Karl Marx would have understood Monday's news that Foxconn, the Chinese contract manufacturer, is to allow its workforce to elect their own union leaders. After several years of protests, riots and worker suicides, Foxconn, which makes consumer electronic gadgets, is to be the first Chinese company to allow worker-controlled unions, paving the way for Western-style collective bargaining.
You might think that Foxconn is merely bowing to pressure from customers such as Apple, who have been hugely embarassed by the stories of workers jumping to their deaths from the roofs of Foxconn factories. But Marx would have looked at it differently. He would have pointed to deeper underlying causes for the political change.
The German philosopher, who famously argued that it was economic and social relations that determined mens' consciousness, not the other way round, might have pointed to the same demographic forces highlighted in a recent IMF working paper, "Chronicle of a decline foretold: Has China reached the Lewis turning point?"
China is nearing a huge demographic/industrial watershed: The transition from a labour surplus to a labour shortage economy (the Lewis turning point), says the IMF. The massive migration of surplus agricultural labour from farm to factory, which fuelled China's industrial boom, has run its course. China's one child policy has successfully curbed fertility, cutting off the supply of new labour, and the UN reckons that the core population of young workers in China (aged 20-39) is alreading shrinking. By 2020, China's entire adult workforce will begin to decline in number. Ten years later, the IMF expects a labour shortage of 140 million.
The effect on manufacturing wages is already pronounced, with average pay rising 15 per cent annually for the past decade. The skilled worker scarcity plagues Chinese manufacturers with huge staff turnover ratios and rampant job-hopping. We already hear tales of "insourcing" or "onshoring" from Western companies which find the marginal gain in cost per unit in China has become so small that basing operations there is no longer worth the cost of transport, time and quality control issues. In December, Apple said it would invest $100-million bringing some manufacturing back to the U.S. .
What this means, says the IMF, is that China's current growth model (add another factory) is unsustainable. Instead of just investing more, China needs to invest better or more intensively and cleverly to get more output per dollar. In theory, this would be good for the world, allowing a rebalancing of trade with benefits for other emerging Asian economies and opportunities for Western economies to recapture some manufacturing. It would also help China to narrow the appalling gap between rich and poor.
But for that to happen, we have to believe that Beijing will abandon its command-and-control approach to economic development and allow innovation and creativity to flourish. (Merely incentivising the registering of patents, many of which are suspected to be useless, doesn't count.) It means reforming hukou, the system of registering households, which deprives economic migrants of social benefits. We would need to assume political reform and the sort of intellectual heat that generates new products, fashions and lifestyles that drive the economies of liberal consumer societies.
That is a lot to ask China to achieve in a decade. The easy bet is that China is heading for a crunch and a credit crisis, followed by a political crisis setting the urban poor against the urban rich. Karl Marx would have been satisfied.
Carl Mortished