Wage Stagnation with Numbers

Cricket, 7 am

Huang Tien-lin published an excellent commentary in the Taipei Times on the problem of wage stagnation in Taiwan...lots of juicy numbers.

The first point is that, whereas Taiwanese manufacturers did 12.24 percent of their manufacturing overseas in 1999, that figure grew to 46.23 percent by 2007, with 90.9 percent of offshore production done in China. By last year, the figure had climbed to 50.52 percent, with 92.7 percent of production abroad concentrated in China. After Taiwan’s first handover of government power from the Chinese Nationalist Party (KMT) to the Democratic Progressive Party (DPP) in 2000, the administration of then-DPP president Chen Shui-bian (陳水扁) abandoned his KMT predecessor, former president Lee Teng-hui’s (李登輝) “no haste, be patient” policy with regard to investment in China, allowing Taiwanese manufacturers to quickly move their operations across the Taiwan Strait. This relaxation of Taiwan’s cross-strait policies led to an exodus of manufacturers on a scale that no other country has ever seen.

It's so nice to see this. Remember how the Establishment media abroad and the pan-Blue media at home  abused Chen Shui-bian for not "opening to China"??? It would be comical if it were a less urgent topic. Basically half of "Taiwan's" manufacturing is now done in China and the results are grim for the local populace. The number of working poor in Taiwan is high -- according to Huang, the DGBAS has 42% of the population making $30,000 NT or less, monthly.

Huang then goes on to point out that the moves kept Taiwan's makers "competitive". Profits shot up. But labor's share of GDP has fallen over the last decade from 50% to 44.5% of GDP. Last month I posted some charts from the US Bureau of Labor Statistics which showed, starkly, what has happened in Taiwan, especially since 2007. If you look at this chart you can plainly see that in the period 2000-07 Taiwanese workers experienced very slow wage growth and then, between 2007-10 experienced negative wage growth even though the very next chart shows that productivity growth has slowed slightly but continues to rise. This gap between falling wages and rising productivity, ironically makes Taiwan very "competive" which is neoliberal slang for a place where capital can make tons of money while the workers get screwed. For the last decade, but especially the last three years of the data, gains from rising productivity have gone to the firms, not to the workers.

Huang's next point is even more brutal:

The third point is that while Taiwanese manufacturers have spent more than a decade chasing cheap labor in China, they have paid scant attention to research, development and innovation. The overall value-added rate for the Taiwanese manufacturing industry as a whole slid from 26.3 percent in 2000 to 21.3 percent in 2010 — the biggest drop in Asia.

This is a point I've been making for several years on this blog -- Taiwanese firms moved to China so that they could continue to pursue Taiwanese-style family firm management and avoid having to upgrade to professionally run firms. But also, as they moved to China, they cut themselves off from the flow of government produced R&D innovation that Taiwanese SMEs have traditionally relied on (bike industry example). Several years ago on this blog I posted on a speech from Lee Teng-hui in which he predicts that this would happen -- even then it was obvious that moving to China had dumbed down Taiwan's firms. As Huang observes, the fall in value-added offsets the advantages of lower wages, harming "competitiveness."

Lots of other things involved -- weak unions, feeble taxes on the wealthy and on large corporations, poor regulation of wages and hours... the list goes on.
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