Thoughts on South African and international politics and culture

Thursday, December 08, 2005

The Price of Progress
This week's latest mine accident in China once again illuminates the price of progress in China, and the changes that must come to into the Chinese pricing model. A gas explosion has killed at least 74 miners, bringing the total this year to over 2 700 killed in mining accidents. If you think that's bad, last year more than 6 000 deaths were reported in Chinese mine accidents. China's government has purportedly made many statements regarding the improved safety on their mines, and one could argue that a 50% drop in the annual death toll is a good start, but clearly, there's still a way to go.

A discussion on CapeTalk this morning used this as a starting point for the realigning of the Chinese comparative advantage of labour and production costs. The theory goes that as the Chinese economy grows, so household income will rise, and Chinese labourers will choose not to work in conditions such as those on the mines. As demand for those jobs drops, wages rise and safety costs rise, thus increasing production costs and eroding the comparative advantage. I agree with the theory that this will happen, but the timing of such is the critical factor. As a largely dominant socialist economy, worker freedom to make those decisions runs against the grain of Chinese social values, and this change may take a decade. By this time, China's economy could be in a dominant and diversified global position which relies less on low production prices and more on comparative advantages in other spheres.