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on July 8, 2010
Martin Jacques' "When China Rules The World" carries a provocative title, but it should not be a surprise. Anyone can see this outcome coming by simply projecting economic growth in the U.S. and China at roughly their current rates; Goldman Sachs gave such conclusions credibility in 2007 when it concluded that China would surpass U.S. GDP in 2027, and double it by 2050. Jacques' book suffers not from an overly wild imagination, but from taking entirely too long to get this already obvious conclusion, and then not exploring enough about what that means for either Britain (his nation) or the U.S.A.
Far too much of "When China Rules The World" is taken up by a detailed historical summary and analysis of China's 5,000-some year history - to establish that it is not prone to colonizing other parts of the world, values unity among its people, and that its predominantly Han 'nationality' of people are becoming increasingly smug (racist?) as China's economic power grows. Jacques could have shortened this material enormously by simply pointing out that the key to China's recent growth has been the pragmatic orientation of its leaders. Obviously, economic growth has been their #1 objective since Mao's death, and public announcements communicated that the military would have to take a back seat. The late Premier Deng Xiaoping demonstrated this pragmatic focus when - despite being Mao's #2 and having been purged twice for not being a strong-enough Communist, he turned the nation's direction around after Mao's death. At the time, Deng explained his lack of commitment to ideology or history as follows: "I don't care if it's a white cat or a black cat. It's a good cat so long as it catches mice." This was interpreted to mean that being productive in life is more important than whether one follows a communist or capitalist ideology.
Regardless, even if Chinese history was the clear determinant of its direction, the topic is so immense and complex I doubt anyone but a Chinese scholar would have the resources or credibility to synthesize the thousands of years involved. That rules Jacques out. However, Jacques' material on today's China is much more useful.
Many China naysayers contend it cannot continue with anything near its recent growth rates because rising demand for labor will end the supply of its low-cost labor. Jacques, however, points out that China needs to create 8 million new jobs/year for its expanding urban population, plus another 15 million for new rural migrants coming to the cities. By 2020 it is estimated that there will be 553 million non-agricultural workers in China - 100 million more than in all the developed world. Another estimate is that 20 years from now China will still have 20% of its population looking for non-agricultural work - in other words, China has a relatively limitless supply of cheap labor.
How will China continue to rapidly grow its economy? First, by increasing its internal consumption, and secondly by moving up the value chain. Manufacturing comprises only about 15% of the cost of getting a product to market. China's leaders aim to increase China's proportion of the whole by raising R&D from $25 billion in 2004 to $45 billion in 2010 and $113 billion in 2020. China is also intensifying efforts to persuade overseas Chinese to return (eg. one-third of Silicon Valley's professional and technical staff are Chinese), and to raise the status and enrollment of its best universities. China has also been very successful in leveraging access to intellectual knowledge in exchange for granting foreign firms access to its markets. Then there's also its reputation for intellectual piracy. Jacques envisions strong Chinese total-product competition in aircraft manufacture, electric automobiles, communications, computers, and solar panels. Given their growing number of engineering graduates and American research labs located in China, I suspect they will also be strong contenders in household goods, biomedical products, wind turbine production - probably about any area they decide to move into, given their strong cost advantages.
Another reason some doubt China's continued success is that it isn't bringing democracy to the masses. Jacques, however, contends that very few countries have combined democracy (as now envisioned) with the process of economic take-off. (The U.S., for example, was late to grant voting to women and minorities.) Jacques also contends that developing countries are especially likely to value a government's ability to deliver economic growth, maintain ethnic harmony, limit corruption, and sustain order and stability as equal, if not greater values to democracy. Regardless, "When When China Rules The World" also presents data showing that most Chinese believe the political climate has improved since 1989 (Tienanmen Square), and 72% of its population are satisfied with the condition of the country vs. only 39% in the U.S. (As for the widely reported large number of civil disturbances within China reported each year, Jacques contends most have nothing to do with the central government - eg. local land issues.)
Bottom line - like it or not, China will become the major global power by 2050 - assuming continued rapid economic growth, and Jacques doesn't think that is going to stop. What does this mean? Jacques says Chinese companies will be the biggest in the world, as will its stock exchanges and banks. Macao will take Las Vegas' place as gambling capital of the world. The dollar will continue its decline and American military bases overseas will become increasingly difficult to finance. China's new aircraft carriers, stealth submarines, etc. will take over the Pacific near China, and its anti-ship missiles render the U.S. Navy obsolete. Taiwan will return to China's jurisdiction.
My projections for the U.S. are a return to protectionism and/or continued decline in our standard of living. Off-shoring will expand to include higher-level jobs such as engineering design, R&D, branding, corporate ownership, and even some marketing. Absent gaining control of our trade and government deficits, the U.S. risks substantial inflation. Government spending will have to drastically reduced at all levels, especially existing outlays for health care, education, and defense.
The "good news" is that there is already compelling evidence of U.S. overspending in all three areas. U.S. health care and education expenditures as a percentage of GDP are both about 2X and more those of other major developed nations, while U.S. defense expenditures (6-7% of GDP) equal those of the rest of the world combined (more if Homeland Security is added in). U.S. outcomes in these areas, however, are middling at best. Thus, about 15.5% of GDP could be eliminated from government and private expenditures for these three areas - about $2.2 trillion/year. In addition, Social Security benefits will have to be cut, the maximum level of taxable earnings eliminated, or both.
Jacques makes a very good point when he says that globalization was largely developed and instigated by Western nations, especially the U.S.; the benefits, however, have largely accrued to East Asia and China, and the drawbacks to the U.S. Combined with increased private and public efforts to outsource service jobs to India, and more jobs lost to technology, its going to be a very rough next few decades in the U.S.A. Americans need to be much more careful about what they wish for!