Trade Surplus empowers China Directly

Need to dig a little deeper on the numbers and the issue. Note that buying $400M of phones from China no more enriches the Chinese government than it does enrich the U.S. government when the Chinese buy a $400M Boeing 747. And arguably much less since their corporate taxes are (near) zero, and Boeing’s are huge (and of course we tax what we want less of.. clearly we want fewer cigarettes, Boeings, and >200k job-making-jobs). The fact that they loan us our own dollars back from their savings (banks, deposits owned by businesses and individuals) does not necessarily accrue (either $ or power) to their government, especially since the state run enterprises are on the decline (mostly in the hinterlands, dealing with a restive rural population), and our (state-owned/influenced/regulated) enterprises are on the increase (esp. in areas critical to a free economy). China is now much less controlling than the U.S. in many areas of their market. And they have not created the artificial barriers we have separating the government, academy and business – which can lead not only to great corruption, but great success. They are in the late 1800s – early 1900 period of the U.S.

We need to do a better job at understanding and explaining these issues than assuming some elite in Beijing is in charge (v. the powerful families in the provinces and the successful entrepreneurs) and all this power must be accruing to them. It’s not. They’ve unleashed the engine (of the market) and know they can’t take their foot off the accelerator (without revolt).

In both cases we’re going to end up competing on free-intellect and cost-of-overhead. We need to get our aggregate government bill down to under 5% of the economy and return those (clearly very bright and educated people because they are so much better compensated than the private sector employee) to the workforce that builds things – that create an above-the-line return rather than being a below-the-line cost (a dead-weight loss if/when we have competitors that can match /beat us with that much less – Intel faced a hard choice recently that shouldn’t have even been close – locate its next generation fab here or move (them all) to China. They made a political decision, and did not follow the advice of their technical and business advisors.

Our technical workforce is in decline (mostly due failures to educate the brightest in even our best high schools), we’ve made immigration of skilled people hard, and we tax and litigate our great companies to death – all of our vectors point to a worse future, and all of China’s point to better. A sad state of affairs. And one that can only be fixed by disestablishing the federal central government and complex in terms of all things domestic and returning both authority and responsibility for all these affairs to municipalities of several hundred thousand citizens. It’s just too easy – we’re guaranteed that 1,000 gods in central government will be seduced by their ability to spend $10B a day directly, and dictate (thru regulation, litigation and the courts) how we spend an addition $10B a day. No saint (or god-given tablets, or contract or constitution) can stand uncorrupted against those flows.

The answer is radical disaggregation, distribution, similar to what happened to Fortune 500 corporations in the 70-80s when information technology made headquarters staffs largely redundant, and boards split the savings with the executive office to motivate the shrink and loss of empire – to be able to survive against the small, focused and nimble competitors on the rise (and the arterial sclerosis of the command-and-control Carnegie and Sloan industrial-age organization – an era when information was scarce and very expensive). Of course, some responded by conspiring with the regulators to raise barriers to entry so no small company could threaten. Be it big pharma, and now the high-tech industry (thanks to Sarbanes Oxley), we’ll not again see an Apple or Microsoft grow from nothing to knock off the incumbents. The loser? Us.

This isn’t to say China doesn’t have its challenges. Just that we should get our own house in order first and be appropriately humble. Remember that technical leadership by the U.S. is not the natural state of affairs. And we should not care, given well-functioning markets.

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