The “Democratic Capitalism” vs. the “Autocratic Capitalism”
--- A Way to Remove the Curse on the “Democratic Capitalism”
By Honsunbay--- a Taiwanese 2010/ 6/ 14
1. For big countries, the economy shall rely on the manufacturing industries. The financial services can not live on themselves. No manufacturing, no full employment, no trade balance.
2. China is massively stealing the jobs and contributing to the trade & budget deficit of the developed countries through its “world factory” of all high & low, new & old industries.
3. The low cost “foreign labor” contributed to the rise of USA , West Germany , Dubai , and today’s China . It’s the key to re-vitalize the economy of the developed countries.
4. For the booming coastal areas, the 200 million “peasant workers” from China ’s inland provinces are the low cost “foreign labor”. China virtually is the “foreign labor economy” with the huge scale the world ever sees.
5. WTO regulations are based on the assumptions of fair trades and goods for exchanges which are being distorted by China through manipulating, counterfeiting, and massive dumping. No way to reverse it so far.
6. The autocratic values are now contaminating and destroying the democratic systems with a world wide scale because of the phenomenal rise of totalitarian China . The democracy is now under grave danger!
7. The survival of democracy over the autocracy depends on the re-vitalization of the economy of the developed democratic countries. The economy depends on the booming of manufacturing industries. The industries depend on the utilization of the low cost foreign labor.
8. The only way to beat China ’s “autocratic foreign labor economy” is to create another “democratic foreign labor economy”!
Up to 20 years ago, the term “developed countries” meant wealth, prosperity, happiness, and confidence. These countries were respected and envied very much by the rest of the world at the time. Since the financial storm in 2008, however, all the “developed countries” have been trapped in various difficult economic situations. The common symptoms are: factories moving out, industries withering, shrinking consumer demand, debit consumption, high unemployment rate, stunning national deficit, and “debt left for the kids”--- Loan the future for today’s consumption, etc.
During the unprecedented “Financial Crisis” in 2008, governments of the developed countries further raised huge debts to save the private financial and industrial companies which had incurred loss of tens, even hundred billions respectively. To save all the “economic negatives”, these governments created “even bigger negatives” to turn the “original negatives” into “positives”! All they can do is to “borrow more but pay less”, without having any ideas how to repay “the more”. It appears that all the developed countries have sunk into the so called “Economic Black Hole”. These issues are so common and severe among the developed countries; they have become the “Developed Countries Syndromes”.
The growth of global economy has been heavily relying on the American economy which now is driven by the creation of “Super Bubbles”. That is, the US has to create one economic bubble after another in order to sustain its growth and employment rate. We’ve seen the Internet/ Stock bubble in 90’ s, and the House/ CDR Bubble in the past 10 years. In addition to the US , other developed countries in Europe and Asia like Japan are all facing the same vicious economic cycles: “debt for debt” and “bubble after bubble”. It seems that there is no way out!
A state with $ 40,000 GDP per capita is under siege (US), while another state with a little bit more than $ 3,000 GDP per capita (China) becoming the savior. The most free, open and sophisticated country is taking all the blames for today’s financial awes, while the most rigid, autocratic and backward country bearing all the hopes! So many developed countries with the GDP 10 times of that of China are trapped in big troubles. China , only China , now becomes the center of world wide investments, innovations, resources, and future prospects. It is also where all the elite groups are trying to find good fortune.
How come a country with the “best systems” is now encountering the biggest problems with no resolutions at all? Why the “worst” regime creates the most opportunities, and almost prevails over all other countries? It appears that suddenly the well-established values and beliefs are seriously challenged. Should we have no sharp visions and strategies to reverse the trend, the democratic capitalism which is the great heritages mankind have been struggling for hundreds of years will be totally overthrown!
The Worst yet to come!
The growing economic situation has helped China boost its power in the stage of global economy and politics. China ’s autocratic value systems, backed by the fast growing power have become even more forceful. And yet, the trend has just started and far from ending.
About 20 years ago, the crash of Eastern Bloc and Soviet Union marked the victory of the “Democratic Capitalism” over the “Autocratic Communism”. Today, we are watching the fact that the “Autocratic Capitalism” is swiftly encroaching on the “Democratic Capitalism”. The progress started from the sequential fallings of Hong Kong, Macau, and Taiwan into the hands of “Communist” China . Hong Kong and Macau have been the “birds in the cage”, and Taiwan is now under grave danger.
If Taiwan , the critical 3rd domino, fell down, China will become the “dragon in the ocean” with its military as well as political power covering the entire West Pacific rim . Both the North East Asia and South East Asia will be under the mercy of China . Both Australia and New Zealand will be seriously endangered. Mongolia will be annexed, then Siberia will be cut off, and the Central Asian countries will gradually become the “Tributaries” of China . The entire Asia will be “patronized” by China . Even India and Pakistan have to bow to China , too.
China, with 10 times of scale more than the Nazi Germany, will rise as the Autocratic and Fascist super power in the world! The world will then fall apart and totally out of control! All the western democratic powers will regret for doing nothing to stop this, or even worse, doing something to help this!
Wrong Theory Got New Challenge!
Today’s international trade theories were created about 50 years ago during the Cold War, with participation from few active countries ( 700M people involved only) in the Democratic Camp. Unfortunately, the theories now are applied to a totally different scenario with true Globalization and participation from more countries (almost 7 billion people involved), but manipulated by the dominant Autocratic powers. In addition, the WTO regulations as well as various FTA’s firmly lock and freeze the fully open mechanism. There is no way to escape. Further more, the autocratic regimes play tricks in between whereas the democratic countries are trapped by the rules. This makes the world economy totally out of order & control!
Today’s compelling facts are like the followings: China has become the “world factory” to make all the “low tech” and “mid tech” consumer goods. It is quickly establishing more advanced capability to make most of the “high tech” products, even the newest or the finest like the green power and the aerospace industries. Are there any new & advanced things made without China ’s involvement? No more!
Take the telco-equipment giant “Huawei” as an example: it rose to the current scale within 10 years by fair means or foul. It would take more than 30 years, or no chance at all, for other giants in China and ROW markets to reach the same size. Another example is China Mobile. As a telecom giant in the technically backward China , it dares to implement the Chinese Standards for 3G mobile phones (the so-called TD-SCDMA) through the domination of the huge domestic market and the helps from Huawei and many Taiwanese IT makers. Now no companies can beat Huawei and China Mobile in China and the ROW countries.
The lowest labor cost, the richest labor force, the biggest market size, the absolute protectionism from the autocratic regime, and the “anything tradable” politicians of the democratic countries together have helped the Rise of China and the Fall of the West!
Power of Purchase, Purchase, Purchase!
No doubts about it that the “huge purchase power” all the democratic countries have is controlled by the private sectors which now buy the cheap stuffs from China “without choices” according to the commercial rules. On the other hand, the “huge purchase power” China has is controlled and governed by its government. China buys a lot from the world according to political rules. To some degree, they have ways in determining the P & L (Profit & Loss), or even D & L (Death & Life) of these companies or countries eager for the China market!
In order to enter into the China market, most famous companies pay the price of technology transfer that in several cases have led to the “technology robbery”. Pretty soon leading products, like today’s cars, high speed trains, telecom equipments, and sophisticated products like the CPU, air planes, display panels in the near future, will be built with the label of “Made in China” attached.
It’s the purchase power, stupid! Only if the developed countries keep most of the purchase power in the domestic market to re-initiate all the “value added activities”, they can then reverse the “downward spiral”. The more they keep the purchase power in domestic market, the more they can create higher incomes & jobs. This can be a “panacea” for lower unemployment (3%), sustained prosperity, trade deficit, and the revival of the political, economical, even the military power. To the utmost extent, this kind of endeavor can even bolster the “Democratic Capitalism” over the “Autocratic Capitalism”, and pave the solid ground for the world prosperity and peace! Compared with the huge price of the confrontation during the Cold War times, it’s a piece of cake with the power of Nuke!
Only when the freedom and democracy prevail, the terror and autocracy will lose the ground and be besieged to its fall. Only when the business and trade are not manipulated by the Autocracy, the behavior and the value will no more be distorted. Then the human being’s bright future prevails whereas the dark force retreats.
The “Foreign Labor Economics”
Therefore, the only chance to significantly improve the competitiveness of these developed countries, including the US , the EU, the 4 “dragons”, and Japan is to import the “low paid foreign labor” in large scale to rebuild the low cost/ high value-added manufacturing industries. If you give up the operator jobs to the foreign labor to create the conditions for local production, you’ll take in huge investments, call back many factories, retain the “leaving” ones, and protect the burgeoning new industries! With the lowly paid “blue collar” jobs yielded, more highly paid “white collar” jobs will be created including those “serving the production lines”, like the purchase, the quality control, the engineering, the management, the R & D, the marketing, etc. This also includes all the jobs “serving the manufacturing industries”, like the transportation, the financing, the foods, the entertainment, the travelling, the real estate, etc.
Consider the following scenario (see the attachment): assuming US decides to import 3 million low-paid foreign workers in total over 5 years (600K per year) to rebuild its low cost/ high value-added manufacturing industries. According to the simulation, the annual contribution to its GDP growth will be 1%, with 1.5 million jobs created per year for 5 consecutive years! Assuming Taiwan also imports 1 million foreign workers in 5 years (200K per year), its annual GDP contribution will be as high as 6% and half a million jobs will be created per year for 5 consecutive years. Same model can be applied to EU and Japan : with the labor import of 3 million and 1 million respectively, both regions will be able to create 1.5 million and half a million jobs per year! Once the high un-employment rate that has plagued the developed countries for years is resolved, the regions will gradually evolve into a manufacturing powerhouse and per capita GDP will quickly increase. Also, the developed countries will be able to resume their vitality, dignity, prosperity, & confidence!
All Glories from the “Foreign Labor”!
Basically, China is a “Foreign Labor” Economy
Actually, one can argue that the so-called “foreign labor” is critical to the growth of Chinese economy. And its scale is beyond imagination: ranging from factories in “special economic zones” to the infrastructure constructions over the costal cities. These workers are virtually “foreign labor”--- the workforce from the inland provinces, hundreds or thousands miles away from where they work! There are two types of “foreign labor”. One is the mass utilization of the so-called “peasant workers”. This kind of labor force is estimated to be about 200M with average monthly salary under 100 USD in the past 30 years. They are the major blue-collar workforce for factories, constructions, entry level service workers like janitors, housekeepers, waiters, clerks, and even the booming prostitutes and the “2nd wives”, etc. The other category of “foreign labor” has better education and skill set to fulfill the demands of white-collar jobs. Together the two categories of “foreign labors” have contributed to the China economic miracle.
As a matter of fact, China has been artificially divided into two “economic constituents”. One is residency restricted; welfare deprived; suppressed & discriminated peasantry. The registered population of this group is around 900 millions. It’s the huge reservoir of the blue-collar “foreign labor”. The other group with population under 400 millions lives in the regional centers of economy & politics, major cities, and special economic development zones. People in these areas enjoy all the benefits created by the fast growing economy. The classification of the two groups is enforced through the law.
China strictly follows the doctrine of Deng Xiao Ping to “make part of people rich first”. As a result, the “ruling class” who controls the resources and powers got rich first, the “capitalist class” followed the suit by quickly grabbing various opportunities of open policies and briberies to get rich, and then the people who live in the cities and costal provinces became better off riding on a wave of local booming economy. All these huge gains are created at the expense of the peasantry and the peasant workers!
The US is the pioneer of “foreign labor economics”
Speaking of the economic development based on the utilization of foreign labor, US is the most famous or notorious one! Back in 17th century during the colonization period, the immigrants in the eastern North America had imported lots of black slaves as the “low cost workers” to boost their agricultural economy. Although the slavery policy was demolished after the Civil War, the “Negro” was still under discrimination and segregation. They were at the bottom of the society and did all the cheap & dirty jobs to bolster white people’s esteemed position in politics & economy. After the “African-American Civil Rights Movement” led by “Martin Luther King, Jr.” in 1960’ s, their social status was then significantly improved. In other words, the US has been utilizing the cheap African labor to grow and sustain its economy for 300 years! Further more, the mass immigrants from Europe in the early 19th century again has contributed huge cheap labor force to the phenomenal growth of the US agriculture and industries. That made the US as one of the largest economies in the world and the solid base for the democratic camp to win the two World Wars. Since then US has enjoyed its super power position and continued to dominate the world affairs till now!
The so-called “American Dream” has kept attracting millions of illegal immigrants ( 14M in total), and millions of talented people through the legal channels to America . Both kinds of immigrants fulfill the strong demands of the cheap labor on one side, and the best talents on the other. Together they have contributed to the creation of the US supremacy in technology, economy, military, politics, and culture. Through the history we’ve seen the ups and downs of once-dominant super power like the British Empire before World War I, the Nazi Germany during the World War II, and the Soviet Union in the Cold War. Today we see China is emerging as a super power in 21st century. However, US will continue to be the Super Power dominating the world affairs in the foreseeable future!
West Germany has also imported lots of foreign labor to help create its economic miracle in the 1960’ s. This policy continued for 20 years with the number of imported labor went up to 2.67 millions in total. It is fair to say that ending the policy of importing foreign labor has something to do with the slow growth of current economy in Germany .
Useless efforts on the Exchange Rates
President Obama tried very hard to force China to release the control of the exchange rate of RMB and Dollar, and hoped the appreciation of RMB will help improve the huge trade deficit of the US against China . It’s doomed useless.
In the 1970’ s, the depreciation range of the Dollar against Yen, Mark, Franc, and Pound was between 30% and 50%. It’s significant enough! However, the US trade deficit was increasing all the way from $ 4.6 billions in 1971 to $ 42.2 billions in 1978!
In the late 1980’ s, the Dollar was further depreciated by 40% against the major currencies. However, the US trade deficit was rocketing to 120 billions in 1990!
There are always low cost manufacturers contributing to the huge trade deficit of the US . They used to be in Europe, then in Japan , then in the 4 little dragons, now in China . They will further move to elsewhere with lower cost other than the US , if China is not cheap any more. No strong manufacturing industries, no way to relieve the nightmare of the trade deficit, and the strong industries coming from much lower cost.
The “ 3 Tier Manufacturing Hierarchy”
To incorporate the foreign labor into the workforce, the revitalized manufacturing industries of all developed democratic countries have to build the 3 tier “global manufacturing hierarchy” step by step. The first tier comprises the domestic labor force engaging in more advanced manufacturing processes such as semi-conductor, display panel, custom made equipments, and all the emerging new industries. The 2nd tier includes the foreign labor in the “high value-added factories” and produces the high end/ high volume products, the new products, and the solution oriented appliances with software. That is to say, all the high value products with high margin, say 20%, are to pay the additional expenses incurred to develop the high quality manufacturing and service in the developed countries. The 3rd tier includes those off-shore factories fully utilizing all the low cost labor, materials, and the cheap infrastructure in the developing countries, for the mass production of the low end, low price, and the OEM/ ODM hardware platforms, etc.
By adopting the strategy of establishing a 3-tier manufacturing hierarchy, companies in the developed countries can better protect the trade secrets, IP, and customer information, even when off-shore outsourcing strategy is adopted. This means that the companies with the 3-tier manufacturing hierarchy can maintain their leading positions and enjoy good margins despite all similar and cheaper products from the me-too cloners in the developing countries.
If the US and EU can import 3 millions of foreign labor each, Taiwan, Japan, and Korea import 1 million respectively, there will be a total of 9 millions of the low cost foreign labor available to establish the “high value-added manufacturing hierarchies”. Quickly the strategy will help reverse their economy from the “Vicious Cycle” to the “Virtuous Cycle”! In addition to save themselves with the foreign labor policy, Taiwan , Japan , and Korea can even help rebuild the manufacturing industries of the US and EU. By doing this, there will be over 300 billions of the additional GDP contribution, and 300 billions of domestic products in replacement of the import from the developing countries like China and Vietnam. It then will significantly improve the deficit of the international trades. The massive “pouring” or “bleeding” of the capital and technology to the “economic black holes” will be stopped immediately with the foreign labor firmly “deployed” at the bottom. For these developed countries, the international trades will be no more “leaking at the bottom”, but “overflowing on the top”!
Save & Expand Democracy---Free To Choose
It is up to the governments of the developed countries to break the myth of “humanism” and “protectionism”---the so-called “woman’s mercy”, and bravely work out the strategy and the law to import the foreign labor. This will be a breakthrough with minimum side effects. We could say it’s also the critical action to “reverse the universe”! The proposed strategy not only helps the people, the enterprises, and the governments of the developed countries, it also helps the countries which exporting labor and the foreign labor itself. So, one action actually benefits 5 parties! The people will be fully employed and live better. The enterprises will be deeply rooted, grow and innovate. The democratic camp of the world will be well entrenched and expanded. Last but not the least; the “Democratic Capitalism” will have great chance to defeat the “Autocratic Capitalism”! Those who oppose this idea with the “human right” will realize that this is the true and great “human right”!
It’s possible that the immigrants will create some troubles. However, the proper quota for immigrants will bring more talents to the country, like the case of the US , and contributes to the innovation of technologies and the growth of economy. Even the illegal immigrants are becoming the indispensable portion of the national economy. Shall we expel all of them to damage the country?
People are served by food first, and then serve the honor. Even if they have great commitment to humanism and strong belief in freedom, the mankind’s desire will degenerate into basic needs when the worst situation prevails for a long time. People will then lose the “freedom to choose”! The “Autocratic Capitalism” is fully utilizing this human weakness. It takes the advantage of the depression of the developed countries to twist the values, to alienate the allies, and to destroy the democracy through the manipulations of huge business opportunities. Even the country will lose the “freedom to choose”!
The key point is to build up a system and mechanism to make possible the “self actualization” for most people and provide them with freedom to choose! The rich can be richer. However, the poor are no poorer but better off! The foreign labor is imported whereas the people are fully employed. This is the true and great human right and humanism!
Attachment：If the US imports 3 millions of foreign labor…
Assume that 600 thousands of foreign workers are employed per year. The output per worker is $ 400 thousands per year (plus over time). The averaged add-on value of every factory is 40% of its selling price. The total add-on value per year is:
1. $ 400K X 600K X 40% = $ 96 Billion per year
This portion consists of all items other than the material cost, including the direct labor cost, the indirect labor cost, all expenses, and the profit. For a state relying on the mass importation, this portion could be deemed as the “import replacements”, or the “foreign trade balance” which is the result of “export change less import change”.
Assume the monthly net “wire out” money is $ 200 per worker. The total “wire out” money of the foreign workers per year is:
2. $ 200 X 12 X 600K = $ 1.44 Billion
Assume any one new factory gets the quota of 400 foreign workers. There are 1500 new factories per year. Assume the investment of every factory is $ 10M including $ 3M of imported equipments. The total contribution from the investment of the private sector per year is:
3. $（10M -3M）X 1500 = $ 10.5 Billion
Assume there are 20 new industrial zones for the factories of foreign workers, and the government investment for the infrastructure is $ 300M per zone per year. The total government investment per year is:
4. $ 300M X 20 = $ 6 Billion
Assume every factory gets 200 foreign visitors per year, and the consumption induced per visitor is $ 2000. The induced consumption per year is:
5. $ 2000 X 200 X 1500 = $ 600 M
Assume 70% of the factories are foreign investments, and every factory gets 10 expatriates, 20 including family members, and the consumption per person per year is $ 20 thousands. The total consumption per year is:
6. $ 20K X 20 X 1500 X 70% = $ 420 M
Normally, this portion is paid by the factory. It should be part of item 1.
According to the GDP formula:
GDP = Consumption+ Investments + Government expenses + Export Changes – Import Changes
Delta GDP = 1 – 2 + 3 + 4 + 5
= $ 96 B – 1.44 B + 10.5 B + 6 B + .6 B = $ 111.66 Billion
Under the 5 year program of 3 million workers, this might be the annual GDP contribution to the US if employing 600 thousand foreign workers per year. Assume all the profits of the new factories are kept in the US for re-investment.
Assume the US population is 300 millions, and the GDP per capita is $ 40 thousands. The total GDP is $ 12 trillions. The GDP contribution of this program per year in the coming 5 years is:
$ 111.66 B÷ $ 12000 B X 100% = 1.0%
This program will certainly create lots of jobs for the white collar workers. Assume every $ 60K creates one job, and the enterprise net profits account for 10% of the total revenue, i.e., $ 400K X 600K X 10% = $ 24 B. The total jobs created per year is:
（$ 111.66 B-$ 24 B）÷ $ 60K/ job = 1.46 M jobs per year
Even we need $ 100K for a job, we can still create 876 thousands of jobs per year!
Now, by paying out $ 1.44 billions to the foreign workers, we can create 111.66 billions of GDP. The Multiplier is:
$ 111.66 B/ $ 1.44 B = 77.54！
By employing 600 thousands of foreign workers, we can create 1.46 millions of jobs per year. The Multiplier is 1.46M / 600K = 2.5, or 876K/ 600K = 1.5!
The US president, Barrack Obama, has spent $ 2 trillions to re-vitalize the US economy--- or actually just save the US from breakdown. During the “G20 meeting”, these countries put in one more trillion. The net result is barely keeping the banks from the “Liquidity Crisis”. They all wrongly used the cannon to shoot the bird. The unemployment rate of America is rocket high at 10%! It means 10 millions of people lost their jobs already, despite all these huge expenditures from the government!
Now, by using the low cost foreign workers, we not only create 3 millions of jobs for the poor countries, the US also creates at least 5 millions of jobs for its people. The net “wire out” and government expenditures combined is only:
$ 1.44 B X 5 + $ 6 B X 5 = $ 37.2 B
The foreign workers are paid by the enterprises. As a result, the total government expenditures in 5 years for this program are $ 30 billions only. If amortized by 5 years, it’s merely 6 billions, less than 0.1% of the so-called “ 8 trillion rescue program”! It’s also less than 0.2% of the 3.5 trillions US budget of Year 2009, and less than 1% of the US defense budget which is easily over 600 billions! It can be put into the annual government budget actually. Just making some adjustments among the similar budget items will be OK. Maybe the total budget could be reduced, rather than increased.
It’s never a tough job to run a country--- or could be an easy job. You can get the maximum with the minimum if you do the right things right!