That’s what Andy Stern, past president of the Service Employees Union International, and present Senior Fellow at Columbia’s Richman Center, claims in an op-ed piece in the Wall Street Journal on Dec 1, 2011, an excerpt of which follows (here Stern quotes Andy Grove, one of Intel’s founders and a former chief executive):
As Andy Grove so presciently articulated in the July 1, 2010, issue of Businessweek, the economies of China, Singapore, Germany, Brazil and India have demonstrated “that a plan for job creation must be the number-one objective of state economic policy; and that the government must play a strategic role in setting the priorities and arraying the forces of organization necessary to achieve this goal.”
Intel doesn’t create jobs. It creates products that go into devices that people wish to buy. The demand for these devices creates jobs. How, exactly, is the state better positioned to do what Intel does? This is effectively what Messrs. Grove and Stern are arguing–that the state is better situated than the capitalist to creatively meet the needs of human beings, because meeting the needs of human beings is ever and always the only mechanism whereby net jobs (i.e., not government jobs, that depend for their creation on the confiscation of wealth) are created. Perhaps the state can order people to need what it produces. Attempting to do so hasn’t historically worked out so well, as the failures in pure socialism attest, from the Soviet Union to Mao’s China.
Mr. Stern ends his screed with a jingoistic flourish:
For those of us who love this country and believe America has every asset it needs to remain the No. 1 economic engine of the world, it is troubling that we have no plan—and substitute a demonization of government and worship of the free market at a historical moment that requires a rethinking of both those beliefs.
America needs to embrace a plan for growth and innovation, with a streamlined government as a partner with the private sector. Economic revolutions require institutions to change and maybe make history, because if they stick to the status quo they soon become history. Our great country, which sparked and wants to lead this global revolution, needs a forward looking, long-term economic plan.
The imperative for change is simple. As Andy Grove pointed out: “If we want to remain a leading economy, we change on our own, or change will continue to be forced upon us.”
If the point of any economic system is the welfare of the participants in it, what possible difference could it make whether it is number one, or number one hundred, so far as world-wide economic engines go? The relevant question to ask at the macroeconomic level is whether the households upon which the system is founded are able to meet their needs through participation in the system. If they can, then the system is sound. If not, as in Mao’s China during the Great Leap Forward, when a great many economic participants leapt straight into starvation, then the system is flawed.
The per capita income in the US is roughly $40,000 per year. The per capita income in China is roughly $5,000 per year. Which of the two economic systems is better meeting the needs of its participants?
Whose goal is it that the US “remain a leading economy”? The participants in the US economic system? (call them the 99%). Or, the oligarchs running it ? (call them the 1%). I doubt many of the 99% stay awake at night scheming over how the economic system to which they belong might remain the economic engine of the world. They just want to be able to put food on the table and a roof over their heads, with maybe a bit left over for some extravagances, like the occasional vacation, or night out, or time-wasting personal electronic device (probably one with Intel Inside). The desire for economic dominance comes from guys like Andy Grove and Andy Stern, i.e., capitalists and their lackeys, who can be trusted to find robust rationalizations for why, whatever it is they desire, should also be desired by everyone else.
But getting to the question posed in the leader, is China’s economic system a juggernaut that will sweep away all that stands in its way? Or is it a train wreck waiting to happen?
China’s statist economic system is not much different in practice than was the United States’ economic system at the turn of the twentieth century, when the US developed from an agrarian-based economy to an urbanized and fully-industrialized one. China’s capitalists are exploiting the two cost advantages any such developing economic system has against its fully-developed competitors–cheap labor and an environment regarded as free, and capable of unlimited exploitation. As China’s development proceeds and it becomes richer, these two advantages will fade into oblivion. Chinese laborers will eventually demand that China share some measure of the bounty they are creating through their efforts, much as American workers began demanding the same from their employers in the early twentieth century. Instead of the robber barons of Teddy Roosevelt’s day, the Chinese have the Chinese Communist Party, sitting on over three trillion dollars of foreign reserves about now. The CCP will eventually be forced to spread the wealth around, if only for the political instability that such inequity engenders. And as economic development makes the Chinese countryside increasing inhospitable for human habitation, or even just as greater riches translate to greater concern for clean air and water, the capitalist exploitation of the environmental commons will be sharply curtailed. China’s “advantages”, if they could be appropriately thus described, will no longer exist. The Chinese economy is no juggernaut.
But along the way, the Chinese economic model is a slow-moving train wreck that, for two reasons, will experience its own Great Depression, or something very similar.
China depends for its economic growth upon foreign markets. It is a mercantilist economy, its leaders (the CCP) foolishly believing, like so many have before them (e.g., political leaders in eighteenth century France and Great Britain), that it could get rich by selling without buying, depending on what amounts to slave wages in order to undercut the costs of its trading partners in order to sell them its wares.
Trade is not a one-way street. If a Chinese factory sells its widgets to America, thereby putting an American factory out of business, the American factory workers won’t long be able to buy Chinese widgets, unless they can find things to do to replace the lost wages earned from producing widgets. The Chinese capitalists are exploiting their people and their environment in what ultimately amounts to a bid to destroy their competitors (intentionally), and the markets in which they wish to sell (unintentionally). Obviously, this development model is not long sustainable, though as Keynes observed about the stock markets, China can likely sustain its irrational mercantilist behavior for a longer period than its trading partners can remain solvent.
The foolishness doesn’t end with just a “beggar thy neighbor” trade policy. The ever-growing pile of foreign currency the Chinese are accumulating basically represents the difference between the value being created by the Chinese workers and the amount they are being paid. The Chinese domestic market languishes in order for its capitalists to get rich. Once China has destroyed the ability of its trading partners to buy its goods (through labor market competition), it won’t have anywhere in which to sell them. Chinese domestic wages, depressed as they are by the stack of foreign currency being laundered to prevent currency adjustments, ensuring that the mercantilist strategy survives, won’t be high enough to make up the difference. The ability to produce will far outstrip demand. Depression, the likes of which hasn’t been seen since the thirties in the West, will set upon China, and other countries with similar mercantilist economic systems.
Ultimately, China’s economic strategy depends on economic growth in the West and Japan, while operating, through its mercantilist methods, to help destroy any possibility that growth might obtain. Even without the mercantilist methodology, the populations of the West and Japan, already rich and rapidly aging, could hardly be considered a stable source of growth. But with China actively, if unintentionally, destroying the ability of the West’s economic systems to create the value with which China’s wares might be bought, it is clear that China’s economic system is not sustainable, let alone worthy of emulation.