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Safeguarding the ‘labor border’

What determines a country’s national competitiveness is the labor frontier.
July 25,2017
The United Kingdom and France waged a bitter war of pride after Maytag Corp., the parent company of Hoover, announced in January 1993 a plan to close a Hoover plant in Dijon, France, and move it to Scotland. Underscoring its market dominance in the 20th century, Hoover was the term many households used to refer to a vacuum cleaner. It was a verb too: “hoovering” meant vacuuming. The relocation was a part of a broad reorganization of the U.S. company’s European operation.

The company said the move would consolidate manufacturing in one location to bring down costs. But France suspected something shady in the plan. It threatened to take the matter to a European court, accusing the U.K. government of unfair play by subsidizing 2.5 million pounds ($3.25 million) of the Hoover relocation scheme.

The French government responded aggressively because 620 jobs for French factory workers were at risk. Including subcontractors, thousands of jobs would be lost. Joblessness was serious across Europe at the time due to a prolonged recession. In France, 3 million were out of work. A closure of a factory of a multinational product dealt a bigger blow. The ill feelings remain, and the French still refer to the conflict as the “Hoover War.”

Fighting over jobs has intensified. Governments around the world have been pushing down corporate tax rates to keep companies on their home turf. Some even rent out factory space for free, cut utility fees, and even subsidize transportation costs. The measures are aimed at sustaining employment, keeping people happy, and building national wealth.

Companies have long lost a national identity. They open factories in whichever place offers the best conditions. Cheap labor was the most important factor in the past. China and Southeast Asia used to be popular destinations.

But these days, companies consider a wide range of factors aside from labor cost: tax benefits, corporate image, transportation costs, skill levels of workers, political risk. They look for production sites to save costs and also to breed innovations. This explains the wave of “relocalizations” of factories.

German automotive parts maker Bosch recently moved its factory in Turkey to Seine-Saint-Denis in the northeast section of Paris. Automation has lessened the labor cost savings in Turkey. In fact, an automated factory requires enormous amounts of power for its operation. France, a nuclear power, offers electricity cheaply. Having a manufacturing base in Paris also saves shipping costs to other European nations. Nor will the company have to worry about political uncertainties in Turkey. The company placed more importance in infrastructure and enhancing competitiveness than on cutting costs.

Korea has interesting strengths and weaknesses in terms of manufacturing. A senior official of GM Korea said the U.S. automaker cannot easily pull out of Korea because of the skilled subcontractors available here. Korean workers on subcontractor production lines are highly skilled for their pay. Their defect rate is the lowest. In other infrastructure features, GM Korea’s production lines lags far behind others’ elsewhere. The quality of the subcontractors’ work is what keeps GM Korea from deserting the country.

Enterprises have become borderless. What determines national competitiveness is the labor frontier. Jobs will hinge on how efficiently the labor frontier is run. Companies must be enticed to cross a border and easily open up a business. Then they must be cared for so they stay on. This is how labor borders are safeguarded. Jobs can be kept through such meticulous care and support.

But Korea is turning more and more business-unfriendly. The government is increasingly shutting down nuclear plants, a move that can lead to spike in utility fees. It has also pushed up the minimum wage.

The new government is even considering raising corporate tax rates. Does it have any intention of defending the labor border? From the way things are done, more would be tempted to leave — instead of staying in — Korea.

JoongAng Ilbo, July 24, Page 28

*The author is a senior writer on labor affairs for the JoongAng Ilbo.

Kim Ki-chan