Relocation of Production: Possibilities and Opportunities
Sanjay Roy
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THE recent decade has attracted concerns about two potential trends of relocation of production and labour. One relates to increasing wages in the developing countries triggering a new wave of use of robots in production and the other is more geopolitical in nature referring to possibilities of relocating manufacturing activities outside China.
Large reserve of cheap labour in the global south led to relocation of production in the developing countries and might have postponed large scale robotisation of production in advanced economies. In fact, relocating production to the global south was a response to downwardly rigid wages in Europe together with access to the global reserve army of labour facilitated by neoliberal policies imposed upon the developing countries. But if wages eventually tend to rise in the developing Asia there is a possibility of reshoring of production towards the developed north aided by robotisation of production.
The other hypothesis is mostly driven by trade war more specifically technology war between the US and China, which seems to be triggering a relocation of production within the developing Asia for geopolitical realignment often referred to as China-plus policy. Due to rising wages in China and also because of political pressure on the part of the US, companies are directed towards looking for second or alternative location of production within the developing countries. With rising wages, for standardised activities at the stage of maturation of production, competition on the basis of costs dominate and then producers might choose newer sites where the labour cost is relatively low. This process may be independent of the recent geopolitical conflicts. This happened in other parts of the world in the past.
When a technology leader moves to higher valued activities with rising real wages, then part of the low-end-low-technology activities are offloaded to countries down the ladder. This was also the sequence of industrial development in Japan followed by late industrialising countries of South East Asia. But taking advantage of such opportunities also depends on many factors other than lower wages.
ROBOTISATION AND
RESHORING
In the decade 2000-2010, real wages in China, Eastern Europe and Central Asia more than tripled and for overall Asia the real wages doubled while in the advanced economies real wages almost stagnanted for decades. This apparently leads to a convergence of wages and earnings across the world as some may argue, but this need not be over stretched as the wages in the US currently is more than twenty times that in Philippines. Many argue that this wage differential manifests the differences in labour productivity and therefore not irrational and oppressive. But Samir Amin long back had shown that differences in wages between the global south and the global north can’t be explained by differences in labour productivity and wage differences are much higher than the productivity gaps.
The more important point relevant to the current discussion is that if wages rise in the south, manufacturers in Europe may reshore their production facilities to their home countries with increased use of robots. In any case capitalists prefer ‘dead labour’ or machines over ‘living labour’ because the former can be more intensively used for much longer durations and most importantly machines do not have agency, that a labour has because of the autonomy retained in itself as a human being. But this also involves cost benefit analyses: if cost on electricity per unit of production is less than wages of workers then depending on the possibility of substitution, workers will be replaced by machines and the global south loses its comparative advantage. Therefore once the factory of the world was Britain which later shifted to the developing world particularly to China and if the possibilities of extracting surplus value by longer hours of work or increasing intensity of labour fade out due to rising wages, capital has to rely on garnering relative surplus value through technological change. But this proposition is still too far-fetched that capital is going to relocate production in the developing north in the near future as complete replacement of humans by robots at the shop floor is still a myth and the wage gap between the north and the south continues to be substantial.
It is also important that the comparative advantage of low cost of production influences production of robots as well and China is preparing itself to be one of the leading countries in supplying robots to the world apart from being one of the prominent users of robots in the developing world.
REGIONAL
RELOCATION
The redistribution of production within developing Asia is a possibility which India seems to be aiming at. Despite the fact that Chinese wage is now more than double that of India’s wage in manufacturing but labour productivity in China in industry is almost five times that in India. Since 1970 per capita GDP in India grew by six times while in China the growth was forty times in the past five decades.
Huge domestic market with per capita income currently five times that of India together with huge investment in R&D and technology, China evolved as one of the technology leaders in many sectors. Relocation would naturally happen as more labour intensive low skill industries would prefer to shift to other locations such as Vietnam or Indonesia but not necessarily being driven by advantages of low labour costs alone. Industries do not decide its geographical location based on a single parameter, namely, wage differential, rather considers several factors.
Despite immense political pressure from the US on companies to relocate production away from China and to close business ties with them, not much relocation has actually occurred. Political pressures cannot dictate the flows of global capital. It is about feasibility of earning profits and once corporates engage into business relations with entities in other countries it cumulatively generates trusts giving rise to its own path dependence, discontinuing which becomes costlier.
India in fact should strategise attracting investment and grab a larger share of relocation of manufacturing within Asia. But this cannot be materialised by relatively lower wages and political positioning alone. Indian corporates record a very low investment in R&D and technology which explains slow growth in labour productivity in India.
Rising inequality reduces the growth of per capita consumption expenditure which has a dampening effect on aggregate demand and thereby adversely impacts private investment growth. Building technological capabilities approaching frontier requires huge investments which private corporates are not eager to risk upon and therefore public sector needs to step in. But policies on the contrary are targeted towards handing over public resources and capabilities to private players.
Liberalisation policies also do not allow exchange rate management and control over capital flows and thereby adversely affects domestic producers and exporters. A complete overhaul of policies is the need of the hour. It requires substantive intervention with a desired goal and defined strategies. However, the current dispensation seems to rely more on superficial messaging and PR exercise peddling hollow and ridiculous claims of becoming ‘vishwaguru’ in near future without any meaningful effort for changing policies. Its politics is extremely divisive and authoritarian and grossly lacks adequate ideas in formulating comprehensive strategies that enable growing industrial prowess of our country. On the contrary, the cultural nationalism that the ruling party propagates denies our achievements and history and invokes a recreated glory of the past that perceives nationalism not as unity of purpose from within but always as opposed to an enemy within.
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