We do not intend here to question the robust growth that the Chinese economy is experiencing, growth which is in great part related to extensive saving (around 45% of GDP) and to the influx of direct investment since 1992, when Deng Xiaoping called for more economic freedom. Furthermore, China benefits from an international comparative advantage due to its low labor costs (there is an abundant workforce, most of which remains unemployed) which allows the country to profit from dynamic exports. We are rather more concerned about the short term economic situation of China. [Full Article]
Source link: http://archive.mises.org/2273/the-chinese-boom-cant-last/
The Chinese Boom Can’t Last
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Thanks for the article. Can you expain what you mean by the carry trade strategy that the Fed is facilitating.
As you said it: most of the Chinese are unemployed and the rest is exploited by the cheap prices the corporate companies such as Nike, Esprit, Coca Cola, Pepsi, Disney, Bechtel, McDonald’s, Wal-Mart, you name it, are paying to their employees. Read ‘No Logo’ by Naomi Klein of Canada, published in 2000 and you will understand what I mean. The Global Players are fighting for their market shares and they don’t care about the rest! Obvious, that’s the ‘lberal market’. That is why we have 14 Million starved children every year in the world and everybody cares only about 3000 deaths from the WTC attack. Of course, that this is a desaster which has to be punished but who punishes the corporate ‘gangsters’ who rob everything from the smaller countries and are paying them peanuts. That’s why you are getting cheap products in Wal-Marts. Do you see the point?
Love, happiness and peace,
Siegfried Haberl
As a Misean and an expat in Shanghai, China for over 3 years it was good to see your views here!
A couple of comments though:
I believe the unemployment figures here are highly unreliable. A great many jobs here are cash exchange only and workers in these industries such as fruit and vegetable, DVD selling and many other activities are borderline illegal and therefore undeclared. As essentially no social welfare exists, the Chinese employ themselves somehow in a manner to survive. So while the value of labor employment is low, it is not unemployed to levels beyond 30% as is often assumed.
While the banking issue is a concern, I don’t think it can be assumed for certain that this is the most important issue affecting economic growth here. I think a great deal of growth here stems from the grass roots level, of small and middle size companies becoming increasingly efficient due basically to the almost laissez faire conditions under which they are developing.
This reminds me of the Japanese economic boom, see: (Link)where the agricultural improvements appear to have played the greatest role in economic growth.
As I continue to see improvements in the efficiency of small business operations here, I remain optimistic about China’s growth potential.
From the point of view of banal erudition, not every individual is capable (much less willing) of comprehending reality in its metaphysical abstraction
There should be an 11th commandment:
Thou shalt learn economics.
Siegfried, if that’s too much to ask, you can search mises.org for articles that briefly explain how these evil chains actually exploit workers.
I’ve faced one of these socialistic sentiments such as Siegfried’s in college once. It always follows this pattern:
Accusation: Wal-mart, Nike, etc exploit third-world workers.
Response: So why don’t these workers go somewhere else?
Accusation: Because they have NOWHERE ELSE TO GO!!!
But they didn’t know how to respond to a simple extension of the first response: “Then you should thank Wal-mart for giving these poor wretches jobs in the first place.”
It seems that envy of the rich is so blinding that those affected by it lose the ability to reason. Moreover, it is envy coupled with pity for the enshrined poor.
“As you said it: most of the Chinese are unemployed and the rest is exploited by the cheap prices the corporate companies such as Nike, Esprit, Coca Cola, Pepsi, Disney, Bechtel, McDonald’s, Wal-Mart, you name it, are paying to their employees.”
First, employees accept the pay before they agree to work; it is totally voluntary, no one puts a gun to your head and makes you work for Wal-Mart. If they don’t like the wage, they can always find a better paying job. Accusing these companies of being exploitative is being ignorant of economic concepts.
Second, that most of the Chinese are unemployed has nothing to do with these companies or a free market, but with years of a State-run economy and ZERO freedom. You cannot have full employment in just a few years for so many people, that is being also ignorant of economic concepts, and reallity to add.
“That is why we have 14 Million starved children every year in the world and everybody cares only about 3000 deaths from the WTC attack.”
Who is everybody? You started talking about free markets and companies, and then you bring this up? I call this a non sequitur.
The reason 14 million children are starving has, again, nothing to do with free markets, au contraire: many of these starving children live in countries with NO free markets, much protectionism and populist goverments funded by the FMI and the World Bank. Local goverment action as well as so many “good souls” in Western goverments keep these children starving.
“Of course, that this is a desaster [sic] which has to be punished but who punishes the corporate ‘gangsters’ who rob everything from the smaller countries and are paying them peanuts.”
Who is robbing “everything” from smaller countries? What do you mean paying peanuts? Compared to what, not being paid at all?
“That’s why you are getting cheap products in Wal-Marts. Do you see the point?”
No, I am getting cheap products at Wal-Mart because Wal-Mart purchase goods from manufacturers who can supply them at cheap prices. Would you feel better if Wal-Mart only sold expensive items?
So what if the goods they sell are less expensive compared to other stores? It means I can have more money put aside for other stuff. It is good for poor people in my country (Mexico) because they have access to many goods not available before when Mexico was a protectionist’s paradise (1970-1990). So you object that many corporations receive profits from this exchange? Well, my friend, everybody in the chain profits: the consumer, who has access to the goods he or she needs; the seller, the importer, the shipping people, the factory workers, their families, and anybody who suuplies goods to those employees who have now purchasing power. The free market empowers people in such a way no other system can.
You yourself had to purchase a computer, or are using one. Who do you think manufactured the machine? It became available for your use, cheaply, because it was made at a lower cost compared to 20 years ago when the first PCs appeared and were available to just a privileged few. The free market and the distribution of labor is truly democratic.
Peace, freedom and cheap stuff!
Francisco Torres
Vladimir and Francisco,
you made good points! Of course, everybody is right. I am not saying that I am right. We live in a pluralistic world society and have to accept the feelings of everybody. What we don’t have to accept is the inundation of the world by the global players who only see and want profit at any price. The Chinese people were ‘happy’ before the western ‘democracy’ was brought to them… Facing the global market now they have to become other people! In the beginning they were just doing fine with the rice and the fruits of their fields. Now they ‘need’ a TV set and a radio and a car. What for? To travel to town and buy the rubbish from Wal-Mart? Most stuff you buy at Wal-Mart does not serve you very long. Look around in your house how many things are sitting there which you used once and then came something new and you just forgot about the other one… But the feeling to buy new stuff is wonderful!
I have just lived 3 months and a half with the people in Northern India in the Himalaya. They are very happy with what they have. And first of all they have plenty of food. Nobody is starving and they live a decent life. Children are taken care off and go to school, if it is not too far away. So why do these people need, what a western company has to offer them: a car, a TV set, a bottle of Whiskey, Coca Cola; this is all stuff which the really don’t need and they only want it because it’s been offered…
Don’t see an attack to your way of life in my statements. I have lived in so many countries all over Africa, Southamerica, Northamerica, Middle East and Europe that I can tell you that the so-called civilization and economy we have to offer to the world will ruin it in the long run… Romans ‘world empire’ has lasted only a few centuries, our ‘democratic’ empires will last much less, because the majority of the people in ‘power’ are corrupt. See http://www.skolnicksreport.com, or http://www.rense.com, or Michael Moore…..
Hope you can see what I mean: I am neither a socialist nor a religious reformer. I just want ‘freedom’ for all human beings and not ‘freedom’ for a few super powers and economical robbers who just offer stuff in order to get big ‘reward’.
Actually, the PC I am using is relatively cheap and cost even less than $ 1,000, but it is in the US GOP listed at a price of $ 4,500. That is the best measure in order to blow up the economical figures. BUT THAT IS NOT REALITY that’s cheating and that is why the Dollar has come down so much.
I wish you well and hope that you will be able to live a decent life and also help the rest of the world to do the same. God bless you.
Siegfried,
I wonder how you define happiness for the chinese people. Also I do not understand your definition of freedom. Of course since you admit that you are not right, then I do not know whether or not to believe you. Your stance “the don’t want it, they only take it because its offered” is probably the source of many of your flaws. None of this stuff is simply handed to them, they do not just take it. Instead they make an effort to earn the necessary amount to purchase these goods. They have shown by definition that they want it.
So why do these people need, what a western company has to offer them: a car, a TV set, a bottle of Whiskey, Coca Cola; this is all stuff which the really don’t need and they only want it because it’s been offered…
It may well be that Indians and Chinese have no need for cars or TVs or Coca-Cola, but if that’s really the case, they simply won’t buy them. If people in developing countries purchase Western goods, it must be because they believe these goods will improve their quality of life, or in Mises’ terms, remove some amount of perceived uneasiness.
As the Austrian School has pointed out for decades, no one can make decisions for us better than we can make decisions for ourselves. Decision-making is inherently subjective. It is not appropriate for us to criticize poor consumers’ decisions because only they know what is best for them. For rich Westerners to dictate to poor nations what they should or should not consume smacks of the same paternalism and imperialism that the anti-globalization crowd is usually so quick to jump on. Firms from any region of the world should be free to offer their goods to third-world consumers, who should be equally free to buy or not buy as they see fit.
Finally, although I don’t agree that the victims of 9/11 and the victims of famine are necessarily comparable, let’s remember that the biggest mass deaths in the 20th century were caused by government, not laissez faire. Communism probably killed 100 million people over that period, 40 million of them in China. In that light, I don’t see how China under Maoism can be called “happier” than China with a socialist market economy, some degree of political liberalization, and a massive increase in living standards.
It seems that every other week we see an article called “why the Chinese boom can’t last.” I’m more inclined to write one called “why such skepticism can’t last.” Of course whatever I say will have no effect on some readers, but to those who follow Mises.org closely, I’ll just say this: no other country in the world is moving towards the free market as quickly as China, and it is a trend that cannot be reversed, because that’s what most people in China want. To me it’s useless in this debate to come up with all the stats. There is more than enough of wonderful stats to support the economic miracle view and a lot to suggest impending disaster. To the extent that you believe in the Austrian principles, you will also have faith in the Chinese economy, because there’s no question to my mind that it is becoming more free than ever. A few interesting facts. Edelstein(?)’s biography of Hayek was a bestseller. The translator, a self-proclaimed austrian, was interviewed on Sohu.com, one of the most popular websites, sort of the Chinese Yahoo. Hayek and Mises are intellectual heroes of many of the educated young, and many members of the communist party who are in power have read their work. If this seems strange, it’s only one of the many interesting contradictions seen in today’s China.
Finally, the old anti-globalization argument about the big corporations exploiting cheap labor in China. Well, I’ve actually talked to many of these workers, not all working for the big corporations. Many work for small Chinese businesses, which pay less. So they actually want to work for the big corporations, which exploit them less. But the take-home lession is this: all of them would have been unemployed w/o these corporations, and all of them would have had a worse life. Prostitution is one option for good-looking girls. This is of course just simple economics. How about working conditions? Well, not good according to Western standards, but rapidly improving. In fact, in Guangdong, which probably has one of the highest concentration of the big corporations, the conditions are improving more rapidly than elsewhere in my experience. How do I know? Actually, one of the most common complaints of the Chinese business owners nowadays goes something like this: “workers are so demanding and lazy these days, they want good meals and naps, and they want late-night snacks if they have to work overtime. And whereas a few years ago it was easy to hire someone for x amount of money, now you’d be lucky if you can get the same person for 1.5x amount of money. [and my personal favorite]IF THEY ARE UNHAPPY ABOUT ANYTHING THEY THREATEN TO WORK SOMEWHERE ELSE. ” Not too surprising when corporations open many factories and compete with each other… I hope everyone can grasp the implications of this. Mises and Hayek would have been thrilled to tour China today.
It’s about time someone wrote about China’s economy in Austrian terms. China’s economy has made real progress because it was previously so bad that even merely bad economic policy provided a massive improvement. However, in recent years, big cities are very clearly in the grip of a credit expansion caused by a disfunctional financial system riddled with moral hazard. No doubt private business is growing as a % of the economy. But, you libertarians in love with China’s economy, remember that businessmen in the middle of a credit expansion don’t typically THINK they’re making value-destroying decisions, it’s the credit expansion that tricks them into believing in false prospects. When China’s credit expansion ends the way that the last 50 emerging market credit/banking crises have ended, you’ll be wondering how you could have been so blind to this.
I can’t quite agree with A. West here. The credit expansion problem is well-known, and the dysfunctional financial system is also widely acknowledged. The key question is, will they do something about it? And in fact that is the main concern of the Chinese government right now. It is true that the Chinese economy was so bad that any departure from strict socialism would have been an improvement. But on the other hand, the continuous and tremendous progress of that economy is in my opinion simply unsurpassed in modern times. And there were many, many obstacles. It’s not that libertarians would like to see China as THE ILLUSTRATION for libertarian economics, and prefer to ignore all the problems that don’t fit their preconceived notions. Rather, it is because of what many have observed in China that libertarian economics is becoming increasingly popular.
I suspect some libertarians actually like the corruption and factional infighting in China, because it conforms to their notions of competing governments. But many of the huge monuments and construction projects are built on squandered capital, with negative net present value. Even many export oriented manufacturing operations are built upon false assumptions about political and intellectual property risks. The next decade is likely to be more tumultuous than the past one in China.
An unrelated question to those currently scanning ideas in China: is Atlas Shrugged or any of Rand’s works circulating in English or bootleg translation? Chinese love long drama series, it seems to me that Atlas would work as a Chinese TV series.
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