Saturday, January 11, 2014

Relief for Manufacturers: Cambodia

Headlines tell the tale. Here are three links to the latest updates of online Wall Street Journal articles by headline, from January 3rd, 5th, and 6th:

Strike, crackdown, and then everything returns to the way it was. Production resumes. Is this a happy or a sad tale? Here is a quote from the "Resumes Production" article:
"The fizzling of one of Cambodia's largest strikes in recent years brought relief for many garment manufacturers, who have complained of mounting financial losses because of missed shipments and lost orders."
Whew! All of us were concerned about the garment manufacturers and the stress they suffered from the strike. Now we can move on. The bodies have been buried. of course does not want to move on. This is another example how the poor are treated by the managers when the opportunity arises. Let us look at some of the economic details, also from the "Resumes Production" article:
"Garment manufacturing is Cambodia's biggest export business, supplying apparel to retailers mainly in the U.S. and European Union. The industry earned nearly $5.1 billion in the first 11 months of 2013, up 22% from the period in 2012, according to the Commerce Ministry. Cambodia has about 800 garment and footwear factories that employ about 600,000 workers, mostly women, labor officials say. 
"Manufacturers favor the country for its low-wage costs, but strikes are frequent because of what union leaders say is widespread discontent with meager salaries, poor working conditions and lax enforcement of labor laws."
This means that 600,000 workers generated about $5.6 billion in 2013 (estimated), or about $9,330 for each worker. Here is what they are paid (from the same article):
"The strike started as a protest against the government's offer last month to raise the industry minimum wage 19% to $95 a month, starting in April—well short of union demands for $160 a month. Workers then scorned a sweetened offer made by officials last week—a 25% increase to $100 a month, starting in February—and defied government orders to return to work by Jan 2."
Adjusting for the proposed increase, the workers are currently paid about $79.80 per month, or about $958 per year. On average, worker pay is about 10.3% of industry income in Cambodia.
Instead of complaining, the Cambodian government probably thinks that the workers should be grateful. Compare conditions in Cambodia to conditions in Bangladesh. In our tosoc update for 22 September, 2013, we noted a report about a Bangladesh garment workers strike (Tosoc Update 20130922). They were earning on average about $38 a month. That was less than 10% of industry earnings in Bangladesh.

Since then we see a report on that the Bangladeshi workers have won a 77% increase in monthly pay, to about $68 a month (Striking Bangladeshi garment workers win a 77% pay rise). Good for them! That corresponds to about $816 per year. According to the report, the Bangladesh garment industry makes about $20 billion per year with 4 million workers, or about $5000 per worker. With the pay increase, Bangladesh workers will now take in about 16% of their industry income. Very good!

In comparison, Cambodian garment workers had been earning about twice the pay for about twice the production of the Bangladesh workers. The articles do not say so, but presumably the Cambodian workers or their representatives are fully aware of what has happened in Bangladesh. A comparable 77% pay increase for the Cambodian workers would raise their incomes from about $80 a month to about $142 a month. No wonder the Cambodians are striking.

Beyond Cambodia and Bangladesh, US workers also need to be paying attention. The international rich, meaning international corporations and their owners, are always looking for cheaper labor. In the apparel industry, US employment dropped more than 80% from 1990 to 2011 (BLS Spotlight on Statistics: Fashion). This kind of trend is not limited to the apparel industry. It could happen in any industry.

The issue is not so much that US workers will lose their jobs because corporations move their operations to other countries, though that happens. The issue is that our money managers (the rich) will invest our savings in other countries. Those investments will create jobs that will not be available to our children. This is a variation on the theme we explored in our post Take from the Poor. The difference is this: We will be investing in the growth of other countries and not in the growth of our own. We will be absentee worklords relative to the workers in other countries, getting income from the fruits of their labor. If that trend continues, the risk is that we will work less and less, becoming a rentier nation. One for which large parts of the rest of the world labors at relatively low wages to maintain our lifestyles. (This will be true also for all the "Western" countries," not just the US.)

There is already enough worldwide anger about American "Imperialism." At this point, that anger is still misplaced. If the trend continues, however, that anger will ultimately become justified. We and our children will cease to work to produce what we need. We will be in a strange and probably unsustainable position. Our incomes will be based on our investments in those who produce what we need. We will pay for their goods and services, but if their wages are only about 10% of industry earnings, then we might get back as much as 90% of what we pay through our investments. What a refund!

That all depends on their allowing it to happen, however, which seems unlikely. We need to be prepared for change.

Finally, for, there is the question how multiple exclusive currencies and markets would help this situation. The main problem appears to be government support for international manufacturing rather than their own people. The Cambodian government ordered the garment workers to go back to work by January 2nd, according to the report. All we hear about is corporate greed. We do not hear enough about government greed. As we said before in Tosoc Update 20130922, government officials typically are not trying to keep up with their own people, they are trying to keep up with Western government officials. That means they have to squeeze their own people unmercifully.

That would change if Cambodian government officials were only allowed to earn and keep an internal currency, one that they cannot convert to a relatively hard external currency like the US dollar. Then Cambodian government officials would be in the same economic soup as their citizens. Their economic loyalties would no longer be to international corporations, but to their own people. Their wealth would be linked to their nations' wealth. Their focus would change from shooting their protestors to negotiating higher wages for their people. We cannot convert Cambodia from a poor nation to a wealthy nation overnight, but we may be able to turn it around and keep it from languishing in poverty. Who knows? We might even be able to help the US State of Mississippi. Support

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

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