Cheap Energy is replacing Cheap Labour

Category: Business

Price of labour was the gap between China & developed world as well as biggest driving force in industrial globalization for last two decades. It prompted industries like Textiles to shift to places where people would work for a fraction of the cost than US and Europe. The shifting economics of global manufacturing. The price of Oil is falling and shale gas boom has reduced the price of natural gas in US to almost one third of the price in France. This is critical time for the companies considering where to set up production plants. The comparative significance of energy grows as that of wages lessens Cheap energy is the new cheap labour. So companies are moving, often by picking the US when they make new investment decisions. BASF, the German chemicals company, is one example: it is allocating a quarter of its €20bn investment budget over five years to the US, and plans to build a $1.4bn propylene site on the Gulf Coast. Natural gas will provide not only the energy but also the chemical raw materials. Even if a European company keeps a plant open, it can divert some of the production to the US. Voestalpine, the Austrian steel company, is building a €500m facility in Texas, at which it will make iron for two Austrian steel plants. The implications for Pakistani textile industry are upsetting. Both the wages ( cost of living ) and energy prices are rising.