I wrote a long answer this week’s reader question, so we’re going to keep the rest short.
But I am recommending Joe Friday on the viral spread of shootings, Andrew Burleson on abundance, Ruxandra Teslo on luxury beliefs, and Steve Teles and Rob Saldin on abundance factionalism.
Good news and comment of the week will return when Ben is back from Japan.
This week’s question is courtesy of The Elastic Stranger: So the story has played out too many times to count of a gullible western firm lured to China by the promise of a big market, they realize some short term wins but soon find themselves facing unbeatable competition from Chinese competitors who have learned their tech and gotten subsidies from the Chinese government to undercut their former partner. My question is: why do companies keep falling for this and why does the West keep letting its technology be transferred to China in these sucker’s bargains? It’s hard to see how we maintain parity with China if we continue to transfer all new technology to them and they just scale it up and reap the benefits.
To understand this issue, I think it’s helpful to back way up to the late 1970s and early 1980s. This was when Deng Xiaoping is running the PRC and implements the process of “reform and opening up.”
Initially, the main thing that happens here is that China — which at the time was an incredibly poor, overwhelmingly rural society — gets rising agricultural productivity thanks to de-collectivization and more basic use of market prices. It also becomes somewhat easier to import stuff. Next, China gets into bottom-rung industrialization — very poorly paid, low-skilled workers doing sweatshop stuff for pay that is marginally higher than what they could earn as rice farmers. Then China starts in on the next phase of industrialization, trying to cultivate companies that can manufacture stuff that’s a bit more complicated than apparel. Cheap toys is a big one, since the whole point is to be simple, along with things like disposable flatware. This is all good stuff and lets China pull away from “as poor as India” to “as poor as the Philippines.” But by the turn of the millennium, China is still decidedly poorer than places like Peru, Algeria, and Thailand that nobody considers wild economic success stories. There’s only so far you can go based on “don’t let Communism wreck your farms” and “we pay our factory workers very little.”
But in 2000, the United States grants China Permanent Normal Trade Relations, and China joins the World Trade Organization (WTO).
The results of this took American policymakers somewhat by surprise. A lot of people cite David Autor’s work on the China shock, but I think that to understand the shifting winds of public policy, it’s more useful to look at a piece by Justin Pierce and Peter Schott called “The Surprisingly Swift Decline of US Manufacturing Employment.”
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