The Real Economic Lesson China Could Teach Us

hu obama pokerHighlighting Wednesday’s 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.”

Robert ReichBut 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.

Robert Reich

Republished with permission from Robert Reich’s Blog.


  1. pigdog67 says

    Robert a wonderful summary. I am amazed how either clueless or treasonous both Bush and Obama have been. Its not that complicated. Frankly I believe Bush was a clueless Ideologue who believed the pseudo economics they taught him at Harvard and Obama sold out. Bush was a failure in the private sector no matter how much his Dad helped him. Obama was a an academic at a publicly funded school.
    I have been reading Ayn Rand recently and I am afraid that I have come to the conclusion that she is right. She hated both parties, and believed they both worked towards the same end, to promote statism. To sides of the same coin. America was great in the 1890s because people were self reliant and America did not waste enormous amounts of money on its military.
    Get rid of public funding for everything except roads, police, a basic legal system, and defense (by defense I mean a military about 5% of the size of our current one that defends our borders). Dial the clock back to the 1890s.
    People will pay for their own healthcare, education, retirement (save the 12% from social security for each person and let them invest it in land or whatever).
    I am trying this experiment myself. I have opted out of health insurance as I do not want to pay anything towards a healthcare executives 200 million per year. I will pay cash when I go to the doctor. I will do my best to send my children to private schools (because I believe public school teachers are paid to low and class sizes are too large). Unfortunately I have no way to opt out of paying for our corrupt military without going to jail. Paying for the military parts that are overseas should be optional. Taxes should only go to the national guard. The foreign stationed military should be self funding the way the Roman military was. They will have to tax the occupied lands.

  2. Karl says

    In my experience, when a politician says it means “more jobs” this translates to English to mean “more corporate profits.” Remember, many politicians still claim that tax cuts for the rich creates jobs, so they probably also think that huge profits for the rich create jobs somehow…rich people fairy dust thinking.

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