What Goes Around

Global capitalism can be so fickle.

I just read an interesting article in Business Week, discussing how and why Mexico is surpassing China in manufacturing.  Mexican workers are more productive than Chinese workers and Mexican wages are lower than Chinese wages, so many multinational corporations are choosing to locate their manufacturing facilities in Mexico now, rather than China, despite the higher crime rate in Mexico.  Estimates are that by 2015 Mexican labor will be 29% cheaper than Chinese labor.

According to the author of the article, Mexico’s rise as a manufacturing power is advantageous to the U.S., as Mexican factory workers can be expected to buy more American beef as their standard of living increases.  That is to say, rather than staying on their farms and raising cattle, these folks will now manufacture things for us to buy, and they will eat American cattle.  I couldn’t resist a chuckle at the notion of the U.S. as an agricultural colony of industrial Mexico.  The notion is also ironic, considering that the vast majority of the employees of American meat packing facilities are from Mexico.  And of course even though manufacturing accounts for 35% of Mexican GDP versus only 12% of American GDP, that isn’t because most Americans are farmers.  It’s because most Americans aren’t employed in doing jobs that actually produce things.

I expect that whatever Mexico gains at China’s expense, however, will only be temporary.  The corporations will favor Mexico only until they can find some other source of even cheaper labor.

Here in southern Virginia we’ve already seen that movie.  After the Civil War industrialists built cotton mills in the South to take advantage of the cheap labor.  Danville, our closest city, was home to the largest cotton mill in the South.  It employed tens of thousands of people, and fueled the local economy.

But now it’s just a bunch of giant abandoned buildings and we have one of the highest unemployment rates in the nation.  Textile manufacturing found cheaper labor elsewhere and moved to places like China and Mexico.  The mill filed bankruptcy and a company from India bought its assets (and moved them to India).

Gene Logsdon recently posted about the ongoing tragedy (is that too strong a word?) in China, where small farmers are lured to factory jobs and little high-rise apartments in the city.   How many of those former farmers (whether in China or Mexico) are destined to be unemployed wards of the state, or worse, when the masters of industry find another place to exploit cheap labor (i.e. farmers)?

And how long can this game of industrial musical chairs go on?