John Rapley

It might seem a stretch to think that what goes on in a remote Chinese village would matter to a factory worker in Detroit. But, such is the way with globalisation.

The last quarter-century has seen a radical reorientation of the relationship that had hitherto existed between social classes in the Western world. Beginning in the 1980s, labour laws were rewritten to reduce the power of unions. Trade liberalisation was aggressively pursued to enable firms to move more easily offshore (from where they could re-export into their home markets, thereby avoiding the costly labour of the industrial countries).

The threat of outsourcing production to low-wage zones in the developing world was a threat that American and European firm managers were able to wield to keep a lid on their employees' demands for better pay and benefits, or shorter hours. What really gave this tendency impetus was the collapse of communism and the opening of China to the world. West European firms moved eastwards to take advantage of the cheap labour of the former Soviet bloc. American firms relocated aggressively to China, where abundant labour and restrictive labour laws provided an army of cheap, pliant workers.

Labour laws provided more protection to workers in Western Europe than in America. In the United States, real wages more or less flattened in the 1980s, and have stayed there since. But as a share of gross domestic output, the weight of profits soared. In response, a long bull run started on the Western world's stock markets. The rising tide was lifting all boats. But as measured by the gap between the earnings of owners and those of workers, it became clear that some were benefiting much more than others.

Rise in labour costs

However, now there is increasing evidence that this wave may have crested. Across the planet, labour costs are rising. And though the process is in its very early days, and will probably not become widely manifest for years, it may be that the pendulum has now started to swing in the worker's favour.

Rates of out-migration from China's villages have apparently slowed. This seems to be because urban wages are simply not keeping pace with popular expectations. Rising social ferment - the result of widespread discontent among both marginalised farmers and mistreated workers - has prompted the Chinese government to adopt polices to improve life for farmers. This has reduced the push factor among the rural poor.

Now, the Chinese government has announced that it will also introduce legislation to augment workers' rights. Add to this mix the rising value of the Chinese currency, and outsourcing to China is starting to look gradually - gradually - less attractive. At the margins, the bargaining power of Western firms may have peaked.

Bargaining power

Recent data from the U.S. suggest that labour costs have been rising quite sharply there. Productivity, meanwhile, is slowing. It would appear that workers are feeling more confident in resisting demands for longer hours.

It is far too early to say whether this apparent rise in the bargaining power of U.S. labour reflects the declining mobility of U.S. capital. But the fact that it is happening at all is surprising to many economists who had expected the slowing economy to depress wage gains.

If the two are connected, then it may be that labour's turn has finally come. Rising wages and slowing productivity growth could benefit workers and eat into profits. A long overdue rebalancing of the gains of globalisation may then finally start to occur.

And all because Chinese villagers, attracted anew to life on the farm, are opting not to move to the cities in search of better times.

John Rapley is a senior lecturer in the Department of Government, UWI, Mona.