China's Way Forward Not So Clear
I look forward to reading Reed's book, and I don't have any expertise to comment on his prescriptions to improve American competitiveness. But after spending several days in China reporting on the efforts of the new Treasury Secretary, Henry Paulson, to persuade China to change some of its basic economic policies, I can say that the job that he (and the United States) has in doing so is daunting indeed.
For years many China experts I know are constantly torn between the vision of China vaulting ahead and becoming the next economic superpower or becoming the next economic basket case. Right now the Chinese economy is overheating with many precarious aspects. It is betwixt and between a free economy and a corrupt, state-driven economy. The United States's effort to get China to stop suppressing the value of its currency in relation to the dollar is a test of which direction China chooses to move next. It is not at all clear which way China will go. The current leadership is not generally seen as "pro-reform." Its western-oriented economic spokesmen all say they want to move China toward a more open system, but it never seems to happen. So I would be more agnostic than Reed about China's future. I think the jury is still out.
I agree with Steve's comments but add two things. Beijing is a great deal less influential with respect to the capitalistic activity elsewhere than the leaders of the country think. And no matter what hiccoughs or downturns the Chinese economy may take, the sheer volume of both the consumption market and the exporting rivals of American firms is so prodigious that the United States has never seen anything of this magnitude. Japan of the 1980's was a tenth as significant over the long run of, say, 20 years.
The Treasury Secretary, an admirable and excellent business executive, has no power to alter either of these facts, if facts they are. Indeed no one in the United States government can do much of anything to block or even reduce the economic strength of Chinese firms over the next 20 years. What Americans can do is worry about the response of their own firms. And that's what this country isn't doing much of at all right now.
September 27, 2006 3:28 PM | Reply | Permalink
Ten years ago, I spent three weeks in China, with a small, self organized group, visiting areas from Beijing to the Oigur and Kazak territory, to a boat trip down thru the three gorges, to Shanghai and back home. All of our group was absolutely blown away by the vigor of the Chinese economy - very heavy buildling going on everywhere, people enthusiastic about life, very active hidden economy based on endless street sales. All of that with very few automobiles. Now they have lots of private automobiles to add to the congestion, the air polution, and the enthusiasm. In all of that we repeatedly were told by people that Beijing had little control over their particular part of China. There were Chinese military men everywhere, but acting as traffic cops, bicycle cops, and just walking the streets chatting with people. Today it must be really fascinating to visit there. I agree that China is going to be a major world competitor not just with us, but with the whole world. It is also a major market, and we need to find ways to take advantage of that part.
Hoppy in Sacramento
September 27, 2006 8:31 PM | Reply | Permalink
In 1944 Knud W. Jensen took over the family business, becoming a wholesale cheese merchant. He ran a successful business for 12 years, importing to America. In 1956 representatives from Kraft, whom he had been dealing with for years came to him with an offer: either sell the business to Kraft or be driven into bankruptcy.
He sold the business took the money and opened a museum.
September 27, 2006 9:19 PM | Reply | Permalink
How do we address China is the $64,000 question. China plays by a different set of "marketplace" rules then we do. Especially in environmental, wage and worker benefits areas. I don't see them changing their modus operandi.
But while our government might try to change China's behavior our corporations are encouraging it by their forays into China's market. I have a bit of a problem with that in principle but in terms of business our corporations are doing what they are supposed to do...make money. I don't wan't to see tariffs and alike but our government needs to give US based multinationals a good reason to spend their money here. We need that capital for R&D, academic grants, technological advances and improvements to our infrastructure so we can once again be on the cutting edge for scientific/technology advances. That was always where our economic strength layed.
Our economy runs very inefficiently. Too much money being made off our economy, by US corporations, that isn't being reinvested in our economy. I have touched on health care being a drag on our economy so I won't revisit that in detail but the stress that certain segments of corporate America (like health insurers) puts on the economy as a whole is holding us back.
Yep China is an economic threat, partly because of their business practices and partly because of our's. We not only have to address the problem of China we have to address corporate America's exacerbation of the problem too...
September 27, 2006 9:21 PM | Reply | Permalink
Some questions. How is China going to deal with India's rise as a competitor as both a service provider and their desire to compete with China in manufacturing? Secondarily, how is China going to deal with Vietnam's rise as the new global low cost provider?
Wouldn't the United States get more leverage with China if it both reduced its budget deficit and therefore needed to borrow less from China? If the United States reduced its use of oil it would lower the price of oil making all businesses more competitive, reduce the competition with China for oil and give the oil dictators a lot less power. It would seem that the new national security policy would combine fiscal prudence and energy conservation.
Daniel A. Greenbaum
September 28, 2006 5:15 AM | Reply | Permalink
That is the achilles heel of world capitalist trade. Manufacturing, and almost all other labor intensive jobs will always migrate to where labor is the cheapest. In addition, of course, more money can be made where money doesn't have to be spent complying with environmental and workplace rules, and corporations are all about making money.
I am thinking about whether or not an advancement in economic systems is social democracy, where the central government takes on the role of assuring that all citizens, and citizens only, always have adequate housing, food, clothing and health care. Those citizens would have to work to be able to buy the luxuries, such as automobiles, vacation trips, wide screen televisions, computers, etc. That should provide enough incentive to work that the weakness of pure socialism wouldn't rear its ugly head. And, providing this only to citizens would enable non-citizens to come here, work at jobs "Americans won't do", and earn their own living while seeking citizenship.
I don't say this is the solution, yet, but it intrigues me. All of the world's nations will eventually face the world trade problems, so some solution is essential.
Hoppy in Sacramento
September 28, 2006 10:06 AM | Reply | Permalink
I recently (July 2006) spent 1 week in China as part of a US National Science Foundation panel studying a specific aspect of technology transfer from academia to industry. We also went to South Korea and will be visiting Europe later.
What I came away with from China gives me pause - both for US competitiveness, as well as for India - my country of birth.
First India - India has 3 major advantages over China:
1) Younger population - because of the 1 child policy, China's population pyramid has already inverted - 1 child, 1 set of parents, 2 sets of grandparents. India's population is 7 years younger, and the pyramid will not stablize till 2005.
2) Language - I found that outside academic circles, few people speak English (practically no cab drivers in Shanghai, Guangzhou, or Beijing spoke English). Even in academia, where people can speak English, they are very uncomfortable in it. As soon as they knew we had a Mandarin speaker in our team - they reverted completely to Mandarin, to the point of rudeness at one dinner in Tsinghua University! The situation is significantly better in India with regard to English as the lingua franca.
3) Diversity - in college I found that I was amongst people from all over India, with different backgrounds, cultures, experiences, foods, languages, scripts - being in that milleu gives Indian students a very early advantage to cope with diversity of ideas and opinions that will be needed in the workplace
BUT, and it is a capitalized BUT:
China has laser focus which India lacks. Time and again we came across examples, not all by design, of how city, provincial, and central governments worked towards funding a specific economic activity in various areas (Xian province, Anhui province, Beijing metropolitan area) and because of central government support, how some have become industry leaders in a wide swath of areas (SOx & NOx scrubbers for coal fired thermal power plants, biochips, power electronics for computer battery management, die and mold for automotive industries). India says it wants to compete in several areas (IT of course, but medicine, drug discovery, some manufacturing) - but there is no coordinated effort to seed areas over a long time (say a 5-10 year horizon). What is happening today is all private entrepreneurship, despite the government. The government plays political football with even the few things that work (the excellent IITs and IIMs for example).
Coming to US, the major problem is the wage arbitrage and the huge supply of low wage labor for the foreseaable future (from both China and India in limited areas). While wage pressure for more skilled, experienced, and upper management staff brings some wage parity, at the bench level, there is abundant supply of workers who will replace the workers moving upwards. And knowledge industry does not create the huge number of jobs that are being lost in the manufacturing sectors. Yes - US will become a more service oriented country, but only those services that need a customer touch, or are non-tradeable across geographic boundaries (haircut, farmer's market) will be guaranteed to remain. Those that belong to the research arena are going to be outsourced.
The US needs strategic investment in areas where China, India, and even Korea, Japan do not have much presence yet - like human-machine interfaces, green chemistry, renewable energy research. These will create manufacturing jobs provided that the core competency stays within the geographic boundaries.
Of course the instability of the Chinese political system will be the joker for China's path to economic superpower status.
September 28, 2006 10:36 AM | Reply | Permalink
I second the comment above about how the US can start to create new manufacturing jobs, though. Controlling energy use and creating new industries such as that in alternative energies go together, and we do have the ability to do that with the right leadership. I do think corporations will start going that way, but it'll need a helping hand/directed tax policy to reward innovation, from Washington.
September 28, 2006 11:44 AM | Reply | Permalink
Imagine where we'd be if starting in 2000 we had put a fraction of what we've spent in Iraq on building a Bio-Diesel industry in this country? How much less oil would we need if all the current commercial trucking and rail transport that ran on Diesel had converted to Bio? How many solar panels could we have installed on buildings and houses for even a month of Iraq?
Many suspect that the real motivation for the Iraq war is getting control of the region and ultimately the Oil so China and India don't. If we didn't need the Oil anymore who cares? Let the Middle East become China's problem!
September 28, 2006 11:50 AM | Reply | Permalink