ABSTRACT
7.4. CASE STUDY 3: DUNDEE AND THE COAL RIM REGION 18
7.4.4. LABOUR MARKET ELASTICITY
Despite the existence of the Chinese networks that controlled the clothing and textile supply chain, labour market conditions deteriorated and were the focus of much research21. This research found that Chinese industries chose their current locations in the Coal Rim because they were able to control the supply chain. Despite the widely publicised reports of what the media termed 'sweat shops' or what Hart (2002:168) identified as "bad Chinese, who are greedy, opportunistic and lacking in social conscience", and despite them being labelled by Sheperd Mdladlane22as worst employers, local municipalities have continued to view them as the sole providers of employment in the context offirms migration.
The success of the Chinese investments in these areas was brought about by what Hart (2002:172) referred to as "farniliastic collectivism, harmony among themselves and their timeless tradition of hard work".
Due to the 'clustered nature' of the clothing and textile networks, mainly in the former government 'decentralisation' nodes, people in these areas made use of the advantages offered by this cluster network and were able to follow the same skilled trades they had previously learnt in neighbouring industries.
21Such as the Early Warning Systems Study conducted by the University of Natal, 2003.
22National Minister of Labour
Anadditional factor making the area attractive to the Chinese in the clothing and textile supply chain was a cluster of industrial complexes which comprises of industrial properties mainly owned by Ithala Development Finance Corporation
The concentration of Chinesefirms in the area could not be explained using the conventional economic theory, which attributes industrial concentration to what Peneder (2001 :142) defined as "exogenous competitive advantages or internal economies of scale" respectively, to explain specialization and the concentration of economic activities. This thesis argued that the relative closeness of clothing and textile networks in the area could largely be attributed to the following reasons:
• Geographically pooled labour markets' which evolved from the apartheid era of industrial decentralization, and where similarfirmsrelied on the same labour pool. Krugman (1991), writing on the significance of a 'pooled labour market' in industrial clustering, provides a theoretical explanation for industrial clustering, namely that similar firms rely on the same labour pool. However, his model only. captures the phenomenon of geographical agglomeration, but does not include 'sectoral specialisation'. The following treatment of loeational choice and sectoral distribution of production is almost entirely based on Krugman's initial set of equations but tries to integrate the aspect of sectoral specialisation.
• Apart from the technical details, two characteristics are pertinent in the analysis of the area First of all, there is evidence that points to the fact that 'monopolistic competition' characterizes the relationships in the Chinese Networks in the study areas. Though they have survived and continue to pour into these areas, each of the Chinese firms faces an individual, downward - sloping curve for their products or services(Mr. Albert, Economic Development Director of Newcastle Municipality, in charge of investment promotion in the area, interview, 9.30.2002). Secondly, all companies that were in these areas for a period of between 8 to10 years, have assumed specific and uncorrelated demand shocks, which incite them to remain in the area because of the large pools of labour skills that are particularly required for their activities.
Both these characteristics are part of the original model by Paul Krugman. However, in order to include sectoral specialization, this research introduced the critical factor of a 'uniform wage rate'. Although this factor may appear somewhat peculiar at first, it is necessary to
explain this pattern in order to integrate sectoral specialization within a unified framework of this location model.
COSATU describes the wage currently offered by the Chinese compames as pathetic' (interview with Ibrahim Patel, 1112000). To avoid compliance with local wage determinations, Chinese investors have brought in large numbers of Chinese labourers from Taiwan, mainland China, Thailand, Singapore or Vietnam. Though little cultural integration has taken place between the locals and the foreigners, there exists a large labour pool in these areas.
Local labour, mainly drawn from adjacent townships and labour reserves, automatically chose to cooperate with the Chinese industry, despite being offered worse salaries than those offered during the apartheid era Given the otherwise perfect symmetry of the industries, these areas have seen an equalization of wage levels between the two labour pools: local labour and foreigners drawn from the Far East Asian countries.
In conclusion, the integration of sectora1 specialization into Krugman's model of industrial agglomeration suggests two genera1 conclusions of relevance to policies directed at industria1 and regiona1 development, as they have occurred in these areas, namely:
• Ezakheni and Madadeni are the two most prominent industria1 locations that are competing for Chinese investorsin terms of 10ca1 government plans to raise employment and income.
• However, this competition between locations for industria1location of particular industries only makes sense during times of unstable equilibrium or economic decline in which, for example, new industries have not yet been identified.
7.4.6. TECHNOLOGICAL CHANGES AND THE RESULTANT CAPITAL
MOBILITY
Located within the framework of economic geography, this thesis suggest that the basic postulate of the information age is that information technology (IT) is eliminating the effects of distance, andthatthis, in turn, will have profound implications on the spatia1 organization of society.
Asa result, the thesis argued thatthisnew technology systemwill create an even more spatially dispersed and footloose economy, which in turn will cause small towns to be larger, more dispersed, and less densely populated. In contrast,thisthesis also argued that
technological change is reinforcing the position of cities as "nodes" on the information superhighway.
The above postulate was tested in this case study. It was found that most of the Chinese investors were using second hand, mostly outdated technology, imported from Mainland China to carry out production. This was largely due to aggregated similar utilization of technology of the same kind by industries, within the same industrial spatial unit, even though no substantial capital was brought into these areas24.According to Trade and Investment KZN (200125), 80% of all Chinese investors located in the region invested between R5 and 10 million as initial capital.
This research found that subsidiary industries devoting themselves to small branches of the production process, and working for a greater number of their many comrades, were able to invest in and maintain machinery of the most highly specialized character, at less expense, even though its original cost may have been high and its rate of depreciation very rapid. This view was also confirmed by the TIK Study on 'Early Warning Systems, 2002.
In conclusion, this thesis found no data at this stage to disprove the fact that Chinese companies located in KwaSithebe, Ezakheni and Madadeni were mainly using outdated machinery imported from China However, specialized inputs and services from 'supportive industries' were readily available from their Chinese counterparts.
24The KwaZulu-Natal Marketing Initiative(KMI)IMPACT STIJDY, 2000/1).
25Trade and Investment KZN, provincial profile, 2002. Paper presented to a number of investment promotion conferences in KZN).