Global Crisis Blog

China Gets It; America Doesn’t.

By Shlomo Maital

Oct. 26/2009

    Nobel Laureate, and NY Times columnist,  Paul Krugman once said that if you matched 100 top economists against 100 senior managers,  the managers would be far far smarter.   As an economist who works with managers, I agree totally.

    But suppose you matched 100 Chinese political leaders against 100 American counterparts?  Who would be smarter, more effective, more capable?  

    Hands down, the Chinese.  China and its leaders get it.  America is out to lunch.

    America spent $1.2 trillion on its fiscal stimulus and bailout package.  A great deal of it was wasted, going to banks and financial companies who today thumb their noses at American taxpayers  by paying obscene bonuses á la 2001-6, and who kept bailout cash rather than lend it.  America is now left with an enormous debt hangover and little to show for it.

    China spent $586 b. on its stimulus package (less in absolute terms, but almost the same in proportion to GDP) and it worked beautifully.   Some went to building a superb fast-train rail network across China. Some went to stimulate consumer spending on cars and ‘white goods’. Chinese banks increased their lending by 150 percent year-to-year.  Why? Because the political leaders told them to, and  because the banks are mainly state-owned. 

    As a result, China’s GDP will grow by 8 per cent this year.  The latest quarter’s growth rate was a torried 8.9 per cent!  China will soon replace Germany as the world’s largest exporter, and will soon replace Japan as the world’s second largest economy.  China has $2 trillion in dollar assets and is using them cleverly to buy up real assets (companies, resources) all over the world, during a time when these assets’ prices are at bargain levels.  Next year, China will produce over 10 million vehicles, surpassing America.

     In contrast, America’s “recovery” is weak.  While GDP growth is above water, job growth is anemic and unemployment remains high.   But the major flaw in America’s business model is still unrecognized.  It is this.  American owners of capital made fortunes by sending their companies’ industrial plants to China.  In doing so, they screwed American workers, by destroying millions of well-paying industrial jobs.  And they also screwed themselves. Because, make no mistake, China’s business model is not based on “cheap labor”, as so many in the West seem to believe.  Instead, it is based on replacing America and Europe at the top of the innovation food chain.  “Created in China”, not just “Made in China”, is the goal.   As China’s engineers invent their own great new products, China is able to produce them in state-of-the-art plants.  They thus enjoy a double competitive advantage:  Innovation, and cost.  

    Can anyone cite an Obama speech, or a House or Senate initiative, to take immediate effective measures to bring America’s manufacturing home from Asia? 

     Does anyone believe America can sustain its middle class with low-paying service jobs at McDonald’s and Wal-Mart? 

     Does anyone see any signs that America “gets it”?    

 

Footnote:   Perhaps my own blog opinions carry little weight.  But those of America’s greatest economist alive or dead, MIT Professor Paul Samuelson, do.  Here is what Samuelson, now 89, wrote in The New York Times on Oct. 24: 

      We begin now a new era in which China will increasingly make obsolete America’s 1950-2009 world leadership. Your children and my grandchildren will live in this new and challenging era.   We’ll see China catch up and pass Japan as the economy second in total G.D.P. to the United States. Then, unless China’s one-party leadership explodes, the day will come when China’s total real G.D.P. will exceed America’s. Boohoo. But that’s the realistic expectation.    However, don’t expect smooth and quiet rotation of the globe pace-setters. More likely, within the coming decade, there will be a massive run against the U.S. dollar. Why? Because ever since the year 1000 A.D., export-led growth has been the rule whenever an educatable low-wage population has begun to imitate the technology of a more advanced nation, and thus out-compete the industries of the affluent regions.  So it was and so it will always be. Whenever a low-wage, educatable population can imitate the technology of a more advanced nation, it will do so.