Friday, September 20, 2013

Factories or Office Buildings?

People say that China has a bubble and will collapse, but after the collapse, which would affect the West just as bad, who is more poised to come back? Those with the factories or those with hollowed-out office buildings? The East will surpass us while we busy ourselves trying to be musicians, foodies, and Vine celebrities. I don’t wish bad on the West, but I can’t think of a people that deserves more to fall.

You mean the legions of HR and social workers all with their masters degrees AREN"T going to pay off our national debt?  Heh, shows what happens when microbiologists don't study Keynesian economics!


CelticTigerDad said...

Up until the last couple of years I also thought China would bury us along with the rest of the West. I doubt that now.

1. China will get old before it becomes middle class. The demographics decree this. It seems to me that they remain highly dependent on the dwindling middle classes of other countries to buy the goods they produce. It's too late for them to build a middle class of their own that can support their domestic production in the future. China doesn't even need a one-child policy anymore. The women of all classes there are just not reproducing at replacement level, and their birth rates will plummet as elsewhere on the planet.

2. China has yet to develop major domestic companies with important branding. While Japan and Germany emerged out of their fascist eras with Mitsubishi, Yamaha, Toshiba, Hitachi, Daimler, Krupp, Siemens, Bayer, etc., etc., China's creative workforce works for overseas companies. How many purely Chinese big name companies can you think of? Lenovo comes to mind... Someone like Japan's Soichiro Honda who bootstrapped up a motorcycle and car company is highly unusual (impossible?) in China outside Hong Kong. China has no legacy of large domestically created companies because it was obviously contrary to communism, and it appears their traditions won't make this situation change much.

China just got started too late. Forty million Chinese still live in yaodongs -- cave dwellings of the north. They spent too much time messing around with the dopey European philosophy called Communism while Japan, W. Germany and S. Korea were building solid middle classes with lots of young, fecund citizens to build great economies. I don't think China will get to go through the same cycle.

Two good books to read on world demographics and the coming aging with population declines and what it means for the world economy are:

Population Decline and the Remaking of Great Power Politics, edited by Yoshihara and Sylva

What To Expect When Nobody's Expecting, by Jonathan Last

Just some guy said...

I remember when everyone was talking about how the Japanese were going to own the world and that didn't work out so well. I wouldn't be so quick to bet on China, there are lots of problems there. Corruption, pollution, misallocation of resources due to a top down central planning government, lack of water. That doesn't even touch on ethnic tensions. There are groups in China that hate each other so much they make Yugoslavia look like a happy family. Then there is the aging work force. They haven't had an innovation there since they invented the decimal system in math. Man this is turning into a rant, now none of these problems are insurmountable but a Confusian society lead by a communist government might not have the flexibility needed to overcome these sorts of problems in a world of hundred + dollar oil.

Captain Capitalism said...

I'm sorry, still have to go with Roosh.

It isn't "innovators" or "creators" that will matter in a collapse as much as

who has factories

who has mechanical know how

and who can turn on the freaking lights.

All of the US's liberal arts majors couldn't make a roll of toilet paper if they tried.

Anonymous said...

Just some guy...

I wouldn't over-stress over the ethnic tensions. The 57 ethnic minorities in China only make for ~1% of the population. Sure, each one wants "autonomy", and are prepared to be vocal about it. The former Soviet Union and Yugoslavia collapsed into chaos and civil war when far smaller populations decided they couldn't live together. Given the size of China, these precedents make the leaders nervous.

Behind the great economic miracle lies a very old fear: that an orderly society will disintegrate into turmoil. Like the White Lotus Rebellion (16mil dead), and the Taiping Rebellion (20mil dead). Every year there are tens of thousands of 'protests' over social, political and economic issues. Every one of them 'could' be the initial spark in a new wave of turmoil. In a historical context, all sparks must be extinguished before they ignite.

Corruption is a big problem in china. big problem. the kind of problem that could lead the system to reform or collapse. since the mid 90s, $120b has 'migrated' out of china with 18,000 'missing' officials. if you don't realise the huge potential for venality in a highly centralised bureaucratic system, you have no imagination. If there's no political opposition or means of accountability, what's to stop someone with a position of power from exploiting that position for personal gain. And each time someone games/perverts the system, someone gets hurt. hurt people get unhappy. unhappy people who can't really get recourse are incentivised to vent, and protest.

China's got structural problems that make the Gordian knot look easy. And not even the largest industrialization effort crammed into 30 years has done anything to ameliorate. rather, it may have exacerbated many of the problems.

Herb Nowell said...

Cap, I would point out one issue with this assumption:

The US still has factories especially in durable goods. What has declined are consumer goods and manufacturing employment with labor costs driving automation.

Is our mix optimal for a post collapse world? No, but I suspect it's more balanced than China, especially if you consider extraction. Energy alone is booming in the US most importantly in the manufacturing critical natural gas sector.

Assuming the collapse puts an end to stupidity like HR and much environmental regs the US is at least in as good a shape as China to survive it.

CelticTigerDad said...

But Captain, factories can only exist if there are people around who can buy the stuff that gets made in them. China seems systemically unable to produce a needed middle class, and the middle classes around the world that it sells to are growing old or going broke.

That doesn't mean that China is not a threat. As its population grows old and remains largely poor, a huge frustration may well set in. Traditional xenophobia, a wrong-headed view that capital value is based on the need for natural resources or labor, and an unbalanced ratio of un-marriageable loner men to women may well cause China to explode out of its borders.

Never mind America, if I were a SE Asian, Japanese, Australian, or a New Zealander, I'd want my country to nuke-up really quick.

(Before somebody air-drops in and says I have racist feelings about Chinese or Asians in general, I'd like to give a preemptive shut-up. I love east Asia, both the cultures and the people. I lived in east Asia, and my wife is Asian, and I never, ever, want to go to Europe again. Europeans smell bad, that may be why my ancestors left.)

Dan Lavatan said...

The actual factory real-estate is one step above worthless. If it came down to it, we have enough abandoned factory real-estate in Detroit alone to employ, well, the population of Detroit.

The capital equipment in the factories can be moved if the owner wants it moved, and it sometimes is. Assuming BoA wanted to lend money to a US firm to buy some machine tools, they can be set up in the US quite quickly.

The decline in factory employment is due to the wage differential and automation. If China's wages equal those of the US the US will be fine. Liberal arts degrees won't help people much, but factory work isn't rocket science and if they want to work they can.

Anonymous said...

The modern view is that offices are essential. So let me tell you a tale of buildings. Let's look at the old Holloway School, in St. John's. The principal's office, with a cubbyhole for a secretary, who was part-time. The rest? Classrooms, nothing but classrooms. Not even a teachers' common room. Another building - the old National Research Council building in Ottawa - labs, workshops, a couple of offices on the third floor for the president. The scientific staff are stuck in here and there. There is a good-sized cafeteria. The new National Research Council building here in St. John's, a couple of ship towing tanks one for ice-covered water - the first thing that is built is the administration building. I stand patiently while the director tells me that he can't afford to hire any scientific staff, while a big power mower cuts the grass outside the window. I think, that I and two others started a business on a few thousand dollars and cleverness with available grants; we never would pay the money for a secretary; when our 8088 became too obsolete we programmed it to drive a milling machine and thus obtained a numerically controlled machine tool for about 1/3 of the going price (the milling machine itself came from China). The company never was very large but it is still going after 28 years and supports a few people.

Apart from office buildings it is somehow thought necessary to hire women - scores of women - useless women. That placates government, because these women vote strict pocketbook. Never mind your fancy academic feminists - it is these bloody secretaries, as most of them are called - with their nice cute furniture etc. - that are the lice sucking the blood out of the economy. One lunchtime recently I looked out and saw all of these lice/secretaries congregated; and then they filed back in to their "work". And with the stink of their perfume comes the usual - "sensitivity", "diversity", compulsory politeness - nice-looking curtains and political correctness.

It's enough to make me take up sharia law.

Remo said...

I live and work in China. There are huge factories churning out stuff night and day with armies of male workers living on site. This machine is desperate to work and work it does. Yes... when the money of West becomes worthless there will be a major contraction. I have no idea how it will be handled here but I do know that everyone who is working will continue to want to do so.

Will the stuff go to the Middle East in exchange for oil rather than going to be exchanged for dollars to buy that oil (which is what happens now). Dunno. If the yuan strengthens and some combination of petro-Russia rubles and Chinese Yuan take over it will be interesting but it will completely cut out the west.

One thing is certain - when the dollar goes away as the worlds reserve currency people will *still* want oil and they'll still want stuff. China doesn't have oil but it does have stuff - lots of it - to sell. Venezuela can't make it (but they have oil), the middle east can't make it (but they have oil) and it's the same with the rest of the world. China is set to be the worlds factory because it already is. The dollar shock will disrupt this but it won't destroy it. The challenge will be one of profitability in the wake of a strong Yuan and collapsing dollar whereas in the U.S. the problem will be burning cities chock full of spirited diversity rioting because its no longer free even if yo' swipe yo' EBT.

Cogitans Iuvenis said...

The wealthy of a nation are always a canary in the coalmine.