TIANANMEN DIVIDED THE WORKERS OF THE WORLD / THE FINANCIAL TIMES COMMENT & ANALYSIS

Last updated: June 4, 2014 6:44 pm

Tiananmen divided the workers of the world

By John Gapper

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The opening of China through reform and investment has driven a wedge into the proletariat

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©Ingram Pinn

When China’s Communist leaders under Deng Xiaoping launched their assault on the Tiananmen Square protesters in 25 years ago, they were supposedly following the socialist road and Marxist principles of proletarian rule. “Workers of all lands, unite!” declared Karl Marx and Friedrich Engels in the 1848 Communist Manifesto.

But the vast expansion of the world’s workforce unleashed by Deng following the crackdown on the pro-democracy protesters led to the opposite. The opening up of China through economic reform and foreign direct investment has, instead of uniting the proletariat, divided it.

This was not the revolution Marx envisaged but it was the outcome of Deng’s 1992 southern tour, on which the Chinese leader supported reform in cities such as Shenzhen, trying to strengthen party rule by offering the people opportunity. The fact that few Chinese now mark June 4, 1989 is a tribute both to party censorship and to Deng’s gambit.

It encouraged, as the economist Branko Milanovic has written, “the profoundest global reshuffle of people’s economic positions since the Industrial Revolution.” The top 1 per cent earners of the world’s population (especially the 0.1 per cent richest) and millions of new entrants to its industrial workforce have gained in different ways from Deng’s liberalisation.

Meanwhile, the non-bourgeois in advanced economies – manufacturing and service workers with low levels of education and limited skills – have suffered wage stagnation. The ability to bargain for higher wages has been undermined by a huge growth in the global supply of labour – by 1.2bn people between 1980 and 2010.

Deng did not shake up the world alone. When I was an employment correspondent in the late 1980s and early 1990s, the power of organised labour in the UK had already been weakened by Margaret Thatcher’s privatisation of state-owned industries and her defeat of the 1984-85 miners’ strike. Private sector union membership was falling and it continued to decline.

Political and economic upheaval coincided with the advance of the internet and rapid development of information technology in the mid-1990s. That led to the automation of jobs and more cross-border trade – it became easier for supply chains to stretch around the world.

But China’s rise toppled creaking barriers to trade and employment, forging a global labour market and rapid industrialisation. About 620m people globally were lifted from poverty by moving from farm to factory, and China’s gross domestic product per head rose from 3 per cent of the level in advanced economies in 1980 to 20 per cent by 2010, according to the McKinsey Global Institute.

In economic terms, this was good for the Chinese people – although it increased inequality, the gains were broadly spread. For many workers in advanced economies, however, it was like a whole new workforce turning up, eager to put in longer hours for lower pay. Their bargaining power has never recovered from the shock.

“For the individual as a consumer, it has been wonderful – there are many more products and services, much more choice, and it has all become cheaper,” says James Manyika, an MGI director. “For workers with limited skills, it is pretty awful. They were once protected, but now they compete with others who are cheaper and may be more skilled.”

The strongest effect has been felt in Europe and the US, where the share of income going to labour has decreased from 64 per cent in the postwar decades up to the 1980s to 58 per cent today. One Federal Reserve Bank of San Francisco study found that the sharpest drop occurred in industries such as textile manufacture that were most exposed to import competition.

By shifting labour-intensive parts of production to countries such as China and keeping the higher-value aspects at home, companies lowered their costs and raised their returns on capital. For the workers of the world as a whole, that amounted to a wage cut.

After a quarter of a century, this arbitrage is easing. Wages in China’s coastal cities have risen, making it more cost-effective to retain production in the US. But that does not guarantee a return to mass employment in manufacturing and primary industries – advances in technology mean factories now employ fewer workers.

According to a study for the Organisation for Economic Co-operation and Development, 80 per cent of the fall in labour’s share of global income has been caused by technological change and the shift toward capital-intensive production. Software and information technology have permitted “unprecedented advances in innovation”.

People in managerial and high-skilled jobs have gained – the average US college graduate earned 1.7 times the wages of a high-school dropout in 1980 but 2.7 times by 2008 – and will continue to have superior employment chances. McKinsey estimates that 95m people could be out of work in developing economies by 2020 because they have low skills.

Through the lens of history, the best time to be a member of the proletariat in an advanced economy was probably the postwar period up to the oil shock of the mid-1970s – when most of the Chinese and Indian population was poor and agrarian and there was little competition. The era was already ending when China implemented Deng’s plan.

“Today, hundreds of millions of Chinese are living far more comfortable lives than they were living in 1989,” writes Ezra Vogel in his Deng biography. Meanwhile, millions of employees in advanced economies are less secure. It is a workers’ revolution, but not a unifying one.

Copyright The Financial Times Limited 2014