THE "NIGHTMARE REALITY OF GLOBAL CAPITALISM"

The World Socialist Web Site has an article reporting a recall of goods by the enormous multinational toy manufacturer, Mattel. This publication has caused discussion over at Liberty Forum, largely to my take on the issue. The WSWS announced that the recall represented "The nightmarish reality of global capitalism." I begged to differ:

The world’s largest toy maker, Mattel Corporation, announced August 14 that it was recalling nearly 19 million toys worldwide, half of them in the US, because of the dangers they pose to children. Some 436,000 toy cars made in China were withdrawn because they are covered in lead paint, while more than 18,000,000 other toys, also made in China, are being recalled because they contain small, powerful magnets that could do great damage if swallowed.

So Mattel identified dangerous products and withdrew them from sale. And this is a bad thing? Surely it would have been bad if it had gone on supplying? Did this company decide not to make a profit, to lose billions of dollars worth of sales by recalling the toys out of its own altruistic interests? Or is it really the case that the need to make a profit means safeguarding the safety of consumers - self-interest in a free market leading to protecting consumers?

Certain vinyl baby bibs made in China are apparently contaminated with lead. Wal-Mart removed the bibs from its stores earlier this year,

Ah, another company puts consumer safety before short term profit. Tell me, where is this "nightmarish reality of global capitalism"?

but they are still on sale at Toys R Us.

So one company does not withdraw the dangerous product and so safeguard consumer safety. May be that explains the facts in this next quote:

Cutthroat global competition prevails in the toy business as in every other. The $50 billion industry has faced a serious challenge in recent years from video games and consumer electronics. At the retail end, numerous specialty chains—Toys R Us and FAO, for example—have suffered losses and closed stores in the face of discount outfits such as Wal-Mart and Target.

Ta dahhhh!!! Thanks to the very presence of "cut throat competition," the firm that does not withdraw the dangerous goods, does not put consumer safety before short term profit, loses out to the company that does.

This article is surely about capitalism working, not failing?

Someone responded to my post by raising the concerns for Chinese in Mattel's factories, rather than the issue of poisonous or hazardous goods, quoting extensively from the article:

However, China Labor Watch in September 2005 presented the results of an investigation into conditions at the Kai Long factory in Dongguan, which produces toys for Mattel, among other companies. “Among the report’s findings are work schedules that surpass the legal limit by at least 36.5 hours per week,” said the group, “pay rates as low as only 59 percent of the local minimum wage, unsanitary cafeterias, dorm rooms housing 22 people each, and employees forced to foot the entire cost of their work-injury insurance and, in some instances, lack of insurance of any kind.”

The hourly wage rate is 1.9 yuan, or 23 cents, for both regular and overtime work hours, well below the legal minimum wage. There is no concept of paid overtime in this factory. “Overtime on Saturdays and Sundays is considered regular work time without any additional compensation.”

...

The weekly pay of a worker at the Kai Long factory in Dongguan, which produces toys for Mattel and other firms, is $18.50, or less than $1,000 a year. In 2006, Mattel paid $160,095 alone for Eckert’s use of its company airplanes.

Now, personally I don't get any more money for working "overtime" or Saturdays and Sundays either, so, big deal. But beyond this, the claims about paying less than the minimum wage (even if such a thing were bad) are quite simply false. As I responded to this detractor:

"The hourly wage rate is 1.9 yuan, or 23 cents, for both regular and overtime work hours, well below the legal minimum wage"? Excuse me if I am a little suspicious about these figures.

The legal minimum wage in Shenyang, capital city of northeast China's Liaoning Province, is "320 yuan (about US$38.6) per month, an increase of about 30 percent from the former 240 yuan (almost US$29)." source. So workers there would have to work 167.82609 hours a month to earn the minimum wage in that province. Assuming a month is 30 days, there are 720 hours in a month. Thats over four times as many hours as workers need to work to raise the monthly minimum wage. The workers would earn their monthly minimum wage in seven 24 hour days.

Elsewhere in China, "Three cities in China's booming south have already introduced a minimum monthly wage. In Shenzhen and Zhuhai, it is $61, while in Guangzhou, it is $43." Source. $23 an hour is almost $25, an easier figure to deal with, since it is about a quarter of a dollar. That means four times 43 are the number of hours a month needed to work to earn the minimum wage in Guangzhou. Hell, I work only slightly fewer hours than 43 a week (I do about 38), and am paid on a four weekly basis.

However, my opponent quite correctly pointed out that my figures were dated, as opposed to his own:

Yes, the source of those numbers seems to be a group called Chinese Labor Watch based on a 2005 study:

[url=http://www.chinalaborwatch.org/The%20Toy%20Industry%20in%20China.htm]http://www.chinalaborwatch.org/The%20Toy%20Industry%20in%20China.htm[/url]

By contrast, the source you offered was published in September 1993, and was a short article about several provinces adopting laws for State employees.

Chinese Minimum Wage

Published: September 23, 1993

China is drafting a nationwide minimum wage law for state employees, the official China Daily reported today. The move comes as private enterprises have been giving urban workers increasingly higher wages to meet inflation. Three cities in China's booming south have already introduced a minimum monthly wage. In Shenzhen and Zhuhai, it is $61, while in Guangzhou, it is $43.

He asked,

Do you think that in a place that has experienced the kind of growth that China has experienced, it's possible the minimum wage has increased in 14 years?

Monthly minimum wage in the relevant place is $40 a month, so far as I can tell from this. That means that at 23 cents an hour, it takes 182.6087 hours to earn the monthly minimum. Thats about 42 hours a week. Still not that bad. If you took the monthly minimum wage and divided it by the number of hours in a month, then the result is 0.055555556 cents, nearly a fifth of what these Mattell factory worker gets an hour.

Somebody else, in another debate, voiced another popular concern against global capitalism. They said,

Worldwide free markets will lead to a lower standard of living in the west, while raising standards of living in poorer countries.

I'd rather keep my standard of living, and block imports from countries that produce their products using very cheap labour (and thus shrink their market). I would rather pay a bit more for locally made products, than support foreign industries which will end up killing industries in my country that can't compete with the cheap producer nations.

The real world, however contradicts his claims,

Between 1965 and 1998, the average world citizen's income practically doubled, from 2,497 to 4,839 dollars, corrected for purchasing power and in fixed money terms. This has [i]not[/i] come about through the industrialised nations multiplying their incomes. During this period the richest one-fifth of the world's population increased their average income from 8,315 to 14,623 dollars, i.e. by roughly 75 per cent. For the poorest one-fifth of the world's population, the increase has been faster still, with average income rising during the same period from 551 to 1,137 dollars, i.e., more than doubling. World consumption is more than twice what it was in 1960

Johann Norberg, [i]In Defense of Global Capitalism[/i] emphasis mine.

So, whilst the poorer people of the world have got better off, the richer have too - contrary to my opponent's claim that the poor could only get better off at the expense of the latter.

One comprehensive and frequently quoted study of the effects of trade is that by Harvard economists Jeffrey Sachs and Andrew Warner. They examine the trade policies of 117 countries between 1970 an 1989. After checking for other factors, the study reveals a statistically significant connect between free trade and growth which they are unable to find, for example, between education and growth. Growth was between 3 and 6 times higher in free trade countries than in protectionist ones. Open developing countries had on average an annual growth rate of 4.49 percent these two decades, while closed developing countries had only 0.69 per cent. Open industrialised countries had an annual growth of 2.29 per cent, while closed ones had only 0.74 per cent.

It has to be emphasised that this is not a matter of how much countries earn by others being open tot heir exports, but how much they earn by keeping their markets open. The results show that the open economies had a faster growth rate than the closed ones every year between 1965 and 1989. No free trade country in the study had an average growth rate of less than 1.2 per cent per annum, and no developing country had a growth rate of less than 2.3 per cent! in all regions, a country's free trade policy led to an acceleration of growth after a short time, even in Africa. The positive results of free trade were also apparent in the short term. Countries which opened up their economies temporarily and then closed them again showed faster growth during the open period than otherwise.

Now were slower growth and reduced investments a way for the protectionist economies to purchase more stability. On the contrary, Sachs and Warner showed that closed economies were far more liable than free trade economies to be affected by financial crises and hyperinflation. Barely 8 per cent of the developing countries judged open from the 70s onwards suffered crises of this kind during the 80s, whereas more than 80 per cent of the closed economies did so.

Same source, pp122-3

So why care about growth?

It is sometimes argued that growth only benefits the rich, while the poor of society lag behind. This is a curious notion. Why should poor people benefit less than others from society growing richer? Two World Bank economists, David Dollar and Aart Kraay, studied 40 years' income statistics from 80 countries to see whether this was really true. Their studies show that growth benefits the poor just as much as the rich. With 1 per cent growth the poor increase their income on average by 1 per cent, with 10 per cent growth they raise it, on average, by 10 per cent. Not always and not everywhere, there are exceptions and variations - but on average. This finding tallies with a long line of other surveys [quote from a footnote: "Report corroborating these findings include Gallup, Radelet & Warner 1998, suggesting that in proportional terms the poor actually benefit more from growth than other groups], whereas studies suggesting the contrary are very hard to find.

This makes growth the best cure for poverty.

So, open markets mean higher growth, and higher growth means higher incomes for all. That means that, contrary to my opponent's claim that accepting imports allows others to grow rich at our expense, growth would increase if we allowed them, and, because growth would increase, incomes would.