China's embrace of free international trade and mostly un-hindered capitalism since 1978 has led to the greatest economic boom seen since we began recording such things. China has averaged a titanic 9% GDP growth over the past 30 years--last year, it hauled 10.1%. The Chinese love it, and all that I have talked have no shame about embracing capitalism (even though they do not care about the individualistic moral arguments, only the gritty practical ones). They often wonder why more countries haven't adopted a similar thing.
I spoke to a lot of folks--coworkers, random street-goers, laborers and white-collars alike, talking about the doubts of other countries against Chinese adoration of the free market. These are their responses and my research:
Trade Gap: Countries like the US worry about a large trade gap between China and the US, and therefore shy away from free trade with countries like China, whose economy is hot. Trade restrictions can slow a trade gap by forcing, with law, a country's citizens to not be allowed to acquire certain goods or services, but this is clearly not a great way to do things--the government forces denial, forces scarcity. The Chinese bring up 2 points in response to this problem for the US: 1) If the US did not regulate its economy so much, more business would emerge, and would be able to lower operating costs, therefore lowering the prices of exported goods, making them more competitive on the open market. US Regulation, not a failure of the market, is to blame for the US' lackluster exports. 2) Even if the US is too afraid to let its economy fly free, great restrictions on exports to China have existed since the 1989 crackdown in Tiananmen--not just weapons, but manufacturing equipment, precision machinery, computing technology--China wants to buy from us, certainly, but we are denying ourselves the ability to sell our most competitive products. We have nobody to blame but ourselves for the deficit, and trade restrictions will not fix the problem, only change our problems from one of trade deficit to one of scarcity. The US government must make its economy more friendly to business if it wishes to compete--it cannot both crush its own businesses with excessive regulation and expect Americans or foreigners to buy from said businesses. Westerners believe some myth that one must protect its own industries--but China has neither been crushed from above by Japan or the US, nor had its industry stolen from below by Vietnam, Indonesia, Philippines. Some Chinese industries are certainly moving to Southeast Asia, but that is good for China, as it would be for the US--these industries run more efficiently elsewhere, and Chinese consumers and businesses can access these goods at cheaper prices, where China's open capitalist market means that the job market can respond extremely quickly to a factory closing or outsourcing, and create new jobs. China has managed to create this growth and lower its unemployment by opening as it did--why most Americans think the opposite would happen here baffles me.
China is still impoverished. Sure, it's got a long way to go. But in the last 30 years, the number of people under the UN's poverty line has gone up from 1.2 billion to 1.3 billion. The number of people under that line in China has reduced by 500 million. China is the only country in the past 30 years to reduce poverty by nearly that extent--and the only other countries reducing it at all are other Asian countries that are jumping on China's free trade bandwagon. We westerners believe a myth that free trade causes poverty, hurts the poor the most, but all of our noble efforts of foreign aid, of the IMF, the World Bank, they have done nothing to reduce poverty elsewhere, where China's cold capitalism has spread money, extremely quickly, to its most impoverished areas. Xinjiang and Tibet, China's two most impoverished regions, have seen a 26-fold increase in their local GDPs in the last 30 years. China is solving its poverty problem in a rather obvious way; Deng Xiaoping realized in 1978 that one cannot solve poverty by redistributing wealth that barely exists... the best way was to create new wealth, and that all would have a share.
China has a large income gap. It's imperfect, sure. But both the poor and the rich are getting richer, quicker than anywhere else. Trying to stop the gap from growing could only slow the whole economy down. Of course investors and managers are going to benefit more than laborers during a growth boom. But could you look a poorer man in the eye and say "we're going to make you less wealthy than you could be, so that we can make the rich even less wealthy than they could be, because we elites don't like this thing called an 'income gap?'" Nobody's saying capitalism is going to, on its own, solve the world's problems. The Chinese claim only that it is significantly better than the alternative, and a bunch of wealthy people with a large income gap is certainly better than poor with a small one.
China is hurting the environment. Yup. But it can clean it up with the wealth it is creating. Environmentalists have come up with a new scheme called the "Green GDP," which subtracts the economic cost of the environmental impact of a country's growth. China's "Green GDP" is still over 7%/year over the past 30 years, giving it the by-far highest Green GDP growth of any country on earth. So economically, it still makes sense to go full tilt, and pay for the mess. The environment is certainly an important issue, don't get me wrong. But environmental concerns and human concerns conflict, and I believe China has its priorities right--first, establish wealth in the country, bring the poor out of poverty, give the Chinese a standard of living that is acceptable to them, then allow the economy to be slowed down by economic growth. Pristine lands mean nothing if your people are too hungry and diseased to enjoy them--they are not a good in and of themselves, only a good in so far as humans can use them and appreciate them.
China is Neocolonialist. Sortof, but this is also a good thing. It's starting to move much of its own very dirty industry overseas, in part because its workers' salaries are getting too high for such industry to be efficient in China (one of the lessons we westerners most persistently refuse to learn), and because China does not want to deal with the environmental impact. Is China just moving the problem elsewhere? Sure. But two points: 1) When we create technology that means we don't have to go through the messy process of mining, casting, smelting, etc, then we can avoid it. Until then, these are necessary industries, and the cost must be paid elsewhere. 2) More importantly, China's trade agreements with SE Asia and especially East Africa have led to investments that these countries would not have otherwise had, because Western countries are too righteous to allow their own people and companies to open sweatshops or dirty factories in these countries. But in a country where people are starving and dying of diseases like malaria and aids, they are desperate for a beachhead of industry, and western states condemn them to die of malnutrition or disease by feeling too morally superior to be the ones to establish that beachhead. China has, out of purely selfish desires, been the frontier force in many of these countries, and has given them a hope they have never had--jobs, industry, infrastructure. It's not something that aid can create, it's something that investment can. When a company drops a sweatshop, it has an interest in the sweatshop's success. It will pay for roads, for electricity, for ports--as long as the profits are good enough. If we make it too hard for those first dirty, heartless, inhuman industries to get a foothold in countries like Africa because we reduce profit margins (with tariffs, overseas working restrictions, etc), then industry will still stagnate. China's neocolonialism is improving the lives of the people in these countries, and because of that, China's conscience can ignore the shrill screams of Westerners that tell them to leave these people to die unmolested.
5 comments:
I'll pass on the "excessive regulation" point for now, but to the extent you're talking about Free Trade issues, you're not going to convince many people in the U.S. who are Free Trade doubters about its worth by pointing to how Free Trade has benefited China. "Of course it benefits China, that's where all the jobs are going!"
Expressed more formally, there's a concern that dropping trade barriers between the US and China exchanges increased market efficiencies for an averaging of our per capita GNPs. China benefits from both halves of that equation. The US has to believe that the increased market efficiencies will outweigh the averaging of the per capita GNP for it to be worth it to us. Saying "China clearly benefited!" doesn't say anything about which half of the benefit was more.
The comments about China's "off-shoring" things further to other East Asian countries is more interesting data to apply to the US, if you can sort out those effects from the general free trade benefits, but I certainly can't sort them out just from what you've said here.
I am not sure I understand where any evidence to the point of "averaging our GNPs/capita" comes from. If we look at things like NAFTA, we have certainly not averaged our GNP/Capita with Mexico, and our GNP/capita has not even gone down since the signing of such an agreement, it has gone up.
Do you see any evidence at all that China's GNP growth might have possibly been hindered by opening up to Southeast Asia? And if China/US GNPs/capita would merge completely (or mostly) in a free-trade environment, why has it not merged a little bit, in a somewhat-regulated environment?
South Korea, Taiwan, Singapore, and Japan, all have GNPs/capita much higher than China, and have more open trade with China than the United States. All but Japan have seen a tremendous explosion in their own GNP/capita growth (and China, not the United States, is their largest trading partner, and has been for a few years), and Japan's slow growth in the last 15 years is not correlated with changes in its free trade policy with China, as far as I've studied.
I believe that history has given us a great deal of examples of cases where both countries have benefitted a great deal from free trade, and I struggle to find any examples of a "merging GNP/capita" phenomenon as you describe it. I think besides the lack of evidence, the theoretical hole in your argument is that you ignore comparative advantage--China will simply not be able to provide the world certain things that the United States can, particularly not at lower prices. Comparative advantage is why smaller countries are not economically crushed by larger ones--or vice-versa, as you are describing--in relatively-free-trade economic pacts or blocs.
That said, if there is evidence of free-trade agreements causing the GNPs/capita of two countries to merge in some way, I'd love to explore it. But for now, I think evidence, particularly in Asia, rather clearly supports that free trade is beneficial to both the GNPs and cost of goods in countries both large and small, with economies great and weak alike.
You're right, I mispoke. I should have been talking about wages, rather than about GNP per capita. U.S. wages for the bottom 95% of the economy have been mostly-stagnant for 30 years, and economists at places like Morgan Stanley and Harvard think that globalization is a contributing factor. http://www.signonsandiego.com/uniontrib/20050412/news_1b12wages.html
(For a more detailed analysis that explains how globalization contributes to wage stagnation, see: www.carnegieendowment.org/files/pb_53_polaski__us_living_standards_final.pdf I think the key bit is "[an IMF study] estimates that the labor force effectively available to global producers quadrupled from 1980 to 2005, with most of the change occurring in recent years. This increase in the supply of labor created heightened competition for jobs, downward pressure on wages, and stronger bargaining power for capital. The IMF study finds that labor's share of gross domestic product has declined in the United States and other advanced economies over the past quarter century, while capital's share has increased.")
But the basic problem is that American workers are, on a global scale, overpaid. Other people are willing to do their jobs for less. If you believe the market is efficient, the American workers are currently doing the job that will pay them the most, so when someone else is willing to do it for less, they either lose their job or their wages come down. In China (and the "sweatshops" of the rest of East Asia you talk about), the wage that is a pay cut for an American worker is a significant pay increase for the Chinese worker, so the Chinese economy gets a double benefit (better wages and cheaper goods) where the American economy gets a benefit (cheaper goods) and a loss (lower wages). New jobs that pay more may show up at some point (and in fact, new jobs show up fairly frequently), but I'm not aware of any theory or evidence that says those jobs are more likely to show up because you've moved the current jobs overseas.
Globalization is coming, there's no way to avoid the technology advances that are making it happen. (Except possibly if the price of oil/transportation spikes high enough that it's no longer efficient to import stuff from China, but that'll take a while longer, I think.) But it's not going to be an unalloyed good for the American public, and rushing into it full throttle isn't necessarily the best strategy for them. The fact that it *is* the best strategy for China notwithstanding.
You did mention that US workers are overpaid, and I agree, though probably not with the way you're saying it. Gov't (usually state-level) regulation forcing companies or the gov't itself to use a particular labor union creates labor monopolies, other pay/conditions standards drive up the cost of labor beyond what the market would determine, but I don't think overpaid labor is an inherent good, particularly because it means US consumers are paying too much for goods and services, and this hurts the poor the most.
So if we do decide to go free-trade with China, we are going to have to find a way to be competitive, yes. If we want to say "The US will refuse to be competitive because it is addicted to regulation," that is certainly something worth thinking about. But remember that labor costs are certainly not the only thing that goes into a product or service, and if we lifted many other regulations that decrease our market efficiency, we would likely be able to compete much better than we're doing so now, without decreases in wages.
Furthermore, you are correct in saying that wages have stagnated in the past 30 years in real terms--they have certainly not decreased, and consumer prices have dropped significantly (until recently, where food and oil have started to skyrocket, but I am not sure there is much of an argument that this is related to Chinese-American free-trade-or-not). But wealth is not about how many dollars you've got, it's about how much stuff you can buy with those dollars. So even labor has gotten wealthier, even if they have gotten wealthier on their "consumer side" rather than their "labor side." I am not sure one of these is fundamentally better than the other, as long as we get wealthier.
I believe, if we are willing to let our market make itself more efficient (by making it more free), we will be able to produce more for less. But I believe we are currently stuck on saying "our regulated market is grossly inefficient, and instead of making it more efficient to compete on the world market, we would rather pass laws and taxes to make sure as little changes as possible."
Low-paid Chinese laborers simply can't do the same things that skilled American laborers would--it's why people have been willing to pay for high-quality American goods on the market... same with higher-quality American services. We're not competing with Chinese on sweatshop labor, smelting plants, or even places like construction labor or precision machinery manufacturing. We do compete with the Chinese in engineering, car manufacturing, etc, but the United States' model has always been one of quality, and there's no reason the Chinese can produce something of equal quality for lower prices, except for their regulatory advantage. But that is a regulatory problem, not a free-market problem, and the lesson we should draw from it is that regulation will crush us as the world globalizes--and this point is part of my larger lesson on Capitalism that I hope China can teach us.
Unless you think there's something inherently more efficient about Chinese-born people/soil/natural resources.
--Erik Fogg
You did mention that US workers are overpaid, and I agree, though probably not with the way you're saying it.
By "overpaid" I mean "make more than other people elsewhere are willing to take to do the same job." (For purposes of this discussion, I don't really care whether that's based on "regulation" or on "union monopolies" or on "for a long time we shared capital's profits with labor more than we do now.") That is a flaw in a perfect market, yes. But it means *they're getting more money than they would in a perfect market.* Which means they're taking a hit in wages as you move towards that theoretical perfect market. They may be getting a benefit in the form of lower prices fast enough that the overall benefit even to those people is positive, but I don't think either theory or practice guarantees that to the people losing their jobs and/or income.
there's no reason the Chinese can produce something of equal quality for lower prices, except for their regulatory advantage.
Well, and the fact they're willing to work for less. They're not *inherently* more efficient, no, but they're poorer and their other options pay even less. Whatever we do with regulations, that will still be true in the short to medium term. It will presumably even out over the long term, but there's no guarantee it will even out at-or-above the current American pay level (modulo inflation).
Low-paid Chinese laborers simply can't do the same things that skilled American laborers would--it's why people have been willing to pay for high-quality American goods on the market... same with higher-quality American services.
There may be things low-paid Chinese workers can't do relative to skilled American workers. If so, lowering our trade barriers makes no difference to those things, as we won't be getting them from China anyway. Those jobs aren't going overseas, and we aren't getting products any cheaper. I am not claiming that lowering trade barriers will instantly bankrupt the country as we make nothing and China makes everything, just that the Chinese experience with Free Trade doesn't translate to us, because we're not similarly situated.
The issue is the things that low-paid Chinese workers *can* do as well as things that Americans are currently doing, at higher wages. Whether sending those jobs over seas in exchange for cheaper products is a worthy exchange to the people losing their jobs/wages is not at all clear, and not addressed by the issue of how China benefits from Free Trade. There just isn't anything the Chinese are doing at high wages that we're doing for lower wages. (We may be doing some things they're doing at high *cost* for lower *cost*, through better automation or whatever, but that just means it takes us fewer people to do it, not that our people are paid lower wages than there people are.)
Maybe you don't care about the people who are losing wages, because you think they're abusing the system, and there's enough benefit to the "population as a whole" (most of the benefit so far is falling on the top couple of percent, but that's a different argument) that it's acceptable if the people losing their jobs take it on the chin. It might be that letting them take it on the chin is the right plan. The jobs will eventually move to where they can be done cheapest, so maybe just doing it in one fell swoop and moving on is the best way to do it. But refusing to acknowledge that there *is* a cost we pay for Free Trade that China doesn't incur, even if on the whole you think it's a cost worth paying, is just ideological blindness.
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