Is the Playing Field Level?

Below are some thoughts to consider. Again I do not come from a place of protectionism but rather fair competition. Most of the statistics below come from MSN Money's Jim Jubak. Numbers are one thing but the important part here, I believe, is the costs the numbers are not showing. Too often we operate from a position of always fixing past wrongs instead of being aware and thoughtful as we move forward. I don't believe it is too late but time marches on...

China's economy grew 10.7% in 2006, the fourth consecutive year of double-digit growth and the highest growth rate since the 10.9% recorded in 1995. And the Chinese economy did it last year without even breaking a sweat: Inflation came in at a core rate of just 1.5%.

While China certainly is not about to slip backward into global economic insignificance, it appears that the current growth has been built on nonrenewable human, environmental and capital resources. And when those resources have been mined for the easy gains, China's rate of growth will fall back to something like "normal."

What's more, the central government has tolerated an internal migrant worker system that assures Chinese industry of an even-larger army of even-lower-cost workers. It works like this. A peasant looking for a better life can move to a city or an industrial zone and get a job. But they can't get a "hukou," the certificate of residence required to access public services such as schools, health care and unemployment benefits. These migrant workers live crammed in company dormitories, usually earning far below the official minimum wage and sometimes as little as $1 for a 12-hour day, doing the dirtiest and most dangerous work that no worker with a certificate of residence wants. And quite often, the company refuses to pay the migrant worker even those wages. Official Chinese government figures say that more than 70% of the country's migrant workers were owed pay by their employers last December.

Estimates of the number of migrant workers in China range from 110 million to 120 million. With a population of 7.5 million registered residents, a city such as Guangzhou, the export capital of southern China, couldn't run without its 3.7 million migrant workers. Whole industries would come to a halt: Migrants make up 80% of all urban construction workers and 68% of workers in manufacturing, according to UNESCO (the United Nations Educational, Scientific and Cultural Organization).

China's migrant workers don't have access to the financial and legal systems. Workers who have filed claims for back pay have been beaten or arrested and charged legal fees so high that they couldn't pursue their claims. That's left them waiting for government action.

The situation isn't sustainable. Acts of protest are increasing: In 2004 there were 74,000 protests (not all by migrant workers) involving 3.8 million people, up from 10,000 protests in 1994. Some migrant workers are simply going home to protest bad working conditions and a lack of pay. Either the Beijing government will find some way to force local officials and employers to share the wealth more evenly or the costs to the economy -- in protests and workers who vote with their feet -- will continue to rise.

Just as important - or more so - traditional accounting doesn't consider the cost of environmental damage. MSN Money's Jim Jubak suggests that investors should be considering these off-the-balance-sheet costs, and their long-term effects on production, as global warming and pollution become bigger issues.