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Low cost at what cost?

By David Swartzentruber
AseanAffairs     11 October 2010

As most western consumers are aware, less-developed and developing countries are the manufacturing sites for the production of numerous items that find their way into big box stores such as Wal-Mart, Target, Tesco or Carrefour.

It is not uncommon to find tags from the world over in most people’s closets. Mongolia, Morocco, Cambodia, Dominican Republic, Mongolia, Morocco, South Korea and Thailand are a few of the places this writer has in his current fall collection.

This drive to finding the lowest cost of labor has consequences in the countries that produce the garments. In Cambodia, for example, there have been recent strikes for higher wages. In neighboring Thailand, there is a somewhat different transformation occurring.

Thailand has the world’s 38th largest economy and is poised to move up the ladder, having fallen from the 36th spot it occupied in 2009. To achieve that, Prime Minister Abhisit Vejjajiva has proposed a countrywide wage increase of 21 percent to raise the daily (not hourly) wage increase to 250 baht (US$8.80).

As has been well publicized, a major reason for the recent red shirt protest was the disparity between the income levels of urban Bangkok dwellers and the rural poor. Political opponents of the prime minister say the wage increase is just a buildup to attract votes before a general election is held in 2011. It is also reported that fugitive former prime minister Thaksin Shinawatra once promised a 300 baht daily wage if his party won the election.

Thailand has different wage rates for different provinces but the prime minister’s plan for a countrywide wage would set a precedent and would, of course, help to equalize incomes.

Officials in all types of industries, auto, electronics and even banks, are wringing their hands, fearful that a wage increase would increase production costs and might force companies to relocate to another nearby low-wage paradise.

Siam Commercial bank says the average wage paid in Bangkok, two nearby provinces and the resort area of Phuket was already higher than 250 baht.

The final decision will handed down by a committee.

The question to be dealt with: At what point do low-wage countries move their economies up the scale and at what point do their workers share in the prosperity of rapidly developing countries?