Friday, December 26, 2008

What Will Tomorrow Bring: Chinese Reverse Migration

As I blogged a while back, China's key success factor, as well as competitive advantage is it's access to a nearly-unlimited pool of unskilled, impoverished labor.

When the US needs more cheap labor, we turn a blind eye at the southern border for a while. When China needs the same, they simply open the tap slightly by granting a few thousand (or million) migration permits allowing poor western farmers to migrate to the cities in search of menial jobs, at which they're assured to make triple what they could in their home village. You see, in China, you must have a permit to live in the affluent cities of the coast.

As we've seen time and again in history, and as Marx and Engels were kind enough to highlight, growing income disparity pisses off the less fortunate. As such, there has long been fear (as Deng was acutely aware) that coastal modernization, liberalization, and the consequent wealth creation might ignite a repeat of the People's Revolution. Hence the restrictions on the mobility of the peasant class. Conventional wisdom holds that the only way to avoid revolution is with political reform and liberalization. However, the Chinese commies have so far avoided making any painful (for them) changes. Instead, whether intentional or by necessity, the government has allowed a continual trickle of peasants to flow east to partake, thus releasing just enough steam to keep unrest down to a manageable magnitude.

For those migrant workers lucky enough to be allowed into "the city," the transition must arouse a mix of ambition, hope, confusion, and humiliation. Up to that point, they have led traditional agrarian lives just as their ancestors had for hundreds of years. Then suddenly they find themselves witnessing first-hand the "foreign" trappings of wealth being played out on Chinese territory ... and by (Fendi-clad) Chinese. This is a lifestyle they never aspired to ... until they arrived in the city. But once they're exposed to it, this lifestyle must become a thing to covet, or at least worthy of animosity. Unlike America, however, the Chinese government makes it clear that migrant workers should not hold such aspirations. Their proletarian lot is fixed. They are to work. The caste system is alive and well in towns like Shanghai and Beijing.

At least the work was always there ... and at least these people could count on sending money home to make their families wealthy by local standards ... to be enjoyed when (if) they ever reunite. At the same time, they've been keenly aware that this right could be revoked by government fiat. Between them, these two forces have maintained a strong incentive for migrant workers NOT to rock the boat.

Oddly, the world financial downturn may grant them their wish. As China's growth rate has slowed, it's demand for incremental labor has evaporated. For the first time since Mao, unemployment is shockingly on the rise. Keep in mind that "official" numbers never count the western farmers, so the conclusion is that this unemployment spike is happening on the coast. That means workers who have migrated east in the last 10 years are, for the first time, not able to find work.

Some may choose to return home to their villages, as they always planned to do. However, others may have to go against their will. While it's denied by the government, unemployed migrant workers quite often have their permits cancelled by the government. This forces them to return home or go underground. It's a tidy way for the commies to keep unemployment just where they want it.

The government's tea-leaf-readers have suggested that they may not be able to count on a quiet reverse migration this time around. It is possible that critical mass of disgruntled migrant workers may choose to stand up for themselves. This plays into the prevailing theory that an increase in Chinese unemployment might unleash a wave of pent-up social unrest. As we remember from 1989, China doesn't like unrest.

And that's why they've taken the unprecedented and fascinating Keynesian steps to stimulate the economy such as subsidizing private enterprises to take on (or at least keep) workers they don't need. These are the same enterprises the government only grudgingly allowed to emerge ten years ago. Quite an interesting turn of events!

Train Station photo credit: AP via AFP/Getty

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