Friday, April 22, 2005

Living With the Dragon

this episode:

Will There Be A Final Conflict Between the West and The Communists?


Can We All Just Get Along?

Years ago I began a mild obsession (if there can be such a thing) with China. I have yellowing clips from local newspapers of letters to the editor that I had written warning of the threat China will one day pose to America and the West. That day, I fear, will soon be upon us. The real question is one of degree. Will the Chinese Empire simply compete with (and crush) America and the West economically, or will there be a shooting war?

Realistically, either scenario will be bad for America. No one wants a shooting war. I have no doubt that our sophisticated military machine would crush China in an all out war, but for Heaven's sake we don't want any part of that. Economically we can still hold our own against the burgeoning Chinese machine by being smart and flexible. I fear that we will be neither - the signs do not look good.

American businesses might be the most dynamic and innovative entities the world has ever seen but the flat out greed will be its undoing. In recent article published on the Internet site Allen Cheng points to the real reason America is in trouble:

[Chinese Premier Zhu Rongji] "Zhu was visiting the US and he needed a new pair of running shoes,” says Brahm, the author of the recent biography on the premier, Zhu Rongji and the Transformation of Modern China. “He sent an aide to go buy him a pair of Nikes. The pair of running shoes was ‘Made in China,’ but came with a price tag of $130. Zhu was surprised it was so expensive. He asked the aide to check the freight-on-board price of the pair of shoes when it left China’s ports. The aide came back and said ‘$5.’ Zhu was shocked. ‘You mean to say our manufacturers made only $5?’ the premier asked with incredulity. What the premier told me sums up the entire Sino-US relations for you. Much of the rest of that $130 price tag was pure profit for Nike and the American retailers.” In other words, good Sino-US relations are a winning combination, albeit with America winning much more handsomely than China.

I personally find that kind of greed breathtaking. I am as much a free-market conservative as Bill Buckley himself, but this kind of gouging makes American business look small not smart. Speaking of the king of all conservatives, William Buckley recently wrote a damning screed against American executives taking extreme personal compensation packages even after their respective companies posted billion dollar losses. There was the recent 60 Minutes piece on outsourcing healthcare to southeat Asia and India. It seems that $100,000 bypass surgeries can be performed in Thailand by American trained doctors for $12,000. They can do it so much cheaper because 1) doctors are paid less 2) hospital executives are paid less 3) malpractice insurance companies are paid less (therefore lawyers) and finally 4) everything costs less. The real lesson here is that we Americans are being ripped off at every turn. I find nothing wrong with making money and profiting from doing good business, but greed is a killer.

What does this have to do with China? Everything. If we don't find a way to tame the greed monster we will not stand a chance against a nation of 1.6 billion people literally dying for tiny portion of our fat and comfortable middle class life. We need to be smarter than them. We have to offer more flexibility, quality and value with our products and services. Allen Cheng points out that when Japan and other southeast Asian economies took a plunge in the 90's American business wooed investors with the promise of the "New Economy" and the "dotcom" explosion only to find that it was a cruel joke that made a few executives (ie:'s Mark Cuban, AOL's Steve Case) billionaires while pulling away investment money from legitimate businesses. These international investors have fled to the open arms of the Chinese.

To keep things in perspective, currently the American manufacturing sector alone is larger than the entire Chinese economy. That said, the trajectory of the two are moving in opposite directions. We still have the largest most dynamic economy on the planet, but all the signs are pointing to and end to that lofty, lonely perch. The United States has been preaching to the rest of the world that the key to a stable and resilient economy is the tranparency of our financial systems. Publically held companies are required to report on an anual basis to their share holders and elected officials must face the public at election time to ensure that this so called transparency exists. Yet, the final decade of the twentieth century left us with massive corporate scandals and brokerage firms feathering their own nests at the expense of investors. This is transparency? Serious and concrete steps have been taken by the current adminstration and the Congress to correct these gross misapproprations, but greed lives on.

Corruption kills economies and governments. The Chinese government is a communist one and all communists are corrupt. But are we really any better? If we are to continue to be a safe and profitable place to do business and attract investors in this global economy, we will have to be morally superior to the Chinese. Without morals they will crush us. No one does immorality better than a communist.

So, will there be a shooting war? That will be up to the Chinese. If they try to take Taiwan by force then we could see military conflict... A frightening thought. Yet, even Taipei is busy setting up deals with the mainland that make a hostile takover less likely. But as I said, Beijing is a communist government, and therefore conflict is never completely out of the picture. Still, there is hope that a rising middle class and a fledgling Christian movement could persuade the Chinese dragon to quietly take its place in the modern world. Okay, I admit, I'm a dreamer...



TJ Willms said...

Dreaming isn't yet a crime in America, it may soon be here in Minnesota but not quite yet.

My own employer recently stepped into the mouth of the dragon and is finding an unpleasant odor in there. Under communist laws, they bought into a Chinese manufacturing firm @ 49% ownership, they cannot hold a majority/controlling interest. We (the employees) were told this move would have little effect on the business that we do and that they the Chinese would have to manufacture our company’s products (using tooling we supplied) to our high standards.

Last week we began photographing our tooling to demonstrate to this Chinese manufacturer how they should allow us to build fixtures and tools for them as suggested in our agreement. SUGGESTED!!!

A prototype of one of their products arrived last month from Shanghai and the corporate execs. were positively giddy looking at the cost analysis on the unit but when they looked at the cobbled together monument to cheep labor sitting on our factory floor the wind left their sails rather quickly. Now they are desperate to insinuate some of our “high standards” into their own products, manufactured in China before our company label is slapped on.

I know that their US employees view the executives as bald-faced liars. Their Chinese counterparts must see them as willing greedy dupes. American businessmen and women need to look beyond the cost/ benefit analysis spreadsheet and look at their business as a part of the larger scope of the future economy.