Dr. Wordman
Abstract
Both the U.S. and China are facing economic problems. China has been following the U.S. as a successful example in opening up and reforming her economy. China’s rapid rise is not a miracle but simply because of Chinese citizens have been poor for too long thus having a stronger drive to improve their living standard. As China is successfully removing poverty, she gradually faces the similar economic problems the U.S. is facing, income and wealth gap, declining GDP growth, job creation, and high debt throughout all levels of government and common citizens. Therefore targeting China to make her like US is not the solution, rather, targeting the U.S. and working with China may solve our problems.
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Targeting the U.S. not China will make America great again, here is why!
The U.S. has been a superpower since WW II. Post war, the U.S. was leading in science and technology almost in every field making her the most productive nation in the world having her GDP peaked close to 40% of the world’s total GDP at one time. Since 1950’s the net U.S. GDP has been steadily increasing but declined as a percentage of worlds GDP, downward below 20%. Of course, this is due to the rise of many other countries’ productivity. This is a good thing for the world not necessarily bad for the U.S. either, since the U.S. does not want to be the only prosperous country in the world. The U.S. is still leading in many areas of science and technology then why is the U.S. slipping in per capita productivity and why are Americans nervous about her future? Technology and foreign competition have been blamed as the culprit, but never the U.S. economic model, the U.S. cultural change and never the American society.
The advancement in technology did bring mechanization, automation, large data processing, robots, and artificial intelligence reducing human labor and human brain needed in our industries and changing many aspects of our society. The principal change forced on human by technology is exhibited in jobs loss/obsolescence, but the technology advance also brings new jobs but the nature of new jobs requires very different set of work skills which demand appropriate education and retraining. Dealing with this issue, the U.S. economic model and government policies must bear the responsibility. In an article by Cheng Li of Brookings Institute published in Foreign Affairs, Snapshot, March 10, 2019, entitled How China’s Middle Class Views the Trade War, made a good analysis for the U.S. to ponder on. The Chinese government is very sensitive to how the Chinese middle class feels about China’s economy. The Chinese leadership knows the tremendous and ever increasing political influence of China’s middle class to the legitimacy of its governance. Therefore China acts carefully to sustain a long term economic growth and is currently in the midst of a delicate process to transition her economy, balancing manufacturing export, domestic consumption and technology innovation, while dealing with the external pressure such as the trade war initiated by the U.S.. Whereas the U.S. government is only accountable to four-year term election which unfortunately is controlled by the upper 1% rather than the middle class in America, thus only making the U.S. government focusing on short-term policies , stock market performance, and busy reversing policies of the previous administration. Consequently, the U.S. is unable to manage her national economy as well as China does.
The fundamental conditions of a healthy economy are healthy productivity and healthy consumption. While the healthy productivity gain depends on science and technology and skilled workers, the healthy consumption depends on a large employed population who can earn good wages and make spending. This equilibrium condition for a healthy economy can be represented by a sufficient GDP figure and a high enough employment rate. However, the employment rate should be represented by a steady permanent employment rather than a transient short-term employment for supporting a healthy economy, since short-term jobs cannot produce skill upgrade needed for new challenging jobs and innovations. When technology advances, it increases productivity and raises wages not only in a particular industry sector but it has a ripple effect raising wages across all industries. Under a socialistic concept, sometimes, the government will impose a minimum wage policy which automatically raises wages across the board as a means to raise the income level hence standard of living across the entire population especially helping the lower income groups.
When wages are high in an industry sector which cannot maintain high enough profitability to support the growth, the industry is likely to become a low-tech high-labor (LTHL) sunset industry, for example, textile, furniture, steel making and fresh food industries. These LTHL industries will have to move to low labor cost countries which will be glad to absorb the low tech industries. The developing countries with large populations are generally the target locations for these low-tech migrations. Numerous cases are available to illustrate this trend. The U.S. essentially lost many low-tech industries through this natural process willingly and voluntarily. No one can steal American jobs, because the U.S. is capable of prohibiting it. For example, exporting high-tech in terms of products, corporations and individuals have been strictly controlled by the U.S. government.
Losing low-tech industries is not necessarily a problem since maintaining high-tech industries can generally command higher profitability. Therefore, there is a saying that a developing country that making a billion pairs of jeans makes less profit than a developed country selling one jet plane. This is a true fact but one must recognize another fact that an advance jet plane may require a thousand technical professionals and skilled workers but the billion pair of jeans support hundreds of thousands of low skilled workers, a very much needed job creation industry in a developing country. So the issue in a developed country is how to create enough new jobs, how to educate new workers and retrain workers upgrading them from low-tech jobs to the new jobs. The new jobs must produce new products having a market demand domestically and internationally. Why didn’t the U.S. follow this simple formula to sustain her technology lead and upgrade industries which can maintain her job and product market base? Hindsight, there is a clue.
The U.S. has enjoyed the highest GDP and led in most advanced technologies. While the above natural technology migration occurred, the U.S. being a capitalistic nation, controlled by the 1% wealthy individuals rather than the mass middle income class, was driven only by profitability in their industry transformation forgetting the above discussed conditions such as to maintain employment to sustain a healthy economy. The U.S. had given up most of her labor intense low-tech low-profit manufacturing industries and focused on high return capital intensive financial industry and high profit advanced high-tech sectors, such as medicine, weapons, and sophisticated IT products. Although these capital intensive industries may have high profitability but they do not support large number of work force, in addition, they reject the low-tech skilled workers, because they are not easily re-trainable.
The U.S. higher education is the best in the world attracting talents from all over the world. There was not an issue of turning up enough talents to meet the demand in the financial and high-tech industries, however, that number is far short of the displaced workers who were not retrained for a new job employment. High-tech High profit sometimes do need low-tech assembly and manual packaging and to be close to the market place to sell. (smart phone is an example) The developed countries can accept the high priced high-tech products but they have less population or cheap labor and want to protect their own high-tech industries. The developing countries have large population but they cannot afford the high priced high-tech products even they may desire them. China being a large developing country with huge rising middle income population is one of the best countries for high-tech products to enter. But the high-tech products are vulnerable to government regulation or import laws and also oddly even subject to the U.S. sanction laws based on national security concerns. Thus the U.S. economic model - driving her capital intensive industries to create high profits good for the few stock holders but not enough jobs to support her replaced low-tech workers - will eventually have problems. Now she does!
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