From Detroit to China to Bangladesh: Capitalism’s Costs, Capitalists’ Freedom

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Over recent decades, profits and competition drove automobile capitalists to abandon Detroit and move to China. Tears, pain and costly social suffering have never stopped afflicting Detroit. China thought it could harness capitalism to its needs. Now China is worrying that it, too, will face Detroit-type costs. Therein lies a lesson about capitalism’s costs, freedoms and its “efficiency.”

Bloomberg News recently reported that in Wuhan, the capital of China’s Hubei province, the auto factories of Nissan and Honda pay a basic wage of $333 per month. Even lower-tier auto workers in Detroit get $560 per week. No wonder capitalists saw profit gains from moving. But Chinese wages have been rising over recent years because of workers’ demands and strikes and because the number of young Chinese workers is shrinking with urbanization and industrialization.

Meanwhile, wages in other Asian locations have not – yet – risen comparably. Average monthly factory wages in Hanoi, Vietnam, are $111; in Phnom Penh, Cambodia, are $82; and in Dhaka, Bangladesh, are $78. Hong-Kong-based bra maker Top Form International closed its Shenzhen, China, factory last year and is expanding production in Phnom Penh. The logic of capitalism has long driven employers to leave the United States, Western Europe and Japan for the lowest-wage countries elsewhere. It now also impels capitalists in China to do likewise.

Of course, moving from Chicago or Hamburg or Tokyo to Shanghai raised some production costs for capitalists. Products had to be shipped immense distances, loaded and off-loaded, insured and inspected at each point, and so on. Vast energy resources were expended on that transportation, and its attendant pollution and global warming consequences. Far less of those resources were needed when production occurred much closer to final consumption. Only because the extra costs of producing in China were less than their gains from paying low Chinese wages did capitalists move there. Nor did laws compel US capitalists to spend any of those extra profits to help US workers, their families or their communities devastated by those capitalists’ relocation decisions.

Any rational calculation of capitalism’s efficiency would have to count not only the profit gains of capitalists, but the livelihood, household, physical and mental health, and myriad other losses resulting from their relocation decisions. Jobs gained in China would be one part of the calculation, but so would jobs lost elsewhere. Modern capitalism allows capitalists to capture the profit gains of relocation decisions; it does not make them compensate for the losses. How nice for the capitalists.

For the last 25 years, China – and especially its capitalists – gained a massive inflow of capital and capitalists. It achieved a spectacular industrialization and urbanization in an historically very short time span. Of course, undeveloped and underdeveloped regions of China remain, as they do in the United States and Europe. Where before, capitalism’s uneven development hurt Detroit and benefitted China, it may soon hurt China, too.

Over the past 8 years, the total gap between manufacturing costs in the United States and China has been reduced by half, and it continues to fall. Wages rising much faster in China than in the United States, plus rising transportation and associated costs, explain this. Cheaper-wage nations are therefore drawing United States, European and Japanese – but now also Chinese – capitalists away from China. Serious difficulties may confront China in the near future.

After all, China moved hundreds of millions of people from agriculture to industry, from interior to the coast and from countryside to city during the past 25 years. They developed new needs, desires and expectations. What enabled that was a sustained capitalist growth spurt (with immense costs for other parts of the world). Yet that growth spurt changed its own conditions and thereby undermined its future. When profits drive capitalist enterprises out of China, it will discover the other, uncounted side of “capitalist efficiency.”

Some defend capitalists’ “freedom” to move at will without covering the costs to others of that freedom. They say that when capitalists moved production, as from Detroit to China, consumers got lower prices. The facts are these: (1) lower prices sometimes happened, but often did not, and (2) even when they happened, lower prices rarely lasted very long. The reason for this is clear. Capitalists did not relocate to China primarily to reduce their prices, but rather to increase their profits by reducing their costs. While small and often temporary price cuts may accompany relocation, profit considerations sooner or later reassert their primacy. The last 25 years of capitalists moving to China have been years of stunning profits for them. The gap between the rich and everyone else in the United States rose dramatically – in part because of capitalists’ relocation profits.

With or without price cuts, capitalist relocations occur because they make money for capitalists while their disruptive costs get shifted onto others (the people and communities left behind). The latter might well be better off to prevent relocations or else make capitalists pay the costs of their decisions’ collateral damages. But the capitalists would be better off keeping their “freedom” to make relocation decisions and their “freedom” not to cover collateral damages.

So far in the history of capitalism, with important exceptions, capitalist preferences have governed what politicians do. So capitalists leave Detroit for China and then China for Bangladesh. Capitalists’ relocation decisions were never about “efficiency.” No one ever could or did count all of the social costs and benefits associated with those decisions. No one knows or could know whether the benefits outweigh the costs. Efficiency claims are fiction used to disguise the victory of some social interests over others as if society as a whole had gained. The Detroits of the world, past, present and future, stand as powerful wake-up calls about the costs of capitalist freedoms and the injustice governing who bears them.