Globalize That: Capital Flight to China

by Seth Sandronsky

Dissident Voice

August 12, 2003


What do you get when companies shift factories from high-income countries to low-income countries?  The answer is capital flight.


This is today’s global marketplace.  Just ask a top Wall St. economist.


“For more than a decade, the vigour of Chinese export growth has come far more from the deliberate outsourcing strategies of western multinational companies than from the rapid growth of indigenous Chinese companies,” wrote Stephen Roach, the chief economist of Morgan Stanley, in the Aug. 7 Financial Times.


Currently, U.S. companies such as Du Pont, General Electric and General Motors are employing Chinese workers to produce a range of commodities.  And these corporations are profiting handsomely in the process, an article in the same edition of the FT reported.


Mr. Roach further noted this trend of capital flight to China is “a by-product of the struggle for competitive survival by high-cost producers in the industrial world.”  Presumably, workers of “high-cost producers” enjoy weekends off, meal breaks and paid holidays, a drag on the bottom lines of big businesses based in the U.S.


As market competition has forced employers to seek lower cost workers, “communist” China has emerged as a preferred point of production.  We thus see capital fleeing from investors in the E.U., U.S. and Japan to China.


In turn, Chinese workers from rural areas are entering the global wage-labor market.  Crucially, their commodity of labor-power, especially those of manufacturing workers, is less costly than that of U.S. workers.


This trend, in turn, has helped to increase the wage gap in the American labor market.  “Virtually all economists recognize that the availability of low cost manufactured goods from developing nations has been one of the factors contributing to the growth in wage inequality between college and non-college educated workers,” wrote Dean Baker, an economist with the Center for Economic and Policy Research.


The developing nation leading the way in producing low-cost commodities for the global market is China.  Thus Chinese workers are super-exploited.


In this way, investors from rich nations get higher profits and more market share.  Otherwise, they lose one or both to business rivals.


Meanwhile, the wages of manufacturing workers in America are being further depressed by job losses.  This trend has continued during the administration of President George W. Bush.


U.S. manufacturing employment has “declined continuously since July 2000,” the Labor Dept. reported this July.  In that month, 71,000 manufacturing workers were thrown out of a job.


“Since its most recent peak in July 2000, manufacturing employment has fallen by more than 2.6 million,” the Labor Dept. reported this June.  In June 2003, U.S. manufacturers cut 56,000 jobs.


Think that capital flight is only affecting these American workers?  Think again.


“And then there's the ominous trend of sending higher-skilled jobs overseas to low-wage places like India and China, an upscale reprise of the sweatshop phenomenon that erased so many U.S. manufacturing jobs over the past quarter century,” wrote Bob Herbert on Aug. 7 in the New York Times.


First, blue-collar workers in the U.S. lose their jobs to capital flight. 


Subsequently, the trend of job loss from firms shifting work abroad is reaching into the ranks of America’s “upscale” white collar workers.


Perhaps this will spur a new class consciousness among those who work in offices and are now facing a tenuous job future.  We will see about that.


Socially, what has happened as capital has fled the U.S.? The number of Americans locked up in jails and prisons has quadrupled since the mid-1970s.


Thus the 2,166,260 people now being held in U.S. jails and prisons (and invisible in Labor Dept. reports) are not on the outside earning wages. 


Significantly, the rising inmate population in which blacks are over-represented is partly a response to the crisis of profitability and weak demand for hiring workers in America’s manufacturing sector.


Social life (who gets by, how and why) in the U.S. during the past 25 or so years has been driven by the changed relations of economic and political power between America and other rich nations.  Americans’ improved living standards after World War II ebbed as big businesses in Germany and Japan began to take market share and profits from their U.S. counterparts.


The Vietnam War was a watershed time for American society in more ways than one.  Then, the profitability crisis (too many products for too few buyers on the world market) began in the manufacturing sector, as author and scholar Robert Brenner has written.


Big business in the U.S. responded by attacking unions and New Deal/Great Society social spending that protected the working class from the market. 


More recently, the cutting of social spending as U.S. investment capital scours the globe for higher rates of return has been called “globalization.”


On one hand, the term can conceal more than it reveals, shedding little light on the part that ordinary people play in maintaining the global system each day they go to work.  On the other hand, the sober business logic of capital seeking lower labor costs worldwide is hard to miss.


Capital flight to China a case in point.  The goods made by Chinese workers now on the shelves of your local Wal-Mart are proof of that.


Based on U.S. government estimates, Wal-Mart “sourced about $10 billion worth of goods from China last year,” the Aug. 7 Financial Times reported. 


On a related note, the same retailer is the biggest private firm in America, paying its nearly 750,000 female employees working as “sales associates” $6.10 an hour, on average, according to the National Organization for Women.


Meanwhile, the needs of capital to expand are equated with decision-making processes in the rich nations.  As Mr. Roach wrote, “A high-cost industrial world has made a decision that it needs China-based outsourcing to ensure competitive survival.”


Well, has capital flight to China flowed from a popular mandate led by the American people?  Were there elections across America supporting the flight of U.S. capital to China?


I don’t remember them.  Do you?


What do we think about globalization? And how does globalization make us think?


Seth Sandronsky is a member of Peace Action and co-editor with Because People Matter, Sacramento’s progressive paper. He can be reached at: ssandron@hotmail.com.


Other Recent Articles by Seth Sandronsky


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* In U.S., Slow Growth, Excess Inventory and Mounting Debt




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