May 14, 2014


U.S. Is No. 1, China Is So Yesterday (Josef Joffe, 5/12/14, Bloomberg View)

 China's demography is a disaster. About 2015, the seemingly boundless labor pool will begin to shrink. One reason is rapid aging, which presages that China will become old before it becomes rich. By 2050, China will have lost one-third of its working-age population. Meanwhile, the U.S. will bestride the earth as the youngest industrialized nation after India.

Also in this decade, the number of China's dependents will start to soar. The U.S. curve will rise only slowly, due to high fertility and immigration, two classic sources of rejuvenation. By midcentury, one Chinese worker will have to support two dependents, a ratio worse than anywhere in the West. If ample labor is the food of growth, China is looking at starvation.

Another data set should also have given pause to the World Bank: China's cost advantage in manufacturing is almost history. Wages have risen exponentially since 2000, by an average of 19 percent annually. The figure for the U.S. was 4 percent.

As a study by Boston Consulting notes, "By around 2015, the total labor-cost savings of manufacturing many goods in China will be only 10 to 15 percent annually when actual labor content is factored in." Subtract from this margin the cost of shipping and a global supply chain. So jobs are already wandering off to cheaper locales. Today it is Vietnam; tomorrow it will be Africa. Or the jobs will come home to the U.S., nourishing the country's "re-industrialization" in tandem with plentiful cheap energy from fracking.

Finally, China's politics are wrong. Authoritarian modernization -- call it "modernitarianism" -- runs up against its built-in limits, as did the Soviet Union's. Frenzied industrialization under the knout of the party is easy, but the knowledge economy takes its cues from the markets. The watchword is "freedom" -- for entrepreneurs and capital, ideas and innovation. There is no Silicon Valley in China's future.

Look at the assets that multiply returns. For instance, ask where human capital is being generated. U.S. education is always said to be in crisis. But 17 of the world's top 20 universities are in the U.S., and 34 of the top 50. No other country produces more doctorates in science and engineering. Although 40 percent of the recipients come from abroad, two-thirds of them stay. Add triadic patents and citations in scientific journals, and it isn't even a race between China and the U.S. This serendipitous story will continue, but it comes with a warning: The U.S. has to remain open and welcoming.

Posted by at May 14, 2014 8:11 PM

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