Friday, June 06, 2008

The race to the bottom continues.

The dark side of globalisation
May 29th 2008
From The Economist print edition
Jobs come, but they soon go again

A DECADE ago, Samorin—a small town in western Slovakia, on the banks of the river Danube—was one of many good places in which to watch the effect of globalisation on central Europe. The town was full of cheap, experienced workers in need of jobs, with unemployment at 20%. Foreign investors duly arrived, notably Samsonite, an American luggage-maker, which set up a factory there in 1997. The town’s location helped, near a four-way border where Slovakia, Hungary, Austria and the Czech Republic meet in a cat’s cradle of big roads and railway lines. There are scores of similar towns across the region that attracted jobs from higher-cost, more highly regulated labour markets farther west.

Workers, trade unions and politicians in old Europe mourned each factory moving east. But, as a European Commission official explains off the record, such shifts were fully expected: offshoring "was the whole idea of enlargement". The process, though wrenching to some, made the European Union as a whole more competitive and spread the benefits of global trade to every corner of Europe.

So far, so familiar. But things have moved on in Samorin. Even though new investment and jobs are still arriving in Slovakia, and proximity still counts, this river town has already lost a factory to offshoring. Samsonite closed its plant in 2006, shedding all 350 staff and shifting production to China...

Now that they appear finished exploiting Eastern European workers, more jobs are moving to the backwaters of China and India, where no pesky EU laws exist. There was one interesting comment at the end of the article, though:

Günter Verheugen, now EU commissioner for enterprise and industry, has been touring some of the new member countries, urging governments to prepare for rising labour costs. The newcomers’ success was based on three things, says Mr Verheugen: cheap labour, skilled and motivated workers, and an existing industrial base. Now costs are rising but productivity is growing painfully slowly, from a low base. The newcomers face the same problem as Spain and Portugal did on entry: relying too heavily on foreign investors to bring technologies and jobs, rather than creating indigenous centres of research and development. In the longer term, if new EU members "cannot compete on costs, they have to compete on quality and innovation", says Mr Verheugen.

In other words, they need to stop relying on foreign job providers and - you guessed it - relocalize! Now why didn't we think of that?

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