This report was published in Economist.com in May29th2008, this is a summary. The title is above.
Jobs come, but they may soon go again. A decade ago, Samorin, a small town in Slovakia, was one of many good places in which to watch the effect of globalisation. Workers, trade unions and politicians mourned factories moving east. But, as a European official explain, such shifts were fully expected: offshoring¨ was the whole idea of enlargement of the E.U.¨. The process, though wrenching to some, made the European Union as a whole more competitive and spread the benefits of global trade to every corner of Europe. Like its neighbours, Slovakia has seen wages rising fast as new jobs arrived and many of its own people headed west, but rising labour costs are only part of a more complicated story.
But, things have moved on in Samorin, this town has already lost a factory to offshoring. Samsonite, an American luggage-maker closed its plant in 2006, shedding all 350 staff and shifting production to China.
The big test will come if or when growth rates slow and pay fall in real terms. Companies with strong trade unions, have already seen strike over pay. Samorin is a witness to the way that globalisation is fragmenting as supply break into ever smaller parts, sending jobs in all directions. The E.U. restructuring monitor, an E.U. outfit that tracks globalisation, has analysed about dozen cases of offshoring from new members of the E.U.
Gunter Verheugen, E.U. comissioner for enterprise and industry, has been touring some of the new member countries, urging governments to prepare for rising labour costs. The newcomers`success was based on three things, he says: "Cheap labour, skilled and motivated workers and existing industrial base". Now costs are rising but productivity is growing very slowly, from a low base. The newcomers face the same problem as Spain and Portugal did on entry: Relying too heavy on foreign investors to bring technologies and jobs. In the long term, if they can not compete on costs, they have to compete on quality and innovation.
