Labour Economics Dictate

Recently, Noble Laureate Vernon L Smith (2002 co-recipient of the Nobel Memorial Prize in Economic Sciences), while lecturing on the housing bubbles and recessions since 1929 to a standing room only crowd at Texas Tech University commented on the movement of textile industry from North to South in the United States and then now across the oceans.

Professor Smith noted, while he was a student at Harvard University in 1950s, the textile and garment industry in New York and Massachusetts moved to Alabama and other southern states in the United States. This model has become the norm in the labour intensive textile industry, which has now shifted to Southeast Asia.

In an answer to a question from this scribe on Chinas economy, Noble Laureate said, although he has not followed China that closely, in his many visits to Beijing and Shanghai he has observed many multistoried building infrastructures, which is a sign of liberalisation and the growth of export.

It looks like the same dynamic situation, which caused the movement of the United States textile industry in 1950s is happening in developing economies such as China and India, where the labour cost issue is surfacing and making it hard to compete with other low wage developing nations such as Bangladesh, Vietnam, Cambodia, to name a few.

(By: Seshadri Ramkumar, Texas Tech University, USA)