Friday, December 4, 2009


A reader asks about my views on China, "the next super power." I've been thinking a lot about China, of late, and not comforting thoughts. The future of China, and our relationship to that country, may well have been forged in the cauldron of corporate greed that business in the USA has become.

The main reason that China is the source of so much of what we consume in this country is that it was, and is, much cheaper to make goods in China than here. As labor became more expensive here, more and more manufacturing work was outsourced to China. Simple economics from Business 101. Of course, Business 101 might also suggest that the wise business person take a long view and not trade short term profit for long term survival. Our hyper greedy businesses figured that it was OK to take jobs away from Americans since the trade off was products cheap enough that even poor folks could buy them. Particularly if the poor folks could get a hold of some cheap credit. Oops! Maybe they should have read to the end of the textbook.

China, on the other hand, due in no small part because the Chinese form of capitalism is overlaid upon a communist form of government, takes nothing but a long view. They have cheap labor to spare and huge sums of dollars paid to them for their exports. They have invested those dollars locally in infrastructure and, more importantly for us, in our debt. What a great idea. Sell products to us that we buy with money that they loan to us. And American business acting as the middlemen on both sides of the transaction makes gobs of money.

The only good news in all of that is a truth I learned from a (crooked) contractor I once worked for: When you're up to your eyeballs in debt ask your banker for more money. Your banker is  the last person who wants to see you fail before you pay him back. Likewise, China has a vested interest in seeing America and Americans thrive. At least in the short term.

To be continued.

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