overseas economies.”
Because of its size and its innovation in computerizing its inventory and tightly managing its suppliers, coupled with its willingness to squeeze its suppliers to the exclusion of all other factors, Wal-Mart holds life or death power over manufacturers, Professor Gereffi said:
“Wal-Mart is telling its American suppliers that they have to meet lower price standards that Wal-Mart wants to impose. The implication of that in many cases is if you’re going to be able to supply Wal-Mart at the prices Wal-Mart wants, you have to go to China or other offshore locations that would permit you to produce at lower cost. … Wal-Mart’s giving them the clear signal that you can’t be a Wal-Mart supplier if you can’t produce at substantially lower prices. … You can go to China, or, in many cases, many U.S. suppliers can’t make that move, and they just go out of business, because Wal-Mart is the dominant company for many U.S. suppliers. If they can’t go offshore, those suppliers end up going out of business.”
The race to the bottom
Wal-Mart leverages this power further by contracting to make products with its own name (“private-label products” in retailing lingo) and undercutting makers of traditional branded products, who can’t survive unless they, too, drive down their costs. This only accelerates the race to the bottom.
Nonetheless, let us not lay all the blame for corporate globalization at the doorstep of Wal-Mart headquarters. The internal logic of capitalist development is driving the manic drive to move production to the locations with the most exploitable labor, not any single company, industry or country. One company will inevitably become the most ruthless in implementing what companies in a variety of industries are forced to do under the rigor of capitalist competition. Wal-Mart so happens to be it.
Fully two-thirds of China’s exports are shipped from factories wholly or partially owned by non-Chinese companies. The world’s multi-national corporations profit immensely from China’s low wages and like the current Chinese system just as it is.
As I noted recently in my Feb. 9 post, extraordinarily low wages and harsh working conditions endured by Chinese workers are fueled by a steady flow of peasants from the countryside (where wages are even lower) to the cities. Most of these workers, often young women, intend to return to the countryside.
Working conditions are too harsh to endure, and wages are so low that it can literally be impossible to survive on them, report John Bellamy Foster and Robert W. McChesney in an excellent article in the February 2012 edition of Monthly Review:
“The eighty hour plus work weeks, the extreme pace of production, poor food and living conditions, etc., constitute working conditions and a level of compensation that cannot keep labor alive if continued for many years—it is therefore carried out by young workers who fall back on the land where they have use rights, the most important remaining legacy of the Chinese Revolution for the majority of the population. Yet, the sharp divergences between urban and rural incomes, the inability of most families to prosper simply by working the land, and the lack of sufficient commercial employment possibilities in the countryside all contribute to the constancy of the floating population, with the continual outflow of new migrants.”
Starvation wages and inhuman working conditions
The world’s attention on those harsh conditions have lately centered on the Foxconn electronics factory, manufacturer of Apple computer and phone products, after a rash of suicides by employees who could no longer endure their prison-like conditions. Foxconn executives showed their humanity and compassion when their response was to install nets to catch future suicide attempts. But as with Wal-Mart, Apple is far from alone in exploiting low-wage workers; in fact, these companies are the norm and not the exception.
Here are but three examples, each a separate investigation conducted by the Institute for Global Labour and Human Rights:
- Workers at the Meitai factory are prohibited from talking, raising their heads or putting their hands in their pockets. They are fined for being one minute late, for not trimming their fingernails or for stepping on the grass, and are searched on the way in and out of the factory. Workers sit on hard wooden stools twelve hours a day, seven days a week, for a base pay of 64 cents an hour. The Meitai factory produces computer equipment for companies including Dell, Microsoft, IBM and Hewlett-Packard.
- Workers at the Jabil Circuit factory work twelve-hour shifts, seven days a week — they are at the factory 84 hours a week. They are prohibited from sitting down and are paid 93 cents an hour. Workers who make a mistake are forced to write a “letter of repentance” begging forgiveness, which they must read aloud in front of all their co-workers. This factory produces circuit boards for Whirlpool, General Electric, Hewlett-Packard and Nokia.
- Base wages at the Yuwei Plastics and Hardware Product Company are 80 cents an hour for 14-hour shifts performed seven days a week. During the peak season, workers toil 30 days a month, often drenched in their own sweat. Safety equipment is turned off to speed up production. The punishment for missing one day of work is to be docked three days’ wages. Yuwei produces auto parts for Ford, General Motors, Chrysler, Honda and Volkswagen.
These are the prices that millions of people are forced to pay so that more money can be distributed upward. The profits from these reductions on labor costs are distributed to high-ranking corporate executives and to shareholders. It pays to be cheap: Wal-Mart reported net income of US$16.4 billion on revenue of US$419 billion for its fiscal year ending on Jan. 31, 2011. Four members of the Walton family, descendants of the company founder, are each among the 22 richest people in the world, according to Forbes magazine — they are collectively worth 73 billion dollars.
One final thought related to Apple. The New York Times columnist Paul Krugman recently wrote that, although Apple is the largest U.S. corporation by market value, it employs only 43,000 people in the U.S., but indirectly 700,000 overseas through its subcontractors. By contrast, 50 years ago, General Motors was the largest U.S. corporation but employed ten times as many U.S. workers as does Apple. Those were union jobs, not sweatshop jobs.
Chinese workers make about five percent of what workers in the United States earn. I strongly suspect that Apple products are not sold at five percent of what they would be had they been produced domestically. Good for corporate profits, but not good for working people.
As wages are driven down further, who will be able to afford the products that are made? If wages fall below a level at which employees can remain alive, what does that portend for the future? That such a question can even be asked illustrates the insanity of our economic system.