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When Factories Move Back From China

Careful what you wish for. It may actually happen – but for the worst possible reason.

A lamp assembly factory, Adrilux, returns its 200-people assembly line factory from China – to Kisbér, Hungary. The reason:

Wages of Hungarian workers are now lower than that of their Chinese peers.

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Steve Greenberg Art

I mused about the unbelievably low wages in Hungary that present such a squeeze now that working poverty is the number one reason to leave the country. The example of waiters and low skilled kitchen stuff was just a part of a much larger problem. Today, Hungary suffers from unemployment as well as a chronic shortage of workers – skilled and unskilled. The reason: Working poverty.

It was a process:

Step 1 – Orbán’s fascination with low added value assembly lines

When the Orbán-government came to power in 2010, there was this morbid fascination with an economy based on factories and assembly lines. It was as if the government finally got a working understanding of the world – but of the 19th century.

Instead of factories, they imagined processing industry, with lots of assembly lines and low-skilled workers who earn just enough to sit on the sofa in the evenings and contentedly burp a little as they watch the government’s success reports in the news.

Step 2 – State-solution to the Chinese problem.

Then they started to seek a solution to the Chinese problem – i.e. low-paid jobs leaving the overtaxed country. (No, they didn’t lower the taxes.)

And when they found the solution, it was unbelievably simple simplistic. Instead of foreign policy and diplomacy they started sending out people who fancied themselves as deal makers. They were meant to bring in business for Hungarian companies, at any cost. Like that never occurred to anyone before.

Their sales pitch: Skilled and cheap workers, EU-membership, access to single market.

Let’s put aside the irony of selling their EU-membership abroad while constantly kicking at it like a pouting child. Every European government does that. But there is still that high-skilled, low-paid workforce that should attract exploiters like crazy. Well, not anymore.

People left this workers’ paradise

Between 2011 and 2014 half a million working age Hungarians left the country – and that is just the government’s own admission. They were the best skilled, not beggars. And the ones who still had some money to buy a one-way ticket out, before sinking into working poverty on subsistence level.

  • And then I read the news of the central bank unilaterally adjusting wage-statistics upwards, because it was too embarrassing. Statistics, that came out of the politically obedient statistical office…
  • And that they kept adjusting the poverty level lower – but 40% of the population was still beneath it. (So they stopped publishing poverty data altogether. Problem solved.)
  • And it is probably worth remembering that their glowing, low unemployment rates were achieved by the emigration of (closer to) a million working age adults, combined with the statistical trickery that considers a guy languishing in public work program for a few months employed for the year.

(Basically, praising Orbán’s economics is a one-way road to useful idiocy.)

And this is how we arrived to today’s news, a factory moving back from China after 13 years. Because since then the yuan strengthened while Chinese wages increased. So much so that the CEO of Adrilux estimates that it will remain consistently more profitable to stay in low-wage Hungary.

For labor-intensive, non-automatized processes, Hungary may be cheaper

Adrilux didn’t even mind the 1.3 billion forints (approx. 4 million euros) of moving costs.

Market-believers should not rejoice  – this is NOT a market solution.

This is not even a solution.

Others may feel the urge to spread the good news as proof that tiny salaries totally solve every problem. And by extension, Orbán is a hero. Please, don’t.

Firstly, it is unlikely that they haven’t received a government subsidy. After all, they would be the only company still alive and kicking under Orbán’s regime and not taxed/regulated out of existence – without a state subsidy and friendly connections high up.

Secondly, these suppressed wages have nothing to do with markets – and everything to do with the government’s dubious efforts to become an economy based on low-added-value jobs for human monkeys. Based on fist-clinchingly simplistic views of the economy. Which, unfortunately, they are in position to enforce.

But low added value and factory work is as much a way forward as it is for the government to dictate the economy.

Featured image: Steve Greenberg Art

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3 thoughts on “When Factories Move Back From China

  1. And this is exactly why I left with my wife. We both worked and couldn’t afford heating or our mortgage. Well done, Hungary!

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    • Same with me. I have no family (yet), but it was already obvious that I could never support a child from my salary. Let alone a stay at home wife, which is expected in Hungary for 3 years. Per child.

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  2. Pingback: How To Lie By Asking Questions? | Meanwhile in Budapest

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