Flattened by the World

By the end of 2008, approximately 100,000 factories will have closed in China in just one year. When demand slackens in the United States and the West, people in China feel the pain of their biggest customers… except they feel it worse. No unemployment insurance, no notice, no future. An awful lot of those plants, owned by people in other cities and other countries, have simply been abandoned, without notice, by their owners. The Los Angeles Times (November 3) reported how one owner skulked away in the night: “Shaoxing, China -- First, Tao Shoulong burned his company's financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan… And then he was gone.”

Thousands of absentee owners are literally sneaking away from their factories. Hundreds, often thousands, of workers in a single factory. The L.A. Times explained: “If a [Chinese] factory operator went by the book, it could take two years to close a shop because of regulations and red tape… Others may flee not out of aversion to bureaucracy but because they want to get away with what cash they have left and not face angry suppliers, lenders, employees or regulators. Sometimes relatives and managers who help run operations flee too, and without anyone who can take responsibility, some factories have little choice but to shut down.”

It’s bad this year, but when migrant workers leave for a short break at Chinese New Year in February, some of them may find nothing to return to. It’s a good quiet time to shut a plant down with minimal interference from the workers. For those firms who file bankruptcy under Chinese law, the protection given to workers’ wages often leaves the owners with nothing. Funny how many fires have burned plants to the ground of late. On November 9, China announced an enterprise tax cut and a “stimulus” package worth $586 billion, their “bailout” fund.

We’ve got plenty of extreme examples of the impact of this global meltdown: Iceland’s economy has literally collapsed in a mountain of debt vastly beyond the entire country’s ability to pay – England even resorted to labeling Iceland financial “terrorists” in order to justify freezing Icelandic assets in U.K. banks, a measure that hastened the small island nation’s financial demise – and unemployment rates are skyrocketing to vast multiples of U.S. figures, countries like Hungary and Belarus aren’t too far behind, and even formerly “hot growth” emerging markets, like Brazil, are screaming like stuck pigs as investment capital hurtled out of their country at the first hint of the global financial crisis, leaving a wake of unpaid suppliers and unemployed workers in a collapsing market. The poorest nations see a financial collapse in terms of homelessness and starvation. Everyone, everywhere, is feeling the crushing pressure of a global economy gone wrong.

As the global financial summit approaches in the coming days, the need for global regulation of the financial markets is clear; to create a consistency of controls with information to be freely exchanged on a real-time basis between nations is truly the only viable option. Author Thomas Friedman put it well as he noted that “The World is Flat.” We literally are one giant economy with lots of special interests and multinationals pulling the strings. Nothing wrong with making money and creating jobs… it’s just making sure that such earnings are equally accompanied by responsibility and accountability. There can be no “safe havens” where rules and regulations do not apply.

I’m Peter Dekom, and we’re in this together.