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THE
COMING TRADE WAR, Part 4
Scarcity economics and
overcapacity
By Henry C
K Liu
(For other parts in the series, click here)
Neo-classical economics
developed at a time when wealth was limited to
what a relatively primitive industrial society
could produce, and demand for goods was always
greater than their 
supply. It is the economics of scarcity rooted in
the medieval rule of parsimony, or principle of
economy, frequently used by Franciscan monk
William of Ockham (circa 1285-1349), which came to
be known as Ockham's Razor. Or to put it another
way, scarcity, leading to the need for economy, is
the determinant behind economics theory. The
Franciscans, with their devotion to the poor and
opposition to an opulent church, were the
modern-day communists of the medieval Church.
Marxism is rooted in German philosophy.
Dialectic materialism as expanded by Karl Marx
(1818-83) is based on Hegelian dialectics, a term
for the natural tendency of the mind to proceed by
creating contrasting opposites. A thesis
inevitably produces an antithesis, which would
equally inevitably be followed by a reconciliation
and fusion into a synthesis, which in turn becomes
the new thesis, to be opposed by a new antithesis.
It is a cyclical concept of life discovered by the
Taoists more than two millennia before Georg
Wilhelm Friedrich Hegel (1770-1831), albeit that
the Taoists emphasize fundamental constancy while
Hegel emphasizes conceptual change. The more
things change, the more they stay the same,
according to Taoists.
Hegelian dialectics
introduced philosophy into the Western study of
history as a view of human social evolution
through time. Social reality is a process
developing through time, a consequential unfolding
of connected events, necessary, logical and
deterministic. By materialism, Marx asserts that
the basic element in social organization is
economic. Rejecting Hegelian idealism of ideas
forming society, Marx asserts that ideas are
formed by the economic institutions of society, at
the base of which are the "relations of
production" which determine the shapes of
religion, politics, philosophy, law and morality.
Yet Hegelian ideals are the stuff of
revolution, the speeding up by tour de force
the natural evolution of dialectics. Communism
is a transitional stage rooted still in the
neo-classical economics of scarcity. It is through
communism that society will eventually evolve into
socialism based on an economics of plentitude. Yet
communists are not evolutionists; they are
revolutionaries who want to leapfrog the
evolutionary process. They are in essence
idealists. Thus communists are Marxist in the
theory and Hegelian in practice.
Christianity is not known for its
tolerance. It is a religion of "tough love".
Niccolo Machiavelli (1469-1527) recounted the
pious cruelty of Christianity. David Hume
(1711-76) exposed the intolerance of Christians in
comparison with the Pagans. Friedrich Wilhelm
Nietzsche (1844-1900) attacked Christian love as a
fraudulent disguise for virulent hatred for all
that was humanly vigorous, beautiful and noble.
The history of Christianity is replete with
militant religious intolerance.
The
history of Christianity is closely linked to the
evolution of capitalism, notwithstanding that
Jesus overturned the tables of the money lenders
and expelled them from the Temple because those
responsible for maintaining the holiness of the
holy were unable to separate service to God from
service to Mammon, the demon of love of money.
Christianity subscribes to the notion of
collective genetic guilt, as capsulated in the
concept of original sin. By that concept, all
Germans are perpetually guilty of the sins their
ancestors committed in the Holocaust, all North
Americans are perpetually guilty of the sins
committed by their ancestors on native Americans
and all whites are perpetually guilty of the sins
committed against blacks and other colored
peoples. The Bible records that Abraham confronted
God's decision of punitive destruction for Sodom
and Gomorrah with the demands of justice, urging
him to consider the innocent along with the
wicked. God's decision on Sodom and Gomorrah was
an act of indiscriminate religious terrorism. It
set a morally questionable precedent for state
terrorism such as the Blitz of London, the bombing
of Dresden, the two atomic bombs dropped on Japan,
the bombings of Vietnam and modern-day insurgent
terrorism.
While critical of clerical
corruption, Martin Luther mounted an attack on
what he regarded as a structural flaw in Christian
theology, by declaring the right of every
individual to be his own priest through revelation
from the Bible, in the name of the spiritual
equality of all believers. The Reformation was
misnamed. Luther was not interested in saving a
corrupt Church through reform; he aimed to save
Christianity by dismantling orthodox theology. But
the Bible, the source of Luther's religious
revolution, is a holy book with many dark sides.
Monotheism, scarcity and
imperialism
Biblical faith itself has been
a stunning moral source for the critique of
biblically based religious doctrine. The
monotheism myth, the belief in the one true God,
creator of heaven and Earth, constitutes a system
in which identity depends on the rejection of
multiculturalism and the subjugation of personal
free will and independence. Some modern writers
have placed monotheism at the root of evil in the
Western world. Monotheism's vehement legacy is the
implied consequence of the law of scarcity, which
is built upon a logic that rules the scarcity
paradigm that proclaims that there will never be
enough of the blessings and good things necessary
for prosperity, such as land, resources, even food
and water, let alone oil, to go around for all to
enjoy freely.
But the law of scarcity,
like monotheism, is a baseless myth, because it
does not reflect the visible truth about the real
world. The scarcity myth has come to be regarded
as a law in large measure through the enormous
influence that the Bible has exerted on the making
of the Western mind, and thus the Western fixation
on material accumulation. There is ample evidence
that scarcity is the result of man-made
maldistribution rather than a natural state.
Buddhism views the world as a place of
plenty, thus Buddhists have no desire or need to
accumulate material things. For Buddhists, the
only accumulation worthy of effort is good deeds.
Joy belongs to the giver. The law of scarcity does
not derive its all-inclusive power and its
pervasive influence from facts about the real
world or communal human experiences. Its authority
flows from faulty metaphysical principles and
misguided Christian beliefs about the nature of
God. Scarcity is encoded in the Bible as a
principle of oneness (one land, one people, one
nation) and in monotheistic thinking (one deity).
It becomes a demand of exclusive allegiance that
threatens with violence of exclusion. Imperialism
and globalization are direct geopolitical outcomes
of the Christian quest for the holy grail of
oneness.
While the dark side of the Bible
sanctions the formation of a collective identity
that is singular, static and exclusionary, it also
provides hopeful glimpses of an identity that is
multiple and mobile, inclusive and evolving,
governed by the good "principle of plentitude" and
not the evil law of scarcity. The principle of
plentitude affirms that there are enough of the
good things to go around, and proclaims the
ethical imperative of generosity, and envisages a
world of ceaseless giving. Neo-classical economics
dismisses the principle of plentitude as being
outside of the concerns of economics. Charity is a
voluntarism in the province of morality, not
economics. When US President George W Bush
promotes voluntarism as a substitute for public
welfare programs, he is advocating the abdication
of government responsibilities, declaring that
compassion is a personal and not a state function,
while he injects self-righteous morality in US
foreign policy. Because Americans are a
compassionate people, they are expected to exempt
their government from being compassionate also. As
for the all-volunteer army, there is nothing
voluntary about it; it is all economic coercion.
Economic science needs to repudiate
scarcity and to rehabilitate plentitude. Today the
monotheistic notion of market fundamentalism is
given expression through the doctrine of free
trade, with an unbalanced preoccupation with human
political rights rather than human economic rights
and welfare, and the flawed assumption that
political equality can be achieved without
economic equality, all of which are distorted
moral principles that are so taken for granted in
the neo-liberal West that it tends to view as a
symptom of deformed mentality questions regarding
the value system that underlies such warped
morality. Neo-liberals have become decadently
self-satisfied with unquestioned slogans of the
indisputable economic benefits of political
freedom and equality. They have become happily
trapped in self-delusions that deny glaring
realities that reflect neither freedom nor
equality, nor economic benefits to the majority.
They find solace in blaming the undeniably obscene
outcome on the bad decisions by market
participants rather than the structural fault of
the market system. Cathedrals, the greatest
achievement in medieval Europe, were not built by
market forces. Postmodernists are even worse; they
are notoriously dismissive of the inquiring search
for historical foundations to seek
self-celebration in devising new meanings for
well-understood words to justify contemporary
anomalies and timeless truth.
The
importance of the idea that every individual is
created in the image of God is dramatically
revealed in the concept of the Garden of Eden. The
story of the expulsion by God of the first man and
woman from the plentiful Garden of Eden is viewed
as a fall from an initial blessed state of
wholeness, peace, and perfection, a descent from a
regime of plentitude to one governed by the law of
scarcity. The law of scarcity stands for a
regressive and destructive world view. Scarcity,
the assumption that someone can only prosper when
someone else does not, proliferates fratricide and
genocide. Scarcity is an idea that the writers of
the Bible invented and sadistically inscribed in
the mind of the faithful, a law manufactured by
monotheism out of necessities in a primitive
society in which insufficiency was the norm, and
the desire to stand apart and excel was necessary
for survival of the species and must not be viewed
as something shameful. To have more than others in
a world of scarcity is regarded as a sign of
heroic accomplishment. Selfish love is not
conceptually inconsistent, and not even
undesirable, for it is a permissive basis for
drawing sharp boundaries between the beloved and
the rest of the world.
The ideal of
plentitude
Although generally overwhelmed
in the Bible by the law of scarcity, God's making
man in his image exemplifies the ideal of
plentitude. The law of plentitude means the
rejection of one God in favor of many gods; and it
requires not merely diminishing the distance
between the divine and the human but heroically
eliminating it. As reality shows man in a great
variety, the image of God must also be
multidimensional.
The biblical story of
the Tower of Babel is a mythical tale of God
crushing man's godly ambitions and punishing him
with divisiveness. The consequence of unsuppressed
pride and rebelliousness to God on the part of the
people is bondage to human overlords. And thus the
division of people into peoples of many different
tongues is God's strategy for keeping humans human
in order to preserve deity. Striving to preserve
unity and aspiring to godliness, the people
resolved to build a city, construct a tower toward
God and make for themselves a name. The name of
the city where men sought to reach God was Babel,
a word that comes from a root meaning "confusion"
and which contains a Hebrew word for "heart". The
story of Babel thus prizes not monumental
structures conceived by human minds and produced
by human hands, but the human heart, which brings
man closer to God. A single world nation united by
a universal language promotes a false sense of
human powers, of what human beings can accomplish
by taking matters into their own hands. Monotheism
abhors pluralism, but pluralism is a gift that God
bestows on humankind to make us more human. Like
Adam and Eve, the builders of Babel were cast out
of a peaceful, easy life of plenty and fell to a
realm of the scarcity for challenging God.
Scarcity is a device to keep humans ungodly.
Much of neo-classical economics has to do
with improving efficiency to increase production
to come closer to eliminating undefeatable
scarcity. The objective is always to increase
supply through new investment for greater
productivity and efficiency. Yet for neo-classical
economics, the quest for the elimination of
scarcity is like trying to catch the hood ornament
of a moving car from the driver's seat, with the
goal remaining unreachable at any speed, or any
amount of investment. But the world economy now,
through technological progress and deregulated
markets, has entered a stage of global
overcapacity in which neo-classical economics of
scarcity has become obsolete and the management of
aggregate demand is the necessary solution.
Material overcapacity is a result of mental
undercapacity.
A new economics of
plentitude
According to the rules of
neo-classical economics, over-consumption is a
path to financial ruin. But overcapacity is also a
path to financial ruin in a market economy.
Capacity represents sunken investment that
requires continuous positive returns.
Under-utilization of capacity translates directly
into inefficiency, a deadly sin in economics
because idle plants are non-performing assets that
result in financial losses. Overcapacity is not
merely a temporary under-utilization of capacity;
it is the systemic inability to achieve full or at
least optimum utilization. Yet overcapacity is a
structural condition in the world of scarcity
economics, because excess capacity is the
condition needed to prevent the emergence of
shortages, which is another name for scarcity. But
scarcity is needed to maintain economic value as
expressed in market prices. Thus the market model
of neo-classical economics must constantly be
plagued with the curse of scarcity while
simultaneously preventing scarcity with the more
fatal disease of overcapacity. This contradiction
is the internal paradox of neo-classical economics
that traps the market economy in an arrangement of
never being able to enjoy the full capacity of its
productivity.
The insecurity generated by
looming scarcity drives savings, which as
investment add to overcapacity. And savings reduce
current consumption, meaning lowering demand,
which adds to overcapacity. The challenge of a
market economy in an age of structural
overcapacity then shifts from how to produce more
to how to sell more. Marketing becomes the
critical task of management. The answer for
decades has been to use planned obsolescence to
ensure recurring demand. Another answer was to
lower prices to broaden the market. Advertising
stimulates the desire for goods, but only rising
income increases demand for goods.
A more
rational solution than planned obsolescence would
be to end its inherent waste and to manage real
demand to sustain full utilization of capacity to
produce lasting, quality products. This means
consumers need to have sufficient income to buy
quality goods and services produced by the market
economy. But neo-classical monetary economics has
created a financial scheme in which the people
producing the goods cannot afford to buy them
unless profit is greatly reduced if not
eliminated, and the people receiving the profit
from goods production cannot consume more of these
goods. The reservoir of productivity is
overflowing while the defective plumbing of
neo-classical monetary economics continues to
block the delivery of goods to a public
deliberately kept thirsty for more goods. At
times, needed aggregate demand is created by
irresponsible monetary policy, either with the
depreciation of money, which is the monetary
effect of inflation, or with easy credit, leading
to debt bubbles that can cause severe economic
damage at times of reckoning. It is time to shift
from the economics of scarcity to a new economics
based on the concept of plentitude to cure the
modern-day plague of scarcity in a land of
overcapacity.
Mercantilism and fiat
money
Unless products are sold for gold to
Martians, or at least to foreigners or colonial
subjects in a mercantilist trade regime, lowering
prices requires a corresponding lowering of wages,
which in turn shrinks effective demand further.
Mercantilism is not merely a quest by nations for
gold, but a quest for national purchasing power in
the international market as expressed by the
relatively constant monetary value of gold. In a
world of fiat currencies not backed by gold,
mercantilism cannot exist by definition. Any
nation that habitually incurs trade deficits will
find its fiat currency not accepted by its trading
partners. Any nation that incurs export trade
surpluses denominated in a foreign fiat currency
is engaged in reverse mercantilism, ie, shipping
real wealth overseas for paper.
Thus it is
outrageously preposterous for the United States, a
country of recurring trade deficits denominated in
fiat dollars, to accuse its exporting
trade-surplus partners of practicing mercantilism
when the US trade deficit is in essence an
undisguised abuse of unearned privilege of
inexhaustible national purchasing power in the
form of dollar hegemony - an international
monetary anomaly that permits the US to print
paper dollars in exchange for real products from
its trading partners exporting to the US market.
Dollar hegemony is based on oil being denominated
in dollars in the world market. When the United
States, in the name of national security, would
not permit a Chinese company, such as China
National Offshore Oil Corp (CNOOC), to use its
trade surplus denominated in fiat dollars to
purchase a US-based oil company, 80% of whose
assets are located in Asia and will never enter
the US domestic oil market, it is not a move to
protect oil supply in the United States. It is in
fact a move to protect dollar hegemony.
Protecting dollar hegemony
But
such a policy to protect dollar hegemony in effect
makes the fiat dollar less fungible. The latest
report shows CNOOC being put in a box of no escape
in its effort to outbid rival Chevron Corp in the
competition to buy Unocal Corp. The Unocal board
was reported on July 20 to be backing a sweetened
offer from Chevron that will pay US$63 a share in
cash and stock, up from a previous offer of $60.50
a share. CNOOC's all-cash offer stood at $67 a
share on July 20. CNOOC needs to raise its cash
offer to $70 a share to win, but the higher offer
would solicit more political opposition from the
US government over the use of dollar loans from
Chinese state-owned banks. The competition will
then move further from one over money into the
arena of geopolitics.
Apparently, the US
dollar is less useful when held by the Chinese
state. But when money is not useful to some, it is
not useful to all. Money must stay fully fungible
to preserve its full function and value. Money not
accepted from anyone to buy anything anywhere
cannot be acceptable universally. When the dollar
is not universally accepted, it presents a greater
threat to US national security than the sale of
any one oil company.
The answer to
overcapacity
The size of the US market,
great as it is, is insufficient to absorb the
continuous growth of the world's new productive
potential unleashed by the promise of
globalization. It is not possible, let alone
moral, for 4% of the world's population to consume
the full productive capacity of the world. For the
global economy to grow to its full potential, the
whole population of the world needs to be allowed
to participate with its fair share of consumption.
Yet economic and monetary policymakers
everywhere continue to view full employment and
rising fair wages as the direct cause of
undesirable inflation, which is deemed a threat to
sound money. To be valuable, money is made scarce,
meaning some must have less than enough, thus
making money desirable. Thus relative poverty is
at the heart of neo-classical monetary economics.
Being rich requires others to be kept in relative
poverty, meaning some must have less money. If
being rich is celebrated as a prized luxury, then
the majority needs to remain relatively poor.
Wealth is not viewed as God's gift to all by
neo-classical economics, but a scarce reward worth
fighting over. The competitive quest for wealth is
the driving force of the market economy and in
turn human civilization under capitalism. The fear
of poverty keeps the population working and the
existence of pervasive poverty sustains the
privileges of the rich.
Yet the work ethic
has been detached from wealth since the advent of
finance capitalism. The game now is to do the
least amount of work for the richest reward. In
any modern city, if those making more than $1
million a year suddenly stopped work, it would
take weeks before it was even noticed, but if all
those making less than $50,000 suddenly stopped
working, there would be chaos and total collapse
of urban life within days. Neo-classical economics
as practiced in a market economy is an inherently
undemocratic system that rejects economic equality
and freedom from scarcity. Thus it is a
contradiction for the United States to promote
democracy and freedom around the world through the
spread of market capitalism.
Dollar
hegemony causes US job loss
The coming
global trade war being launched by the rich
economies of the world is equivalent to a hunter
shooting himself in the foot to scare away the
ants attracted by the honey overflowing from his
backpack.
Economist John Kenneth Galbraith
famously quipped that the trickle-down theory of
prosperity means if you feed the horse enough
oats, the sparrow will eventually benefit from the
horse's droppings. Democracy in the developed
economies is increasingly being co-opted to impose
trade restraining tariffs against the low-wage
exporting economies that have been shipping real
wealth produced at slave wages to the United
States for paper dollars. With such advantageous
terms of trade, it is nothing but foolhardy for
the US to impose tariffs to curb this joyride made
possible by dollar hegemony. Unemployed US workers
do not understand that it is not cheap imported
goods made by low-wage labor overseas that are the
real cause of the loss of jobs in the US. Rather,
the real cause of job loss in the US is the global
monetary regime of dollar hegemony that makes it
unnecessary for the US economy to have production
jobs inside the US.
Under dollar hegemony,
all the US needs to do is to print paper dollars
with which to exchange real goods from other
countries in the name of global trade. But it is
more convenient to blame foreign workers than to
fault central bankers hiding behind the
respectable shield of acclaimed monetary experts.
The trouble is that the benefits of this monetary
joyride at the expense of low-wage workers in the
developing economies are not fairly distributed
even within the rich economies, with US factory
workers bearing all the pain while those in the
finance sector keeping all the joy. Jobs will only
return to the US if US wages become lower than
those in the developing countries. Either way, the
lowering of wages or the loss of high-wage jobs,
causes pain for US workers while producing profit
for the shareholders. In a democracy, this
maldistribution of pain and benefits leads to
misguided protectionism that hurts the US as a
nation and threatens world stability. The
combination of dollar hegemony and misguided
protectionism in the US in the form of
recriminatory cycles of rising tariffs among
trading partners will also launch the world into
another global trade war that will lead to another
global great depression, which in turn will lead
to new shooting wars and political revolutions.
No single economy can profit unfairly for
long at the expense of the rest of an
interdependent world. There is an urgent need to
restructure the global finance architecture to
return to exchange rates based on purchasing-power
parity, and to reorient the world trading system
toward true comparative advantage based on global
full employment with rising wages and living
standards. The key starting point is to focus on
dollar hegemony, not foreign low-wage workers.
World trade needs to be financed by a
multi-currency regime in which exports are paid in
the currencies of the exporting nations, not in
fiat dollars. This will enable the exporting
nations to reap the benefits of earned external
demand for their currencies that can be satisfied
only by equivalent imports to keep international
trade balanced.
Keeping the poor
poorer
Internationally, the rich nations,
and domestically, the rich within rich nations,
have been gaining control over a fast-expanding
portion of the world's wealth and becoming
increasingly ruthless in furthering the expansion
of that control, particularly as key resources
become overstretched, pollution mounts and the
number of malnourished multiplies around the
world. Supply-side economics has been distorted to
keep supply lean in order to maximize market value
of assets. Yet internationally, the rich countries
are feeling increasingly threatened by rising
middle-income nations, and domestically, the rich
inside rich nations are feeling threatened by
economic democracy.
A recent study by
Goldman Sachs, a major global investment bank,
predicted that by 2050, four developing countries
- China, India, Brazil and Russia - could have a
combined economy larger than that of the six
biggest economies today - the United States,
Japan, Germany, the United Kingdom, France and
Italy. Yet there is no reason for that to be
alarming to the rich countries. Those four
developing countries have a population of 2.7
billion, more than quadruple the population of the
six biggest economies today of 681 million. It's a
puzzle why Goldman Sachs left out Indonesia, which
has a population larger than Brazil's; perhaps it
was because Indonesia is still solidly under US
domination. And 2050 is almost half a century
away, at which time the average per capita gross
domestic product of the four developing countries
would still be less than a quarter of that in the
six big economies. At any rate, if current terms
of trade continue, much of the GDP in the newly
rich nations would be owned and controlled by the
currently rich nations.
Yet there are
signs that the rich economies are determined to
resist this equalizing prospect by trying to
co-opt the elite in these developing economies as
a new comprador class to help perpetuate the
historical dominance of the rich nations. The
Western financial media tirelessly feature
sensational success stories of new
internationalist entrepreneur billionaires in the
developing economies while playing down
achievements of the national bourgeoisie and
state-owned enterprises.
Sales revenues of
major state-owned enterprises (SOEs) in China
reached more than 5.55 trillion yuan ($671
billion) in 2004, an increase of 25.8%
year-on-year, bringing in a profit of 478.46
billion yuan ($58 billion), a rise of 57.6% over
the same period a year earlier, with total assets
up to 9 trillion yuan ($1.1 trillion, or $4.4
trillion on a purchasing-power-parity basis).
Eight Chinese SOEs were listed among the Fortune
500 companies in 2004. The state-owned sector is
growing at a faster rate than the Chinese economy
as a whole. State-owned enterprises connote a bad
image in the mind of neo-liberals. On the one
hand, they condemn SOEs as economically
inefficient. On the other hand, they accuse them
of unfair competition for private enterprises. And
foreign SOEs are considered national-security
threats by the United States.
But what is
a state-owned enterprise? It is one owned by the
state, which is in turn is owned by all the
people. It is equivalent to a public corporation
or a public authority in a market economy. A
so-called private corporation is owned by private
shareholders, among whom sometimes are
government-owned entities acting as private
investors. And if state-owned enterprises are
inherently inefficient, there is no need to fear
unfair competition from them. China operates on a
socialist market economy, which means that SOEs
are a key component. US-China trade cannot expand
to its full potential if the US considers Chinese
SOEs unwelcome threats.
Wealth by
divine right
Forbes magazine's 100 richest
people in China in 2004 had $29.2 billion in
combined assets, a growth of 42% compared with
those for the year-earlier ranking. Worldwide,
Bill Gates alone was listed as having a net worth
of $58.2 billion in 2004, while five Walton family
members had a combined asset of more than $100
billion. One individual in the US is more than
twice as rich as the richest 100 in China put
together.
And Forbes might have
undercounted Gates' wealth. On January 4, 2000,
Microsoft (MSFT) stock price peaked at $116.56,
putting Bill Gates' wealth at $228 billion, or
$131.6 billion by acceptable accounting standards
after capital-gain tax calculations if he were to
liquidate his shares under then-governing tax
laws. The number of MSFT shares owned by Gates,
according to a 1995 Microsoft Proxy Statement, was
141,159,990. Adjusted for splits in December 1996,
February 1998, and March 1999, Gates was reported
to own 1.95 billion shares of MSFT, roughly 20% of
the company. At peak market price, Gates was worth
$227.3 billion. Microsoft has a total of 10.7
billion shares outstanding, worth a total of $1.24
trillion at its peak market price, greater than
China's GDP in 2000. If Gates had never sold any
of his MSFT stock since the company went public,
his share in the company would be worth $384.27
billion at peak price.
Gates' assets
outside of MSFT shares are not public. They are
estimated to be at least equal to his holdings in
MSFT as a conservative diversification strategy.
His venture-capital investment gains in new
start-ups are incalculable. Fortune magazine
estimates that Gates' MSFT wealth alone expands at
an average rate of $50 million per day or $35,000
per minute.
The gap between Mr Rich and Mr
and Ms Average is 311 times as great in the Age of
Gates as it was in the Age of Rockefeller, and
historians called that the Age of Robber Barons.
We have now the Age of Wealth by Divine Right in
which one person can have his wealth increased by
$50 million a day while almost half of the people
of the world have to survive on less than $2 per
day. "Obscenity" is not an adequate term to
describe this disparity.
Helplessness
of small nations
The small nations of the
world, unlike Brazil, China, India and Russia, are
too weak to resist oppressive policies foisted on
them in the name of free trade by international
trade and finance organizations controlled by the
rich nations.
The World Development
Movement has just produced a report on the West
African nation of Senegal, detailing a
depressingly familiar tale of a debt-stricken
country forced to adopt the full range of
stabilization measures prescribed by the
International Monetary Fund and the World Bank:
cut public spending, tighten monetary and fiscal
policies, focus on export-led growth, push trade
and investment liberalization, deregulate internal
prices, privatize state-owned enterprises, roll
back the state's role in the economy and abrogate
the sovereign right to guide its own economic
destiny.
The neo-liberal prescriptions of
the Washington Consensus are supposed to save
countries like Senegal from poverty. Yet the
reality is that the liberalization of agriculture
has deprived native peasants of their traditional
livelihoods. The percentage of malnourished in the
Senegalese population rose to 25% during the 1990s
and 80% of people live on less than $2 a day.
Senegal was an obvious candidate for debt relief,
but such relief is contingent on the
"conditionalities" attached to the Senegalese
poverty-reduction strategy, by selling off the
country's public assets and natural resources to
multinational corporations from the industrialized
world.
In Malawi, agents of the Washington
Consensus demanded that the government reduce
subsidies for small farmers, remove price controls
and regulations and privatize the state-run body
that ensured food was available across the country
and let the market work its wonders. The result
was that prices rose 400%, with widespread
hoarding in the market while famine spread. In
Zambia, agricultural tariffs were removed,
subsidized farm credit halted, food-import quotas
removed, and the currency devalued to aim for
unrealistic export-led growth. The result was that
exports as a percentage of a shrinking GDP fell
from 36% in 1991 to 27% in 2001.
US
paranoia toward China alienating
allies
Predictably, China again emerges as
the main target of blame and fear. Talks of
preemptive strikes and militant alliances against
a rising China are again rampant in US
political/military circles.
The Australian
Broadcasting Corp reported that in June 2003, the
Bush administration decided China's expanding role
on the world stage required an annual forum among
US allies to discuss issues surrounding China, and
invited the UK, Canada, New Zealand, Japan and
Australia to participate. The meetings were kept
ultra-secret, in order to create an atmosphere
open to frank discussion that would not be
restrained by possible adverse reaction in world
opinion. At the first meeting, those attending
decided to call themselves the Halibut Group. The
name grew out of an in joke - none of the China
experts present could work out how to say
"halibut" in Mandarin.
When the Halibut
Group started, the US deputy secretary of state at
the time, Richard Armitage, telephoned the
Australian ambassador in Washington, Michael
Thawley, to invite Australia to participate. But
there were conflicting opinions in Canberra about
whether to get involved. Some saw it as a good
chance to present to US policymakers Australia's
view on China; but the prevailing view was that
Australia would gain more through bilateral
contacts with the US and, at the same time, avoid
any offense to Beijing. So Australia told its best
friend and ally it preferred not to participate,
to the disappointment of the United States. Most
nations, including longtime US allies, will not
support any revival of US policies of containing
China.
The textile quota
issue
The US in May reimposed quotas on
seven kinds of Chinese textiles and clothing
products in response to a 54% import rise above
the 2004 level. The dispute over textile quotas is
merely a transitional issue over the phasing in of
World Trade Organization rules on the expiration
of quotas. Textiles, like agriculture, have been
one of the most contentious issues in the WTO, as
they were in the former GATT (General Agreement on
Tariffs and Trade) system. The issue has gone
through fundamental changes under a 10-year
schedule agreed to in the Uruguay Round of
multilateral trade negotiations launched at Punta
del Este, Uruguay, in September 1986 and concluded
in Geneva in December 1993, signed by trade
ministers in Marrakesh, Morocco, in April 1994.
The system of import quotas that had
dominated textile trade since the early 1960s was
to be phased out in April 2004. By January 1,
2005, the sector became fully integrated into
normal WTO rules. In particular, textile quotas
came to an end, and importing countries will no
longer be able to discriminate between exporters.
The Agreement on Textiles and Clothing itself no
longer exists: it was the only WTO agreement that
had self-destruction built in. The export growth
of Chinese textiles is a normal temporary
phenomenon in a process of returning to free
trade. The unreasonable arrangement and
overprotection made by the US and the European
Union in the process of integration of textiles
are the main causes of the problem.
The
original quota system distorted severely the
textile trade of the world and restricted the
exports of Chinese textiles by assigning a quota
for China far short of its capacity. Textile
integration eliminates this trade distortion. It
is normal that rapid increase of Chinese textile
exports will happen temporarily before
normalizing. The latest textile research report by
WTO shows that the increase of textile export from
China will be lower than expected after textile
integration takes full effect due to factors
involving tariff limitation and the labor cost
advantage in other developing countries.
Textile integration brings development
opportunity not only to China, but to the whole
world. China is a production power in textiles and
also a big textile-consuming country. Eighty
percent of the textiles produced in China are sold
domestically because textiles are the first
consumer goods a poor population can afford to
buy. China's market, with a population of 1.3
billion, will offer immense opportunities for
global exports of garments, textiles for home and
industrial purposes, textile raw materials such as
cotton and wool, synthetic fibers, in addition to
design services and manufacturing machineries that
are made mostly in advanced economies. After entry
into the WTO on December 11, 2001, China fulfilled
its promise ahead of schedule with the general
tariff level reduced to 10.4%. With the exception
of quotas on the import of cotton and wool, there
are no restrictive measures in the import of
textiles.
China took decisive action in
April to ease rising concern among trading
partners by hiking textile tariffs on more than 70
products by 400% effective June 1. The announced
rise sent panic through the country's textile and
garment industry. Some predicted factory closures
and job losses. The Ministry of Finance said in a
statement that tariffs would rise from 0.2 yuan
(2.4 US cents) to 1 yuan (12 cents) per unit. The
largest tariff increase would be from 0.3 yuan to
4 yuan per unit. And a new tariff of 3 yuan per
kilogram will be imposed on exports of flax yarn.
Chinese textile manufacturers said their profit
will be squeezed as they currently earn only 1-2
yuan from each shirt. Earlier protective measures
initiated by the United States had practically
shut Chinese companies producing cotton shirts out
of the US market. Some entrepreneurs predicted
that a large number of textile manufactures would
go bankrupt by August or September.
"We
are encouraged by this move that the United States
and China may be able to resolve other trade
differences with a similar sense of fairness and
moderation," said Charlie Martin, president of the
American Chamber of Commerce in China. He said
this voluntary step by Beijing demonstrated that
China was adopting a constructive approach and was
sensitive to the hardships which the removal of
quotas has brought for some American workers.
Unfortunately, the US initiated safeguard measures
against three categories of Chinese textile
products in early May; similar measures were
imposed on another four categories before the end
of May.
The textile industry in China
employs 19 million people, about the size of the
population of Australia, and jobs will be lost
because of the restrictions. As a result, analysts
predicted, about 100,000 Chinese workers in this
sector might lose their jobs. Youngor Group
Companies, China's biggest maker of men's suits
and shirts and a supplier to Marks & Spencer
Group Plc of Britain and Polo Ralph Lauren Corp of
the US, said on June 9 it was losing orders to
rivals in India. Hong Kong-based Zhongxing Cotton
Ltd sells about 200,000 tonnes of cotton to
Chinese manufacturers a year, sourcing from the
United States, West Africa and Uzbekistan.
Zhongxing also represents Cargill Cotton of the
US. Consumption of cotton "will be moderated",
Jeff Coey, director of China and Southeast Asia at
Cotton Council International, said on May 31.
Cotton Council is the international division of
the Memphis, Tennessee-based National Cotton
Council of America. Cotton prices on the New York
Board of Trade dropped 5.3% in 12 months,
according to Bloomberg data. China's cotton
imports were down 56%, in the first four months of
2005, compared with the year-earlier period,
according to customs data. An April 26 report by
the US Foreign Agricultural Service said US cotton
production this year is forecast at 5.5 million
tons, 13 per cent less than last year.
China announced days after the European
Union sought formal talks with Beijing over two
types of textile imports - flax yarn and T-shirts
- that it will abolish export tariffs on 81
categories of textile products and scrap scheduled
tariff increases on 74 types of textiles as trade
tensions with the EU and US escalated, bringing
the EU a step closer to imposing limits. The
announcement came ahead of a visit to Beijing by
US Commerce Secretary Carlos Gutierrez.
China's cost advantages are limited to
lower labor cost. There are big gaps in capital,
design and development, brand-name building and
marking between China and the other advanced
countries in the world market. Much opportunity
awaits exploration in exchange and cooperation in
textile areas between China and other countries.
Quantitative growth is not an objective China is
pursuing in textiles export. The orientation going
forward includes improvement of industrial
structure, raising added value, promotion of brand
names and improving on design and marketing.
Chinese textiles export to the US in 2004 was
valued at $9.06 billion, accounting for only 5% of
the total trade volume between the two countries.
The current dispute over textiles is a political
friction unilaterally created by the United
States, along with currency valuation and
restriction on Chinese direct investment in the
US.
The World Bank's spokesman on Asia,
Peter Stephens, said in a June 29 speech that
proposals by US and European lawmakers to impose
restrictions on low-price Chinese imports were
unfair and hypocritical. In a compromise worked
out with the EU in early June, China agreed to
limit the growth of exports in 10 categories of
textiles to Europe to between 8% and 12.5% a year
through 2007. "Trying to deal with the emergence
of China and the rise of India through antiquated
measures like tariff protection is like trying to
hold back the tide with a little wall of sand,"
Stephens said, adding that the US and EU should
engage in more dialogue with Asia. "The notion
that somehow by increasing tariffs on Chinese
textiles, jobs in textiles are going to return
magically to the US is incredible," Stephens said
at a luncheon of the Singaporean-German Chamber of
Commerce.
China also suffers from job
loss
There is a general misconception that
job losses in the United States are caused by the
growth in Chinese manufacturing. Studies have
shown that much of the job loss in the US has been
caused by structural shifts in the US economy.
There is evidence that such job loss is a design
by US policy.
Federal Reserve chairman
Alan Greenspan told Congress in public testimony
that thinking jobs are better than doing jobs. The
US will keep higher-paying jobs in financial
services, management, design, development, sales
and distribution and let the emerging economies
have the low-paying assembly line jobs in
factories owned by US companies.
Even
small business, a key component in job creation,
is increasingly taking advantage of low-cost
telecommunication and transportation to play the
wage arbitrage game through cross-border
outsourcing. When US job growth slows, the US
stock market, which measures the global
performance of listed companies, rises. US labor
unions have helplessly watched drastic drops in
membership that translate into loss of political
leverage in shaping economic policy. But now that
effects of cross-border wage arbitrage are hitting
the high-tech sector, laying off highly paid US
high-tech workers and giving their jobs to cheaper
workers overseas, the political reverberations are
louder. In this jobless recovery, these
better-educated workers have the political clout
to turn US policy toward protectionism.
Such structural shifts are also occurring
in the Chinese economy. A 2004 study by the US
Conference Board found that China has been losing
more manufacturing jobs than the United States as
productivity surges in the world's most populous
nation. China lost 15 million manufacturing jobs
between 1995 and 2002, compared with 2 million
shed in the US. This is not surprising, since
industrialization has been occurring at a faster
pace and from a lower base in underdeveloped China
than in already developed US. Yet US job losses
have led some US politicians and business leaders
to complain that jobs have been outsourced to
countries such as China where pay is lower. But
few economists have proposed ways to make trade
lift Chinese wages.
Rising productivity is
behind the loss of factory jobs everywhere in the
world, even in China. The US economy is the only
one in the world that enjoys productivity gains
without actually producing more real goods. But
worse than in the US, rising productivity has
translated even less into higher wages in China.
This is because 60% of the Chinese export sector
is financed by foreign direct investment, which
has no incentive to raise local wages, since
demand for their export products is independent of
local purchasing power.
Chinese labor
productivity grew at an annual rate of 17% between
1995 and 2002, meaning factories in the country
were producing more with less labor. But rises in
wages have been averaging below 10% annually from
an already excessively low base, discounted by an
average annual inflation rate of over 5%. The year
2001 saw a per-capita annual wage rise of 14.6%,
the number of employed workers decreased to 54.41
million and the wage sum totaled 572.18 billion
yuan, a growth of 12.2%. Average total income per
worker, including wages and welfare funds,
amounted to 11,881 yuan in 2001, a 14.1% rise over
2000, with an 18% gap from the productivity growth
rate. This means Chinese wages measured by
productivity were actually falling. Because of
widening wage disparity, both average and median
income rose at a slower rate than GDP. Twenty-six
of China's 38 major industries registered job
losses over the period surveyed, according to data
from 51,000 companies. At the same time, jobs in
China's service sector were increasing, consistent
with economic development.
This
disconnection between productivity and wages also
occurred in the United States. Between 2000 and
2004, US productivity rose 3.8% annually on
average while the median family income fell by
0.9%. During the three decades between 1975 and
2004, US productivity growth consistently outpaced
family income growth, with productivity doubling
while median family income rose only about 12%,
according to findings from the Economic Policy
Institute. In both countries, workers have not
been getting their fair share of economic growth.
Growth and job loss
These
significant empirical data validate what has been
suspected for some time in theory. The
implications are mind-boggling.
If
notwithstanding all the outsourcing from the US as
a result of cross-border wage arbitrage, the
world's fastest-growing economy is also losing
manufacturing jobs because of a faster rise in
productivity (17%) than GDP growth rate (9%), then
the world's industrial economy is going through
what its agricultural economy went through a
century ago. Overcapacity is the plague of the
modern industrial economy, as agricultural
overproduction was the plague of the agricultural
economy of an earlier age. The farm workers went
to the cities and into factories, and not a few
went to die in high-casualty wars in the 19th and
20th centuries. Where will the factory workers of
the world go in a market economy of finance
capitalism? Even war deaths have been greatly
reduced in number through new war technology. Some
have gone into the service sectors where, except
in financial services, wages are generally lower
than in factories.
Are jobs necessary
for prosperity?
Perhaps the idea of a job
as a way of generating income needs to be
re-examined in the post-industrial society.
The job is the creation of the industrial
revolution. Prior to that, under agricultural
feudalism, people had livelihoods, doing what they
excelled in and enjoyed. The job is a venue
through which impersonal labor and time are sold
for money at a rate that prevents the worker from
buying and consuming all of what he or she
produces so that the excessive production can be
turned into profit, what Marx called surplus
value. When the domestic market stagnated from
this structural imbalance of demand and supply,
goods were sold overseas to earn the profit needed
to pay for the capital goods that increased
productivity and to provide returns on capital
required to finance the capital goods. This was
the impetus behind mercantilism, which John Hobson
and Lenin observed as leading to imperialism.
The victim economies of imperialism were
misled by neo-liberals that foreign trade was the
way to reverse the flow of economic benefits by
exporting to the imperialist economies. What
policymakers in developing economies failed to
realize was that the imperialist economies had
evolved into finance capitalism in which they no
longer needed to export goods to accumulate
wealth. Because the developing economies needed
foreign direct investment to finance their export
sector, they did not receive any of the financial
benefits from historical mercantilism as the
imperialist economies once did by robbing the
wealth of their colonies by selling them
high-price manufactured goods in exchange for
cheap raw materials.
Each new
millionaire requires 100,000 job
losses
Nowadays, the export of both
manufactured products and profits from the
exporting economies is the neo-imperialism that
the developing economies did not recognize until
they were solidly hooked by dollar hegemony under
which the trade surplus they earned cannot be
invested or spent in their own local economies.
The problem is exacerbated when, in the developing
economies, capital goods and raw material are
imported, draining money away from domestic
recycling. But even if capital goods are locally
produced, their production does not require enough
labor to recirculate enough money to support mass
consumption.
One way to look at the
unemployment statistics is that in China, where
some 15,000 new millionaires have been created in
recent decades, with urban unemployment at 15
million, the creation of each millionaire requires
the loss of 100,000 jobs. The wealth of the new
millionaires came from the low wages of workers as
well as the unpaid wages of the unemployed.
Treating unemployment as paying
jobs
Raising wages is scant compensation if
unemployment in the economy keeps increasing from
structural job losses. Job creation then becomes a
priority and a policy prerequisite in a modern
economy. Government must adopt policies to create
new jobs to achieve full employment at high and
rising wages to absorb the loss of jobs from
rising productivity and use sovereign credit to
sustain consumption to obliterate overcapacity
that weakens economic growth. Charlie Chaplin's
Modern Times has finally arrived in the modern
post-industrial economy.
Perhaps the
economic definition of a job needs to be
reconsidered. What about treating involuntary
unemployment as paying jobs? The logic is
immaculate. If structural unemployment is
necessary to keep money sound and valuable, it can
be argued that a "natural rate" of unemployment to
prevent inflation is a profitable arrangement to
the economy and the unemployed should be paid for
their selfless service to society.
In
television programming, there is a contractual
concept known as "play or pay", meaning the
network will play the program and pay the producer
for it, or it can refuse to run the program but
still has to pay the producer for it. For labor
contracts, there should also be "work or pay". The
economy should either provide a job for everyone
looking for work and pay him or her wages, or keep
him or her unemployed to fight inflation but still
pay him or her wages. If farmers are paid to
reduce production, why shouldn't factory workers
be paid for being involuntarily unemployed? The
reason is that farmers historically have more
voting power than factory workers in the US
political system, which has evolved from an
agricultural economy.
Individual
sovereign credit entitlement
Or perhaps
every citizen should be born with his or her
quotient of sovereign credit as a civil-right
entitlement with which to keep the economy
humming. Why should the heirs of the privately
rich be the only ones enjoying the legacy of a
rich pedigree?
Citizens of rich nations
can also be born with inheritance from a society
of abundant national wealth. What kind of
democracy is it if the national wealth is not the
property of the people? Instead of running the
economy on consumer debt, as the US economy under
Fed chairman Alan Greenspan has been doing, why
not run it with sovereign credit channeled through
consumers that eventually returns to government as
taxes?
Marx appeared to have been outdated
in his urging that workers of the world should
unite, for they have nothing to lose but their
chains. The fact is that in the new economy of
finance capitalism, workers have to lose their
jobs to keep the world economy working. If the
numbers of workers are shrinking as the economy
expands, workers can become an endangered species
and the dictatorship of the proletariat can be a
meaningless fantasy.
In a market economy,
if income is dependent on work, and if work is
shrinking as the economy expands from rising
productivity, then income cannot possibly increase
fast enough to support the consumption needed to
eliminate overcapacity. To avoid the market
economy collapsing, ways needs to be found to
deliver basic income to the consumer independent
of employment beyond undignified welfare payments.
Next: Trade-Related Aspects
of Intellectual Property Rights (TRIPS)
Henry C K Liu
is chairman of the New York-based Liu Investment
Group.
(Copyright
2005 Asia Times Online Ltd. All rights reserved.
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