Louis Farrakhan

Feb 08, 2013 Editorial

As the Guyanese economy continues its upward (albeit not too steep) growth trajectory, there has inevitably been an increase in interest from foreign companies about doing business here. Much of the interest has been in the mining sector. But the recent announcement by the Chinese company Bin Shan Lin of the imminent launching of a multi-product manufacturing facility signals a possible shift to the secondary and tertiary economic activities that facilitated so many other poor countries sustainably pulling themselves out of poverty.
A key to our ability to attract more such firms will depend on the quality of our labour force. Unfortunately, from their recent pronouncements, labour leaders are focusing exclusively on the question of salary/wage rates without tying them to productivity – which implies being qualified and motivated. We seem determined to demand wages without taking into consideration the global realities. Our leaders should consider the object lesson of such a short-sighted approach in the crisis faced by Europe, Japan and the US.
Those countries have over 20 million unemployed because they failed to fully appreciate the most fundamental economic development in this era of globalisation — the doubling of the global labour force. Up to 1980, Europe, Japan and the US produced the bulk of the more qualified workers that were combined with advanced capital to create manufactured goods beyond the capacity or capability of most competing countries.
But the Far Eastern Tigers of Korea, Taiwan, Singapore etc., entered the fray and were soon joined by China, India and Russia and Brazil. But in the 1980s and 1990s, workers in these countries entered the global labour pool. It was not by magic. These workers had obviously existed before then. The difference, though, was that their economies suddenly joined the global system of production and consumption – because they were able to match investment in capital with a qualified workforce. By 2000, those countries contributed 1.47 billion workers to the global labour pool – effectively doubling the size of the world’s now-connected workforce.
These new entrants to the global economy brought little capital with them, either because they were poor or because the capital they had was of little economic value. A decline in the global capital/labour ratio shifts the balance of power in markets away from wages paid to workers and toward capital, as more workers compete for working with that capital. It is estimated that the entry of China, India and the former Soviet bloc into the global economy cut the global capital/labour ratio by 55% to 60% of what it otherwise would have been.
The capital/labour ratio is a critical determinant of the wages paid to workers and of the rewards to capital. The more capital each worker has, the higher will be their productivity and pay. Even considering the high savings rate in the new entrants — the World Bank estimates that China has a savings rate of 40% of GDP — it will take 30 or so years for the world to re-attain the capital/labour ratio among the countries that had previously made up the global economy. Having twice as many workers, and nearly the same amount of capital, places great pressure on labour markets throughout the world. This pressure will affect workers in developing countries like Guyana, as well as workers in advanced countries. We cannot compete with China in manufacturing, as long as Chinese wages are one-quarter or so of ours – especially since Chinese labour is roughly as productive as that of the developed countries. The traditional trade story, evidently still held as gospel by our trade unionists, was that most workers in advanced countries benefit from trade with developing countries because their workers are skilled, while developing-country workers are unskilled. This analysis has become increasingly obsolete due to the massive investments that the large developing countries are making in human capital. China and India are producing millions of college graduates capable of doing the same work as the college graduates of the United States, Japan or Europe – at much lower pay. If we want equal pay, we will have to produce equal output.

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Louis Farrakhan

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