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Friedman and NYT confirm China free trade was sold on false pretenses
So-called 'free trade,' which pits high-cost American businesses and workers against low-cost foreign producers, was sold to the American public on the promise that poor people in China and Mexico would soon become middle class consumers of American exports.
We were told that by moving industries and jobs Americans once did to cheap overseas labor markets like Mexico (through Nafta) and China (through PNTR/Permament Normal Trade Relations and WTO accession), wages and living standards in those benighted lands would rise and create One Billion Customers who would dutifully purchase products made by Americans in new enterprises that would spring up in the US to replace the "sunset industry" textile mills and auto parts plants that had moved offshore.
Apart from the fact that those new high wage jobs never materialized (old news), we now learn that Chinese consumers never materialized either.
In a recent column, Tom "Flat Earth" Friedman informs us that
Before someone claims hindsight is 20/20, let's remember that the perils of a lack of a social safety net in China (and Mexico) were well known - and often cited by opponents of trade deals. Critics had argued that it's disastrous for a country with a social safety net to open its markets to one without.
Businesses knew that the taxes and costs necessary to support Social Security, unemployment insurance, employee health insurance, pensions and other worker protections placed them at a significant disadvantage to foreign producers who had no such costs.
Organized labor understood that America's enviable standard of living (read consumer society) springs from social guarantees (unemployment, Social Security etc) that labor had fought for, not just "jobs."
Proponents of PNTR and Nafta ignored the fact that government-mandated programs (the safety net) played midwife to the birth of consumerism. Consumer society requires people who have money in their pockets - and the disposition to spend it.
Instead of creating Chinese consumers for American exports, Wall Street-biased trade with China resulted in American consumers purchasing Chinese exports - with money borrowed (against their homes) from China.
But the American consumer has reached his credit limit.
What's the way out?
Who knows. Maybe China will invest its people's hard-saved export earnings in American industry in order to create a middle class (here) that has the disposable income to buy China's exports. Turnabout is fair play.
Cross posted at Relevant Information at http://ellisinfo.blogspot.com/.
We were told that by moving industries and jobs Americans once did to cheap overseas labor markets like Mexico (through Nafta) and China (through PNTR/Permament Normal Trade Relations and WTO accession), wages and living standards in those benighted lands would rise and create One Billion Customers who would dutifully purchase products made by Americans in new enterprises that would spring up in the US to replace the "sunset industry" textile mills and auto parts plants that had moved offshore.
Apart from the fact that those new high wage jobs never materialized (old news), we now learn that Chinese consumers never materialized either.
In a recent column, Tom "Flat Earth" Friedman informs us that
China's whole system and culture nourish saving, not spending, and changing that will require a huge "cultural and structural" shift, said Fred Hu, chairman for Greater China for Goldman Sachs.Friedman explains why the Chinese citizen chooses to save rather than spend:
China has no real Social Security, health insurance or unemployment insurance. Without that social safety net, it's hard to see how Chinese don't end up saving most of their stimulus. "You open up the newspaper every day and you hear about this factory shutting down or that supplier going belly up," said Willie Fung, whose company, Top Form International, is the world's leading bra maker. "You can never be too careful in this financial climate."In its news columns, the NY Times reports why a consumer society could not emerge in China, even before the latest downturn:
Shorn of the social safety net of the old Communist state, they [Chinese workers] squirrel away money to pay for hospital visits, housing or retirement.This may sound like a great revelation, but it's really a fancy way of saying that workers with few benefits, minimal leisure time and no social protections do not a consumer society make.
Before someone claims hindsight is 20/20, let's remember that the perils of a lack of a social safety net in China (and Mexico) were well known - and often cited by opponents of trade deals. Critics had argued that it's disastrous for a country with a social safety net to open its markets to one without.
Businesses knew that the taxes and costs necessary to support Social Security, unemployment insurance, employee health insurance, pensions and other worker protections placed them at a significant disadvantage to foreign producers who had no such costs.
Organized labor understood that America's enviable standard of living (read consumer society) springs from social guarantees (unemployment, Social Security etc) that labor had fought for, not just "jobs."
Proponents of PNTR and Nafta ignored the fact that government-mandated programs (the safety net) played midwife to the birth of consumerism. Consumer society requires people who have money in their pockets - and the disposition to spend it.
Instead of creating Chinese consumers for American exports, Wall Street-biased trade with China resulted in American consumers purchasing Chinese exports - with money borrowed (against their homes) from China.
But the American consumer has reached his credit limit.
What's the way out?
Who knows. Maybe China will invest its people's hard-saved export earnings in American industry in order to create a middle class (here) that has the disposable income to buy China's exports. Turnabout is fair play.
Cross posted at Relevant Information at http://ellisinfo.blogspot.com/.
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The situation is perhaps more complicated than you're allowing here. I'm a writer living as an expatriate in the Philippines. Here as in Mexico and many other Third World countries (and in China), one's family is expected to take care of those contingencies. They are clan based. Young people set off to the U.S. to work in agriculture or as nurses; they are expected to send money back home. The Philippines virtually has no economy of its own; it exists by exporting labor. I have no idea of the best solution to all this, bus I suspect that you're right if you're suggesting that it lies in a return to actually producing and selling, not just consuming. That and protecting the interests of our workers and knocking off the horseshit argument that is what is good for the investor class is best for everybody else.
January 1, 2009 5:33 AM | Reply | Permalink
the investor class
Heh, heh, heh,....There you go again...that tired old "class warfare"; heh, heh, heh...I saw a welfare queen yesterday in a cadillac..
Through what can only be judged a triumph of propaganda so thorough as to amount to mass brainwashing, the ruling class in this country succeeded for 28 years in bamboozling the populace with the disingenuous proposition that because per capita wealth was *soaring the schmucks in the bottom nine deciles were just months away from getting **rich.
All I can say is I hope Samuel Gompers is happy he sold out class consciousness from the jump, cause this is what you get when the proletariat is all lumpen
*via IT based productivity gains/globalization profits/vastly increased money supply base and velocity.
**And therefore having to pay that dread "death tax"--gag me with a spoon!)
January 1, 2009 3:31 PM | Reply | Permalink
I SAW HIM TOO. He wanted twenty dollars for a bj and I told him to sell his Cadillac.
No trickle down for me.
January 1, 2009 3:35 PM | Reply | Permalink
trickle down
For mysterious reasons giving rise in the swamp of my unconscious to an association to Tweety's unfortunate rendering of:
"A shiver down my leg..." when comtemplating Prez.
(Note to Tweety: Spine, not leg, please...)
January 1, 2009 3:41 PM | Reply | Permalink
The US has few benefits, stagnant wages, and minimal leisure time. Yet we are a consumer society. The reasons are more economic than cultural. For decades, the dollar has been a hegemonic currency. Now that is ending. Simple.
Friedman is such an asshole. He has cheered on globalisation, but is now pointing to myriad reasons behind its inevitable failure. He should be held accountable and ostracised from the media community. He is the worst journalist in the world.
January 1, 2009 12:18 PM | Reply | Permalink
Worst journalist in the world. You are so right. The reason why he ranks worst is that he gets a perch at the NY Times. At best he should be writing for a style column in a small city newspaper. He could write about Mochas in Mumbai.
January 1, 2009 6:01 PM | Reply | Permalink
I absolutely agree, but I fail to understand why he doesn't fit the NYT. After all, isn't this the sheet that has embraced Bill Kristol and Judith Miller as credible experts and journalists?
Friedman fits right in. As I have said in responding to an earlier blog, he ain't nothing more than Judith Miller with a moustache.
January 1, 2009 6:48 PM | Reply | Permalink
Great point. When they sold free trade to us they didn't tell us that China was basically an "You're on your own" society.
Zipperupus makes the also good point that there are few real financial security benefits in the US, especially compared to other developed countries in Europe. But, if you compare even our minimal benefits to China's I think you'd agree that it's safer to consume or take on personal debt around here.
We also have a lot of false security in the US. For example -- we believe our private health insurance will be sufficient right until it isn't. So, we do fool ourselves. But maybe not for much longer. Savings rates are climbing in the US. Some believe they might be climbing at such a rate that they'll remove 1% from GDP.
January 1, 2009 2:06 PM | Reply | Permalink
You and Zipperupus make good points.
We (the American people) do fool ourselves into believing we have more benefits, leisure time, income than we actually do.
Perhaps from nostalgia, denial of current circumstances or the fading memory of another era when middle class meant 1 salary supported the family, with a new car every two years, annual vacations, extra cash to buy a washing machine or fridge, and you could save for the kids' college.
January 1, 2009 11:00 PM | Reply | Permalink
Let's have "free" trade with Communist Red China! No SEC, no EPA, no banking controls, no oversight, period!
Tom Friedman is neck and neck with Walter Duranty for the Most Dangerous and Corrupt NY Times Journalist Ever award.
We should invade Tom Friedman's house, knock down every door, drag the occupants out and beat the crap out of them to show the world that Americans won't tolerate lying sacks of shit in the media anymore.
January 1, 2009 2:54 PM | Reply | Permalink
The conclusion one would draw from the statements cited from Friedman and the Times reporter (that the Chinese don't spend because they don't have Social Security, unemployment, health insurance or retirement pensions) is this:
Don't enter into trade agreements with nations that don't provide their citizens the social guarantees afforded our own citizens.
Which of course is exactly the argument opponents of Nafta, PNTR Cafta etc have been making all along.
January 1, 2009 11:12 PM | Reply | Permalink
The ignorance about how much China has done to help on providing amenities for its citizens is appalling. Standards of living have risen greatly. There are certainly hindrances to importing foreign goods into China, but the magic of China is that we simply didn't have the manpower to manufacture for the world, and if it weren't China, it'd be Indonesia or India. We do the marketing and keep most of the profit. I doubt Friedman understands this as well.
America's way out is simply what we had in 2000 - a functional, efficient economy that was focused on improving efficiency and providing top notch services and products, wherever they originated, while maintaining reasonable controls on spending. We do have a more trustworthy business environment than China and many other places, and that was part of our brand. It still might be salvageable.
January 1, 2009 3:11 PM | Reply | Permalink
drag the occupants out
Friedman certainly, but, please, not the dog too...
January 1, 2009 3:14 PM | Reply | Permalink
Eventually China will create more of a consumer middle class, but I question how many of our goods and services will ever not be able to be replicated within the Chinese economy. Good post.
January 1, 2009 4:46 PM | Reply | Permalink
Goods possibly, except they produce stuff without understanding who wants it - it's all in the specifics, not 500 versions of the same thing. They suck at marketing, at a number of forms of service. They have trouble with transparent pricing, which can really slow down getting a simple quote. But if you want to find a factory that can produce 2 million pieces of something a month, well, there you have it. There can be quality issues, but the toy scare last year was our xenophobia at its best (of course there will be some percentage of bad producers in any large production scenario, but mostly the problem was Mattel stopped doing good QC on its China sources).
January 2, 2009 3:26 AM | Reply | Permalink
You're right as things exist at present. I think they will improve their marketing and service abilities in time. The obvious first market for them to explore is their domestic one, so some of their problems in pricing, etc. will be less of an issue than they are in international contracts.
January 2, 2009 8:35 AM | Reply | Permalink
Not to mention that the Chinese have the means of production now and are the ones doing the exporting. Our last major manufacturing industry, auto makers, are about to go under, too.
January 1, 2009 5:47 PM | Reply | Permalink
It's heresy time. Case 1.Let us assume the rest of the world disappeared tomorrow. What would our standard of living look like? Does anyone dispute that we could live pretty well. 300 million americans in a continent spanning just about all climate zones. We'd be short on petroleum but I suspect there'd be workarounds.
Case 2.Now assume the rest of the world doesn't disappear but we had very high tariffs(yeah ,yeah, Smoot Hawley )We wouldn't live less well than in Case 1. If we relaxed those tariffs it would because it allowed us to import something some one else had that we didn't
or because it was a trade off for exporting something -maybe a service, maybe not- which would allow us to earn more than enough foreign currency to pay for those selected imports that we needed.
Case 3. Assume we wanted to import things we didn't really need but it required an effort we really didn't want to make ourselves. Well OK. But watch it.
Case 4.Assume we then had the opportunity to move to our current situation and import things not because things are produced more efficiently elsewhere but because they are produced by people who work for less than our poverty level . Clearly , altho as a country we might gain from this it would lead to skewed income distribution unless offset by an array of Government policies.
Think what that society might look like. Bread and circuses ?
Case 5. Turns out that as a country we didn't gain from this. Providing services to ourselves doesn't earn the forex to pay for the imports. And in fact our service skills are no more superior to those of the rest of the world than our car manufacturing ones. Sure we can export some services but not enough to plug the trade gap. So we compensate by devaluing our currency which makes them imports so expensive we can no longer afford to import the bread for the bread and circuses.
It's not written in the stars that the US should remain the world's wealthiest country or even that it should remain wealthy at all.
In the first decade of the 2oth century I believe Tsarist Russia had the world's highest growth rate. Just mentioning.
January 1, 2009 9:40 PM | Reply | Permalink
This is a welcome post that raises many questions.
I've got no background in economics, but years ago drew a nagging conclusion I thought was logical, if lonely. I felt certain American living standards , wages and protections--or at least that of the average American worker-- were in serious jeopardy due to haphazard, rapid globalization and direct competition with those who could do the same for less. Yet our government did ZIP to give American workers the information or help they would need to mitigate this for a softer landing. Instead, the opposite occurred, didn't it?
-We've heard inaccurate reports from the corporate media and government that the economy was in good shape.
-Congress drained the treasury and indebted the American taxpayer with unnecessary war and earmarks.
-Did government policy encourage the housing bubble?
-Is it possible the economy was propped up so Americans would not notice that their leaders led them into troubled waters? Is the economy going to really crash once Obama takes office?.
-Americans were blatently encouraged to spend (which further indebted those Americans who were losing or about to lose economic power).
-What's left of American wealth is now being used to bailout investors and institutions who knowingly played with fire.
-Today's focus on housing diverts our attention from the root problem of negligent policy and haphazard globalization.
-Deals were made with drug companies to charge the American taxpayer more than the market price for drugs.
I was an avid Friedman reader until it hit me that --and around the time of the Iraq war--he drilled on Muslims in a way that could instill fear of Muslms, but added little that was useful. It seemed he never offered compassion or useful win-win suggestions about how to improve things for everybody. His writing ran the risk of fanning the flames of racism toward a group the average American knew little about. At some point, I concluded he might have a hidden agenda, one that would not need to be hidden if it was going anywhere good.
It is a little too late when people like Friedman lead masses to dangerous places and don't backtrack until the damage is well under way.
January 2, 2009 9:24 AM | Reply | Permalink