Can the US derail 2025?

Status
Not open for further replies.

Max Demian

Junior Member
Registered Member
@Gatekeeper

Well I just wish you posted a link to that story to help me understand what it was actually about.

But now that you explicitly made yourself clear, I take my accusation back.
 

ZeEa5KPul

Colonel
Registered Member
Not sure if this should go here exactly. This forum would really benefit from a geopolitics/economics section, especially given the dynamics of the China-US confrontation.

The role of markets in “Made in China 2025”


Western observers often charge that China has backslid on market reforms; invariably, these “reforms” are never clearly defined. One gleans the impression that the only reform worthy of the name is the wholesale dismantling of the Chinese public sector, with its assets preferably pawned to Western investors at fire-sale prices. Ever present is the quasi-religious conviction that only private entrepreneurs have the divinely-gifted insight to receive and act on market incentives. Let us put aside the immediately obvious fact that a lot of the work done by the public sector is to provide public utilities, with profitability a secondary concern – public utilities without which our blessed entrepreneurs could not make a profit – and examine the question of ownership.

It is taken as axiomatic that only private enterprises are capable of acting in a market-rational manner, and as with all axioms its purveyors present it without evidence and expect it to be accepted without question. Yet we must raise the question here: why should this be accepted? Believers would say that private companies are under competitive pressure and state-owned enterprises are not. The facts put the lie to this assertion: certainly several examples of private monopolies and oligopolies immediately spring to the reader’s mind. Another claim is that SOEs, being arms of the government, are coddled by their government owners through tax incentives, subsidies, and preferable loan agreements. But private monopolies also invariably enjoy these very benefits!

The truth of the matter is that the ownership structure of a company has almost no bearing on its behaviour. The explanatory variable is size, not ownership. The typical Western prescription that ownership reform leads to prosperity is fatally flawed by a (perhaps deliberate) misunderstanding of a crucial property of markets: markets entrench technological advantage.

Consider two countries A and B. Country A has an advanced industrial and technologically innovative economy, while country B has a backward, agrarian and labour-intensive economy. Orthodox economic doctrines teach us that country A should export to B what it needs in technology, while B should export textiles, raw materials, and other goods of this sort to A. The conventional analysis usually ends there, but we shall look deeper. What is country A spending its income on? Unfailingly, on improving its technology. B? Without question, a healthy chunk of it is siphoned by a corrupt elite more interested in the luxuries A produces than in the well-being of their fellow citizens, but the truth is that the vast majority of it is spent doing what B does best: extracting more raw materials and making more low-value goods for consumption by A. None of it is spent developing B’s technology because B has no technology of its own to develop. With every transaction, A’s technological lead grows wider and wider fuelled by B’s wealth. This is the secret of the middle-income trap: one falls into it by making the “rational” economic decisions!

Whether by accident or design, the West – specifically the Anglo-American cohort – has fashioned a remarkable ideological bludgeon in the doctrine of “comparative advantage”. Even the theory’s canonical example: British cotton (actually, cotton produced by African slaves and Indian coolies) and Portuguese wine serves also as its perfect refutation. Cotton lies on the path to industrialization, wine does not – which is why you’re reading this in English, not Portuguese.

This is not to be read as an indictment of markets, but a call to understand and harness them appropriately. The examples discussed should impress upon the reader the crucial role technology and productivity play in markets. To succeed in the task of developing China the government must pursue two broad goals:
  1. Incentivize investment and activity in productivity-enhancing sectors (those outlined in the “Made in China 2025” plan and others that are not) and disincentivize money flows into non-productive, indeed parasitic sectors like e-commerce that compete for the limited highly-skilled talent pool. This should be done by manipulating pricing structure through appropriate taxes and subsidies.

    Given the broad scope for action available to the Chinese government, it should also marshal its considerable capabilities for administrative and legal action. The recent introduction of an “unreliable entities list” could provide a basis for taxing Chinese companies that source from said entities, and the invalidation of whatever IP rights these entities enjoy in China. This latter could prove a notable boon to Chinese research efforts.

    Furthermore, China can simply instruct – if not compel – notable Chinese investors and corporations to invest in critical fields.

  2. While the previous actions can ensure that the national treasure is spent efficiently in pursuing development, the most important task is augmenting that treasure. China must improve the level of urbanization and education of its population so that it can have an ever-expanding pool of talent to draw upon. Secondarily, it should look to easing restrictions on immigration by skilled foreigners so their talents can be put in China’s service.
These are very exciting times. The policies advocated above would verge on the impossible if these were ordinary times, when “pro-market reformers” held sway and blindly led China on a road to perdition. It is time for the pro-market reformers to go gentle into that good night and make way for the pro-China reformers.
 
Last edited:

AndrewS

Brigadier
Registered Member
Generally agree.

But ecommerce is a bad example to use as a parasitic industry.

E-commerce connects producers to individual consumers.

That results in huge productivity gains because parasitic middlemen (taking a 25% cut) are removed and helps ensure that what is produced is sold. Otherwise you end up with larger inventories of goods

Also, it's only in the USA where the private sector is lauded as always better than the government and that there is no such thing as market failure.

In Europe and elsewhere, governments can be a lot more involved Eg. In the UK, the main TV/radio broadcaster is government owned, and the French/German governments have stakes in so many commercial companies. In Korea, the steel industry is owned by the government etc etc



Not sure if this should go here exactly. This forum would really benefit from a geopolitics/economics section, especially given the dynamics of the China-US confrontation.

The role of markets in “Made in China 2025”


Western observers often charge that China has backslid on market reforms; invariably, these “reforms” are never clearly defined. One gleans the impression that the only reform worthy of the name is the wholesale dismantling of the Chinese public sector, with its assets preferably pawned to Western investors at fire-sale prices. Ever present is the quasi-religious conviction that only private entrepreneurs have the divinely-gifted insight to receive and act on market incentives. Let us put aside the immediately obvious fact that a lot of the work done by the public sector is to provide public utilities, with profitability a secondary concern – public utilities without which our blessed entrepreneurs could not make a profit – and examine the question of ownership.

It is taken as axiomatic that only private enterprises are capable of acting in a market-rational manner, and as with all axioms its purveyors present it without evidence and expect it to be accepted without question. Yet we must raise the question here: why should this be accepted? Believers would say that private companies are under competitive pressure and state-owned enterprises are not. The facts put the lie to this assertion: certainly several examples of private monopolies and oligopolies immediately spring to the reader’s mind. Another claim is that SOEs, being arms of the government, are coddled by their government owners through tax incentives, subsidies, and preferable loan agreements. But private monopolies also invariably enjoy these very benefits!

The truth of the matter is that the ownership structure of a company has almost no bearing on its behaviour. The explanatory variable is size, not ownership. The typical Western prescription that ownership reform leads to prosperity is fatally flawed by a (perhaps deliberate) misunderstanding of a crucial property of markets: markets entrench technological advantage.

Consider two countries A and B. Country A has an advanced industrial and technologically innovative economy, while country B has a backward, agrarian and labour-intensive economy. Orthodox economic doctrines teach us that country A should export to B what it needs in technology, while B should export textiles, raw materials, and other goods of this sort to A. The conventional analysis usually ends there, but we shall look deeper. What is country A spending its income on? Unfailingly, on improving its technology. B? Without question, a healthy chunk of it is siphoned by a corrupt elite more interested in the luxuries A produces than in the well-being of their fellow citizens, but the truth is that the vast majority of it is spent doing what B does best: extracting more raw materials and making more low-value goods for consumption by A. None of it is spent developing B’s technology because B has no technology of its own to develop. With every transaction, A’s technological lead grows wider and wider fuelled by B’s wealth. This is the secret of the middle-income trap: one falls into it by making the “rational” economic decisions!

Whether by accident or design, the West – specifically the Anglo-American cohort – has fashioned a remarkable ideological bludgeon in the doctrine of “comparative advantage”. Even the theory’s canonical example: British cotton (actually, cotton produced by African slaves and Indian coolies) and Portuguese wine serves also as its perfect refutation. Cotton lies on the path to industrialization, wine does not – which is why you’re reading this in English, not Portuguese.

This is not to be read as an indictment of markets, but a call to understand and harness them appropriately. The examples discussed should impress upon the reader the crucial role technology and productivity play in markets. To succeed in the task of developing China the government must pursue two broad goals:
  1. Incentivize investment and activity in productivity-enhancing sectors (those outlined in the “Made in China 2025” plan and others that are not) and disincentivize money flows into non-productive, indeed parasitic sectors like e-commerce that compete for the limited highly-skilled talent pool. This should be done by manipulating pricing structure through appropriate taxes and subsidies.

    Given the broad scope for action available to the Chinese government, it should also marshal its considerable capabilities for administrative and legal action. The recent introduction of an “unreliable entities list” could provide a basis for taxing Chinese companies that source from said entities, and the invalidation of whatever IP rights these entities enjoy in China. This latter could prove a notable boon to Chinese research efforts.

    Furthermore, China can simply instruct – if not compel – notable Chinese investors and corporations to invest in critical fields.

  2. While the previous actions can ensure that the national treasure is spent efficiently in pursuing development, the most important task is augmenting that treasure. China must improve the level of urbanization and education of its population so that it can have an ever-expanding pool of talent to draw upon. Secondarily, it should look to easing restrictions on immigration by skilled foreigners so their talents can be put in China’s service.
These are very exciting times. The policies advocated above would verge on the impossible if these were ordinary times, when “pro-market reformers” held sway and blindly led China on a road to perdition. It is time for the pro-market reformers to go gentle into that good night and make way for the pro-China reformers.
 

zgx09t

Junior Member
Registered Member
China already played that card once before, in 2010. It hadn't worked back then and it has even less of a chance of working this time around.

As expected, NDRC held meetings last few days to draw up plans to have rare earths mining and productions centralized. Xi Jinping didn't show up there without having a plan in mind. Once all aspects of mining and processing centralized and controlled, rare earths export flows can be turned on and off effectively at will, no more smugglers. SecCom Ross is voicing concerns about managing rare earths supplies once that happens. So let's see.
 

reservior dogs

Junior Member
Registered Member
Not sure if this should go here exactly. This forum would really benefit from a geopolitics/economics section, especially given the dynamics of the China-US confrontation.

The role of markets in “Made in China 2025”


Western observers often charge that China has backslid on market reforms; invariably, these “reforms” are never clearly defined. One gleans the impression that the only reform worthy of the name is the wholesale dismantling of the Chinese public sector, with its assets preferably pawned to Western investors at fire-sale prices. Ever present is the quasi-religious conviction that only private entrepreneurs have the divinely-gifted insight to receive and act on market incentives. Let us put aside the immediately obvious fact that a lot of the work done by the public sector is to provide public utilities, with profitability a secondary concern – public utilities without which our blessed entrepreneurs could not make a profit – and examine the question of ownership.

...
These are very exciting times. The policies advocated above would verge on the impossible if these were ordinary times, when “pro-market reformers” held sway and blindly led China on a road to perdition. It is time for the pro-market reformers to go gentle into that good night and make way for the pro-China reformers.

yes, there are examples of state own enterprises which does well. I think the biggest factors that keep a company great are competition, accountability and proper incentivization. These seems to exist in the Chinese state enterprises. Indeed, one issue with private ownership in the U.S. is that CEOs are incentivized to boost their stock in the short term. In the case of GE, this led to the company becoming a shadow of its former self.
 

reservior dogs

Junior Member
Registered Member
I partially agree about the bit on "market entrenched advantages". While the West set up the system to benefit ourselves, it is up to the upstart country to break into the club. Nobody gives you anything for free. Different countries performed differently when faced with this condition. Just compare Japan to the Philippines.
 
yes, there are examples of state own enterprises which does well. I think the biggest factors that keep a company great are competition, accountability and proper incentivization. These seems to exist in the Chinese state enterprises. Indeed, one issue with private ownership in the U.S. is that CEOs are incentivized to boost their stock in the short term. In the case of GE, this led to the company becoming a shadow of its former self.

The key is to provide growth opportunities and upward career tracks and bonuses to the correct people within the organization, by basing this based on performance and ability, rather than connection, politics, or nepotism. The difficulty is that often the metrics used to evaluate performance and ability is never purely objective, and involves a degree of subjectivity. This might be somewhat more of an issue with all Chinese firms, due to the importance of guangxi. On the other hand, this is not a problem unique to Chinese forms. Within corporate ladders in the US, even innovative technology companies such as the FAANG companies, interpersonal relationships and internal organizational politics are the main determinants in promotions past a certain point.
 
Status
Not open for further replies.
Top