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The real economic lesson China could teach us

Robert Reich, professor of public policy | January 20, 2011

Highlighting the summit between Chinese President Hu Jintao and President Obama is China’s agreement to buy $45 billion of American exports. The President says this will create more American jobs. That’s not exactly right. It will create more profits for American companies but relatively few new jobs.

Nearly half of the deal is for two hundred Boeing aircraft whose parts come from all over the world. The rest involves agricultural commodities that don’t require much U.S. labor because American agribusiness is highly automated, and chemical and high-tech goods that are even less labor-intensive.

General Electric and other companies are signing up for deals with China involving energy and aviation manufacturing. But much of this will be done in China. GE’s joint venture with Aviation Industries of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes) will be based in Shanghai.

Here’s the real story. China has a national economic strategy designed to make it, and its people, the economic powerhouse of the future. They’re intent on learning as much as they can from us and then going beyond us (as they already are in solar and electric-battery technologies). They’re pouring money into basic research and education at all levels. In the last 12 years they’ve built twenty universities, each designed to be the equivalent of MIT.

Their goal is to make China Number one in power and prestige, and in high-wage jobs.

The United States doesn’t have a national economic strategy. Instead, we have global corporations that happen to be headquartered here. Their goal is to maximize profits, wherever they can make the most money. They’ll make things in America for export to China when that’s most profitable; they’ll make it in China and give the Chinese their know-how when that’s the best way to boost the bottom line. They’ll utilize research and development wherever around the world it will deliver the biggest bang for the dollar.

Meanwhile, Republicans and deficit hawks are cutting publicly-supported R&D. And cash-starved states are cutting K-12 education, and slashing the budgets of their great public research universities, such as the one I teach at.

No contest.

And no hyped-up trade deals are going to change this fundamental imbalance.

Some say all we need to do is put our currencies in better balance. But even if the Chinese upped the value of the yuan and the US (courtesy of the Fed) reduced the value of the dollar – so everything they bought from us was cheaper and everything we bought from them, far more expensive – they’d still win. We’d have more jobs than now because our exports would be more attractive in world markets, but those jobs would summon fewer goods from around the world. In other words, we’d be poorer.

Let’s get real. We’re losing ground. The U.S. labor force is now smaller than it was before the Great Recession began and most American families are worse off. December’s unemployment rate dropped to 9.4 percent from 9.8 percent but almost half the improvement was due to 260,000 people dropping out of the labor force.

Average hourly wages grew by three cents in December; weekly wages, by $1.02. And almost all the gains in income occurred at the top. The major assets of rich Americans are financial – whose values have increased as corporate profits have grown. The major assets of the middle-class asset are their homes, whose values continue to drop.

The President now says the answer is to help American business. “We can’t succeed unless American businesses succeed,” he said recently. “And I’m going to do everything I can to promote their ability to grow and prosper.”

But the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans.

Republicans say the answer is to reduce the size and scope of government. But without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn.

China is eating our lunch. Why? It has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for shareholders.

Cross-posted from Robert Reich’s blog.

Comments to “The real economic lesson China could teach us

  1. What the US really needs now is not pointing fingers all the time, but constructive solutions and joint actions to achieve them.

  2. China has it right. They enslave their workers by the tip of a gun and the left loves them. Now if we could only get the left to work for peanuts we’d be much more prosperous too!

  3. Well we won WWII so,America was bankrupt the only out was for the victors to sell the vanquished the things to rebuild.Smart by default,after everyone caught up we saw the end of our artificial excellence.America what a fraud!anyone who would play with America today plays at their own risk.

  4. Some great points made there Robert, especially when it comes to China having a national economic strategy. However, it comes at the cost of democracy and some of the freedoms that you and I take for granted. For me this cost is too great.


  5. I think that all Universities should get together and charge students from abroad double the cost for their education this way the United States can get something out of the deal. Universities have offered overseas students scholarships and discounts for years and now they’re off to China with a spanking brand new PHD from major schools like this one. If we can’t beat them in the import export game then maybe we can retribution from what our government does best , TAX!


  6. The Unknown was right. Constant fight and endless arguments between the two parties have consumed too much energy and time of a highly polarized government. It’s time for the United States to UNITE together.

  7. “In the last 12 years they’ve built twenty universities, each designed to be the equivalent of MIT.”
    Come on, far far far from that good. Chinese colleges suck… why so many Americans just idealize the situation in China…

    • We shouldn’t be looking at China, we knew how to do the right things in the past, we were the greatest nation in history after winning WWII, but our leaders got fat, dumb and happy from avarice and have forgotten how to make the right things happen for too many decades now.

      What we should be focusing on, and doing something about fixing today are our failures to produce jobs for all those ready, willing and able to contribute to the wealth of America, plus the fact that our federal and state governments are totally dysfunctional political disasters caused by both parties.

      A root cause of these disasters is the fact that American universities have failed to keep up with the challenges of change, having become Ivory Towers isolated from the needs of the American people that they have marginalized.

  8. We said we need more doctors but our medical school doesn’t accept more students.Same for people want higher education but no school for them..

    • those are the words of Pogo
      a newspaper comic strip
      during truman’s administration.
      or was it mammy yokum
      from another comic strip
      Lil’ Abner of the same era
      i wonder if the Burlingame Library
      hung on to their anthologies.
      cartoons were a stock venture or
      instrument of political dissent
      and funny , too

  9. We Must Do Better.

    We are more than capable of teaching ourselves, relearning and doing what made America great in the first place.

    For at least 30 years we have been going through the Ages of Avarice, Decline and Fall due to continuous failures to make the right things happen by every single one of our political, economic and social institutions and all of our leaders.

    We must first end the culture of complaining, failure, denial and “Us” blaming “Them” that all of our leaders practice or enable today, leading us on a continuous path of self-destruction.

  10. Do you know of any way to overcome corporatocracy other than for consumers themselves to just buy from local businesses instead of big business (although that would probably fail too because it would just push corporatocracy towards grabbing more profit)?

  11. Try to think you and every one else outside of US (including Chinese) is just a member of the earth community. You should not think, even in a fraction of a second, you are born in the US should be better than others. Get out more and travel more and be a good member on this planet. Border and country on earth is people with narrow minded.

  12. You metioned “the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans,” but in China, the prosperity of the country has few connected from the commom people. Recently, the price of the living good had grown sharply, which made the mojority of Chinese heavy pressure. Chinese gov. always focus less on the living of its people.

  13. Prof. Reich
    Couldn’t agree more. And what drives me crazy is the lack of articulation of this sad eality by anyone in the Obama administration or in the progressive movement. It’s really a farce. The “socialist” behemoth China is “eating our lunch and dinner” as the liberals cower in the corner and talk about the virtues of global capitalism with none of the engineering that has made China such a force to be reckoned with.

    And the republicans sound like a bunch of cheap hookers who’ll do or say anything to stay employed.
    Keep up the good fight!

    Jeff Lengyel
    Pol Sci grad 70′

  14. Is not Obama you man running the country, and some of Cal’s faculty? Do they solve things, or just go with the flow? How many decades is Cal and liberals going to blame republicans when liberals are the same thing? You can call or email the White House and say I have a solution. If they do not listen, you can blog that they are more evil than republicans. No?

    All I read on the daily Cal blog in regards to economics is negativity, bad news, blame everyone else when a liberal or actually a communist socialist is in the WH, and the economy continues to lag and snail’s pace.

    I just noticed oil and food prices rising, hurting the very poor and large corporations getting rich. Will this trend end or will it see many US families leave for Europe or other countries and abandon this stale peice of rubbish administration?

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