JUNE 15, 2010

BEIJING, China–For the past few weeks, news of labor unrest has been making waves in the Chinese business world. Worker action in the country, including suicides and strikes, has spurred concerns about China’s vital role in the global supply chain as a low-cost manufacturer. Yet companies, governments and consumers of the world should welcome, instead of worry about, changes in the Chinese labor structure. Strengthening Chinese workers will bring about necessary adjustments to both the Chinese and global economies, while reducing inequality and social tensions across China.

The unrest started at the Foxconn factories in Southern China, The large technology manufacturer that produces everything from Intel Motherboards to iPods faced a spate of worker suicides this spring, motivated by stressful working conditions. The chairman of the company was forced to make a public statement at the factory, admit mistakes, and raise wages. Protests spread to Honda factories across the country, where workers have successfully demanded increased wages. Though the latest Honda factory strike’s demand for an independent trade union failed, the attempt was still a promising sign for the Chinese economy.

Chinese workers are justified in expressing their frustration with their current treatment.  Many experience pressure to work long hours and “feel they have to work long hours of overtime to secure a decent wage.” As the country grows at an incredible pace, inequality has also risen; the gap between rural and urban wages in the country is as large as has it been since 1978—the year the country began liberalization.

Many have not shared in China’s newfound prosperity.  If workers are not empowered through fair wages and representation,  discontent with the government and social instability may ensure—posing a major threat to economic growth. If the Chinese government hopes to maintain its position as a reliable manufacturer in the global supply chain, temporarily raising wages is only a stopgap solution.   China must eventually empower its workers through independent trade unions, which will allow wages and working conditions to be set in fair bargaining processes.

Companies in China and across the world are nervous about these developments. If wages rise in China, the logic goes, won’t that be factored into retail prices across the globe? Experts say no. The Financial Times recently reported that “labor costs are only about 5% of the retail price of China’s main exports – electronics and consumer goods.” Thus increases in wages will barely impact global consumers or disrupt supply chains.

Rather, the increase in wages will implement necessary adjustments in both the Chinese and global economy. Augmented wages will lead to more personal domestic consumption in China in the long term, stabilizing the country’s economic growth—currently centered on manufacturing and government spending— by rendering it less dependent on unsustainable government stimulus and sharp fluctuations in the global economy. Furthermore, the world as a whole needs to rebalance from the pre-crisis era in which America spent while Asia saved, and this requires more saving in America and increased consumption in Asia.

The New York Times recently published a profile of Tan Guocheng, a 23-year-old worker in a Honda plant who started one of the first and most successful major strikes last month. He was no glory-seeking political activist, but rather someone whose overworked and underpaid life in the factory had not met his modest expectations of joining the middle class. If corporations and the Chinese government allow workers like Mr. Tan to rise to the middle class, the Chinese and global economy will rise along with them to a healthier and more prosperous future.

Ravi N. Mulani ’12, a Crimson editorial writer, is an applied mathematics concentrator in Winthrop House who is interning for a life insurance company in Beijing this summer.