Monday, October 29, 2007

Globalization -- A New Twist

I just spent the weekend with a pretty high level delegation from China. At the final banquet, some of them were telling my wife that they appreciated the low prices in US stores. They were especially happy with some shoes that cost 6 times more than in China. They were taken aback when she mentioned that the shoes were made in China, where they presumably cost far less than in Los Angeles.


Robert D Feinman said...

I suppose the point is that exports are being subsidized, but it is also possible that unlike things are being compared.

Especially with a thing like shoes there are many factors which can affect cost, such as quality of materials. The inverse is also true where many in the world will pay ridiculous prices for a famous brand.

It would be interesting to see some actual data on how exports are subsidized. Every once in awhile some tidbit emerges, usually in a non-economic setting like a BBC field report from a Chinese factory.

ProGrowthLiberal said...

Tariffs? No tariffs. Transportation costs? Not likely that high. Huge markup for the US design and distributor - that's it! Of course, most of this is wasted away on marketing costs.

ProGrowthLiberal said...

Tariffs? No tariffs. Transportation costs? Not likely that high. Huge markup for the US design and distributor - that's it! Of course, most of this is wasted away on marketing costs.

Anonymous said...

Very mechanical but the price of labor power, wages, and the avg. standard of living inter-relate -- global labor arbitrage is also a standard of living* arbitrage which, I'd think, is an unequal exchange in which some large portion of gain accrues to such unproductive activities as PGL mentions.

*related as well to class organization and militancy.

Anonymous said...

Rereading the post, it's not clear where the shoes cost six time more:

One hand, "They were especially happy with some shoes that cost 6 times more than in China."
Other hand, "They were taken aback when she mentioned that the shoes were made in China, where they presumably cost far less than in Los Angeles."

YouNotSneaky! said...

Presumably the first refers to the retail price in US vs. retail price in China and the second to labor cost in LA vs. labor cost in China.

If that's true then I don't understand PGL's comment at all. Huge markups for US designers should be same regardless whether one sells shoes in US or China. And huge markups for US distributors are probably more likely within US than in China.

Rather than conspiracy theories about evil capitalist sucking the blood of workers it's probably just
a) subsidies as noted in comment 1
b) PPP conversions
c) Alchian-Allen:
d) some combination of all of the above

Michael Perelman said...

I understand that high cost US brands routinely sell at a premium in China. The companies routinely pay Chinese producers (often owned by non-Chinese) only a small share of the retail price.

The question for the US is how long the country can live off this parasitic abritrage.

Anonymous said...


is each firm's attempt to maximize profit a conspiracy theory or simply the normal working of the capital system, a normal working partially captured by the following 10/30/07 interview:

AMY GOODMAN: Barbie Pet Doctor set.


AMY GOODMAN: It’s got a stuffed animal.

CHARLES KERNAGHAN: Yeah, little implements. And it was made in a factory called Xin Yi by young women forced to work fourteen-and-a-half hours a day, six days a week, at a minimum. Sometimes they work until midnight, sixteen-and-a-half-hour shifts. They’re at the factory eighty-seven hours a week, paid fifty-three cents an hour as their wage and then cheated of their overtime wage.

AMY GOODMAN: Where is the factory in China?

CHARLES KERNAGHAN: In Shenzhen, in China.


AMY GOODMAN: OK. Where is this Barbie sold? Explain exactly who it’s made for. It says “Hug n Heal” Pet Doctor.

CHARLES KERNAGHAN: Yeah, this was shipped out of China. Toys, just exactly the same, were made in this Xin Yi factory in Shenzhen. The interesting part about this toy is it sells for $29.99. We purchased it at Toys “R” Us, $29.99. We have the customs shipping documents with this toy entering the United States with a landed customs value of just $9. ... So the packaging, the materials, the accessories, the direct labor -- indirect labor, profit to the factory in China, the total cost of production is $9. So that means Mattel and the other companies are marking this up by $20.99. That’s a 233% markup.

This is astonishing, because why are they producing toxic toys when it would only cost ten cents per toy to check all the toys, screen all the toys, for hazards or toxic chemicals? They could screen every toy for ten cents. So why aren’t they doing it, when the markup is $20.99? Why are they paying the workers such pitifully low wages and then cheating them of their wages, cheating them two days of wages every single week. It doesn’t have to be this way. This toy is marked up 233%. As a matter of fact, Mattel has spent about $200 -- about $2 billion over the last three years in advertising. So we know that Mattel spent $3.45 to advertise this toy. You know what they paid the workers to make it? Less than nineteen cents. So Mattel spends eighteen times more to advertise the toy than it pays the workers to make it. The system’s out of control.

AMY GOODMAN: What has been the response of Mattel?

CHARLES KERNAGHAN: Actually, they were quite confused. ...


MY GOODMAN: What is your response to this report that came out, the Guardian -- the London Observer revealing that the kids, as young as ten years old, subjected to working these very long hours, also being beaten? Charlie Kernaghan, you’re the one who first exposed Gap. Now Gap’s saying they’re going to cut their ties with this subcontractor. Talk about your history with the Gap.

CHARLES KERNAGHAN: Well, we had found the Gap in 1985 in a factory in El Salvador called Mandarin, where there was children working, young teenage girls who were sexually harassed and abused, cheated of their wages, forced to work sometimes all night. I mean, a miserable place. And when we confronted the Gap about this, they waved a code of conduct at us, and they said, “We have a corporate code of conduct that protects the rights of these workers. How dare you say that to us?”

And I got my hands on the code of conduct, and I looked at it, and it was beautiful, like a little pamphlet. It was printed on treeless paper, because Gap wouldn’t hurt a tree; it was printed with soya-based ink, because there’s something wrong with ink. So I said to the Gap, I said, “You know, this thing is remarkable. It reads like the Bible. You could eat it, it’s so good for you. It reads well. It’s perfect.” But Gap had never translated it into a foreign language. It was completely PR. They told me, the vice president said, “Oh, we had inadvertently forgotten to translate the code of conduct into foreign languages.” So it started out as a scam, and it ended up as a scam.

Not long ago, in 2006, we found Gap clothing being made in Jordan by slaves, by people who were indentured servants who came from -- guest workers who came from Bangladesh and China, India or Sri Lanka. When they got to the country, there were stripped of their passports. They were people without a country. They were locked in factories to work sixteen to twenty hours a day. They were cheated of their wages. They were beaten, and they were raped, and there were fourteen-year-old girls working in that factory. So, you know, in other words, it continues.

Kevin Carson said...

Wonderful and very telling anecdote. The U.S. clothing industry operates, to varying degrees, on the Nike model described by Naomi Klein: outsource production to sweatshops and retain control only over marketing, finance, and "intellectual property" [sic].

"The question for the US is how long the country can live off this parasitic abritrage."

Its time will probably run out when enough Third World governments decide they can benefit from breaking out of international IP accords. Much of the U.S. corporate economy is a hollow shell supported by artificial property rights like patents and trademarks.

Even if the Chinese government isn't in the driver's seat, it's probably only a matter of time until a radical Chinese labor movement figures out it could take control of the production facilities and produce sneakers and other clothing identical in quality, without the trademark (or better yet, how 'bout the Nike Swoosh in a red-circle-slashbar). They could eliminate the brand name markup, market them directly to the local population, and simultaneously lower retail prices and raise wages by several hundred percent.

By the same token, in the domestic economy, virtually the entire entertainment and software industries are based on IP. It's the only thing holding up the walls of the old gatekeeper corporations, when the technological basis of the firm (high outlays on physical capital) has ceased to exist and the basic production equipment for software, music and desktop publishing can be acquired for at most a few thousand $$. The peer groups producing software inside MS are essentially the same in kind as the peer groups working on OS software. Bill Gates' IP, an artificial form of property, props up the corporate walls and enables him to charge tribute. But modern technology is making his IP right unenforceable, and thereby also making his business model increasingly untenable. All the Nazi shit like Genuine Advantage and the RIAA lawsuits are just the last gasp of a brontosaurus going under in the tar pit. And those are, incidentally, the two biggest American cash cows in the global economy.