Living on a “Dangerously” Fast Boat to China…

Reminiscent of the Bus Uncle video, this rather quirky dispute recently took place in one of the cities in China. I’ve been to Shanghai before and I’ve witnessed firsthand the different social classes in habitat just stones throw away from each other.

Here’s a brief transcript of the video, as translated by Youtube user: elnoll
“you low countryside girl should get out of this city bla bla bla”, and the shouting woman nip the girl. The girl’s bf then quarrel. “are you a man or what – (to the “countryside” girl) you should never marry a man like this”, the shouting woman said. and the man attack. The reason – The shouting woman put her bag on seat first to occupy the seat, but the girl take up the seat ignoring the bag. — Seat is precious.

It’s ironic how we had just concluded a reading seminar on Andrew Ross’ “Fast Boat to China” when my friend Nelson pointed out this video.

Andrew Ross: Fast Boat to China Andrew is a professor of American Studies in the Department of Social and Cultural Analysis at New York University. He has written a lot (and I mean a lot!) of book relating to labor, by contrasting the technology and corporations of the First World (e.g. America) to the sweatshop labor of the Third World (e.g. China). His book provides a well researched look into the accelerated change in China, which we often assume as attributing to the growth of the republic (i.e. a good thing). This apparently, isn’t the case.

Observe U.S. Senator Lindsey Graham in a Senate bill to impose tarrifs on Chinese imports back in September 25, 2003: “The growth of the Chinese economy is not being shared with its people, because one of the reasons we are losing jobs is… you can build a plant in China and people work for a dollar a day… there are no minimum wages. China is taking advantage of trade regimes.”

Besides China’s apparent lack of welfare to the lower strata of Chinese citizens, foreign corporations have been contributing to the problem as well.

Who’s taking the bigger pie?
In a well-cited study entitled “Who Wins in Offshoring?” by the McKinsey Global Institute (as published in the International Herald Tribune 7th Feb, 2004), it was revealed that “the United States receives 78 percent of the new economic value created by offshoring, versus the 22 percent that goes to the lower wage countries where these services are relocated”. Taking the U.S. – India example, the study estimated that as much as $1.46 in new economic value is created for every dollar American companies spend offshore. India gains a net benefit of at least 33 cents from every dollar the United States sends offshore. America, meanwhile, earns a benefit of at least $1.13 for every dollar spent.

Is outsourcing ultimately “lose-lose”?
Given that the lion’s share of the outsourced revenues is generated for the First World with a meager amount left for Third World, I would overturn the Institute’s “win-win” assessment of both countries benefiting from the situation. As Andrew might explain, while two countries could be profiteering from a partnership, the imbalance in the distribution of wealth is likely to create even more cultural problems in future, where social classes would be further divided in an increasingly globalized economy. The widening of social rifts would occur in the Third World, where places like China would likely encounter heightened cases of class discrimination as seen above. These social behaviors typically manifest in locations where the rich and the poor live in close proxemics, usually due to an unnaturally high speed of modernization within a dense living area.

From civil disputes to crimes
For instance, metropolitan cities like Shanghai could have the types of crimes mirror those faced in Sao Paulo, Brazil, where urbanization has highly stratified social classes living in close quarters. On last week’s CBC Search Engine podcast, Jesse Brown highlighted a bizarre case of an attempted lightning kidnapping of one of the world’s top RPG player, to get his GunBound account password which they could sell for about $8,000. While the crime in itself was sensational, the statistics are frightfully real… Just look at the Brazil 2007 Crime and Safety report for Sao Paulo on the two prevalent forms of kidnapping: Lightning kidnapping or quicknapping, as well as virtual kidnapping where random phone calls are made. These kidnappings have reached epidemic proportions.

The Shanghai Squeeze
As the rich and the poor in these Third Worlds further stratify, so would the perpetuation of “The Shanghai Squeeze”. As seen on page 83 of “Making Capitalism in China: The Taiwan Connection” by You-tien Hsing (1998), a Taiwanese shoe manufacturer simply puts it, “China is like a sponge full of water, you just have to squeeze it hard until you get to the last drop”.

So what’s likely to happen after China’s squeezed dry?
Once prices go up and civil unrest reach unhealthy proportions, some of us are already thinking how outsourcing will simply move to untapped regions like Africa.

Aside: These are personal projections of a possibility China might face if it continues to depend on outsourced labor for its economy. As one of my Chinese counterparts argued, I’d like to think that it is healthier if the country focused some of its capital on growing industries of their own, in balance with that of multi-national corporations invested there.

Update: Financial Times just reported that China’s bubble may burst but the impact will be limited: “… Local governments drive urbanisation. China will continue to build until it runs out of money. The banks have too much money for the foreseeable future.” It’s a little weird hearing about banks with too much money.

3 thoughts on “Living on a “Dangerously” Fast Boat to China…

  1. It’s true, wealth is relative to your neighbor’s. Nonetheless, I think it is dangerous to be cavalier about the 22%. Would the average Chinese be willing to say “I don’t want my 22% if you are getting 72%.” Obviously, not; and they are not.

    It’s true: the Chinese economy is stratifying at an amazing rate. Its Gini index surpassed that of the US in the early 2000s. (Note that: Brazil may be highly stratified, but so is the US, to a lesser degree.) Outsourcing does not, however, necessitate internal stratification. Japan is a fine example of this: a country with a healthy middle class that moved from being a producer of manufactured goods to a global leader in technology. During that time, their GDP per capita also expanded: at first, along with their patron country (the US) and later, outstripping it.

    I suspect that we will see a crisis in countries that are outsourcing before we see the opposite. The income disparity in the US is growing rapidly as well, and it would be fair to say that the current recession is felt only by the lower-middle class, while those who are–for example–invested in the stock market are largely insulated. The subprime lending market will accelerate that. As manufacturing and skilled labor jobs are shipped overseas, the “losers” in the US economy are becoming part of a permanent underclass. Again, this isn’t inevitable (Europe’s Gini indix remains relatively low), but bad policy is exacerbated by open trade.

  2. As always, thanks for your insight Alex. The Gini coefficient seems useful in determining income equality across nations. I might try to compare this to the level of Internet regulation by country, to see if there’s any correlation. Do you know of any other connectors you might have come across?

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