Wednesday, 16 June 2010

Datta Samantism in China ?


Readers of this blog may be forgiven for not being familiar with the late Dr Datta Samant. He was a fiery trade unionist in Bombay in the 1980s who changed the industrial relations scene in India. His style was extremely confrontational ; he specialized in making demands of 700% wage increases, going on strikes invariably and was prepared for an agreement only upwards of a 100% wage hike. The textile industry in Mumbai was virtually destroyed by him . A few workers benefited when managements caved in to his demands ; but on the whole most, and especially Bombay, lost.

Not as dramatic, but something on those lines is happening in China. There has been a coordinated strike in Honda’s manufacturing plants in southern China demanding wage hikes. Honda increased wages by 24%. Foxconn, the company at the heart of the unfortunate suicides in its plant in Shenzhen , has increased wages by upwards of 30% to reportedly 100% for some. Guangdong Province, the factory to the world, increased its minimum wages by 20%. Industrial disputes have risen manifold in the eastern coastal belt where much of China’s industry is located.

Industrial relations in China is very different to the rest of the world. There is no real organized trade union , unlike in most other countries. Worker rights are usually non existent or trampled upon. Strikes usually cannot happen without “approval”. The average worker has little say ; he can be sacked easily and replaced a dozen times over.

Yet a collective swell of worker activism is happening. This is also the result of demographic changes happening in China at breathtaking pace. The early boom had been fuelled by dirt poor migrant labour fleeing misery in the interior and coming to the coast for what appeared to be the Promised Land. Rapid upliftment from poverty occurred. Now that the escape from poverty has happened, the working community is looking for more. Minimum wages which appeared at first to be a fortune, now appears to be a pittance. Costs have started to rise. China is no longer a “cheap country” – pound for pound, India is now significantly cheaper, leave alone even cheaper places like Vietnam.

Tectonic changes will happen in China I believe. Industry is starting to drift westward as the coast will start to look more and more like a Japan. Some will start to drift out of China altogether. There is no country in the world with the ability to take on the scale of China, so an exodus will not happen, but a drift surely will. The interior of China is still a low cost region, but even that is rapidly changing. China’s manufacturing might is built on low costs, wafer thin margins and huge scale. It can least afford cost escalations of any significance.

For longer term sustainability, wages have to rise, but slowly. Not the Datta Samant variety , but a steady increase each year. This enables aspirations of labour to be met, without destroying the economic model that created the industry in the first place. It also enables productivity and innovation in cost management to kick in to offset wage increase.

Datta Samant is a very bad example for workers to emulate. Wage increases, yes; but sudden massive increase ? NO ! Its not in anybody’s interest.

13 comments:

  1. Welcome Back!
    Is it practically possible to have characters like Datta over there?
    Isn't there a possibility that these strikes too will be trampled?
    Can the foxconn wage hike be attributed to strikes? wasn't it due to the suicides?
    IMHO, the fortune turning to be a pittance is nothing but evolution of the mankind[desires]!Once when you get wat u wanted, u start desiring for the next thing tat u dont have!

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  2. @Zeno - No its impossible for a Datta Samant to rise here, but Datta Samantism is very possible and is happening. Yes, human needs are never ending, but when somebody wants 50% salary increase, he is just being greedy.

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  3. Anonymous16/6/10

    i've heard this name before..but not the story behind this guy. throughout the history of mankind..few active minds have been responsible for some of the most extradinary changes. Oru Hitler..oru Gandhi..oru thaadikara osama..but impact..chancela. At times i am glad that majority of the mankind are followers and dont think with vigour :) datta samant or not..chinese wages are bound to increase and the balance of power wud shift back to africa going forward :)

    ~gils

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  4. I think I've heard this name in some Mumbai gangster shoot out. But I didn't know the background of this guy.

    Would you say the Chinese are better equipped for nipping this in the bud, and should they do it? Because in India, we had to tolerate it all the way, till the industries shut down and there was mass unemployment.

    Of course, the right way to do it would be to make the workers understand the implications. But to such a huge mass of people, and especially the ones fighting a daily battle to bring food on the table, perseverance is a hard lesson to teach.

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  5. its a double edged sword. from a person's perspective, people have the right to demand a standard of living which scales up to the level of the economy, but from a economy perspective it is bad.

    it is a very unclassical example of what is good for my country is not good for me and vice versa.

    China has created a very very vast base at the bottom of the pyramid (i should rather say - square now)but no opportunities for people to move up the value chain. it is but logical that people expect to move up their standard of living within the spectrum in which they operate which is going to prove very costly for the country.

    China will need to find ways of creating an economic pyramid while with a broad base but with a less steep incline.

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  6. 50% salary hike is greed! where were you during the days of IT boom :P Even today 70% hike is so common in IT sector when you make a shift to the other company. No wonder IT kids do not bother much about loyalty ;)

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  7. It is hard to assess whether 20-30% is excessive without comparing it to inflation and how long it has been since wages adjusted to the higher costs. You mention that China is a costly economy - these workers have to survive there. The second issue is what fraction of corporate earnings goes towards wages? Are a few entrepreneurs with connections cornering more than their fair share for their risk taking? I think that even for a capitalist economy to thrive, wages need to be fair. Also I read that the Chinese government is encouraging the pay hikes hoping to build demand from these workers with disposable income. I realize that I am rambling at a tangent here and you were possibly making a different point.

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  8. @gils - Intriguing thought - about the balance of power shifting to Africa. Its the logical next place for cheap labour BUT ... The but is a big but.

    @Deepa - Its impossible to communicate to anybody that they should not get a 50% increase ; just see the bankers who all want 100000000% increase. Progressive labour management will involved helping people to grow up the ladder ; prosperity can come only by becoming better skilled, doing more and earning more; not staying at the same place and expecting wage increases.

    @Sandhya - Perfect articulation of the thought. Labour in China has indeed moved up the value chain. After a 12 hour shift and 4 hour overtime, the migrant worker enrolls in a class to learn English. They are usually very determined to build up skills ; for they want rapid advancement up the value chain. Since China has been growing rapidly, this has been possible. The problem comes when growth stalls.

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  9. @Zeno - 50% is massive greed. The IT job hoppers are a different lot. Some other company believes that they are capable of a higher position (its a moot point whether they are). But they give them those massive jumps taking them to a higher level. Thats OK. In fact as Sandhya argues, thats the real way to take wages up.

    @J - Inflation is low in China and wage freezes happened for only one year. So it is excessive. Whether wages are "fair" is a tough question to answer ; but Chinese manufacturing units operate on wafer thin margins. This is a country that pours capital down a hole (ROI is a strange concept here !) And yes, the government is indeed encouraging wage hikes - they are terrified of any form of social unrest. And because they are sitting on a mountain of money they believe they can buy their way to quelling discontent.

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  10. Great stuff to understand macro perspective right from the ground, Ramesh! It was like reading one of those articles on BBC Website.

    Very rightly said that for any economic model to succeed, there must be proportionate increase in costs especially in the scenario of huge scale. A person can be pardoned for asking 50% or 100% jump in his wages but the moot point is the skill and attitude that he brings. I completely stand by you that longer term sustainability can only happen when there is an equilibrium in whole framework.

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  11. @Vishal - Thanks. Equilibrium is the word. You said it perfectly.

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  12. Anyway how can we forget Government sponsored bandhs (just like today. A day off because of a bandh and unfortunately compensatory work on a Saturday down the line. :-()

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  13. Government sponsored bandhs are a joke. India has taken protests to an extreme. The courts have ruled that sponsors of bandhs must pay damages. Not sure why this is not enforced.

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