Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Development Economics Page 1 of 5

When Labour Opposes Rapid Technological Change

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On November 1, 2024

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So, I recently saw this:

our obsession with jobs might trap us – everything could look like healthcare, still using fax machines when email and text exists.

“sorry I know this is possible via AI but we have our manual spreadsheet guy, following regulation 1284”

Leaving aside the word “AI”, because it’s not clear how expansive the use case for current AI really is, there’s a point here and it’s an important one.

He’s exactly right about our obsession with jobs, but I’d state it a different way:

It’s our obsession with distributing resources through money gained by jobs. A pre-requisite of speedy technological adaptation is people knowing they won’t be hurt by it.

Recently we had the longshoreman’s strike. The issue that caused the strike is machines replacing workers. Longshoreman jobs are some of the few blue collar labor jobs that pay well. If the longshoremen lose them, most will never get a job again that pays as well.

But the issue isn’t the job. It’s the money. And the money is just a proxy for resources: housing, food, heat, cold, transport, medical, entertainment and so on. No money and your life is shit, and probably short. Not much money means misery in most cases.

Labor; which is to say the proletariat, people who have to sell their labor to survive, embrace technological change when it benefits them, when it doesn’t hurt them, or when they have no choice.

During the industrial revolution people were forced off the land thru enclosure. They worked in factories 12 hours a day, for 6 1/2 days a week because they had no choice.

After WWII in America, people flooded off the farms into the cities and suburbs because jobs that provided a better standard of living for less work were abundant.

(This blog is for understanding the present, making educated guesses at the future, and telling truths, usually unpleasant ones. There aren’t a lot of places like this left on the Web. Every year I fundraise to keep it going. If you’d like to help, and can afford to, please Subscribe or Donate.)

This lesson goes far beyond workers. No one wants change that hurts them. One of the main factors stalling industrialization in most countries was that most land couldn’t be bought: it was controlled by nobles or the Crown and they didn’t sell land if they could help it. The land was the basis of their wealth and power. Until they either perceived otherwise or they lacked the power to keep their land, they wouldn’t sell. (The game Victoria III, while not a very good game, is great for modeling this. Play Japan or Dai Viet and you will FEEL this: sheer hate of reactionary landowners holding you back.)

There was also the issue of money: for most of the Dark Ages and Middle Ages you couldn’t borrow large amounts of money, in part because the Church was against lending at interest and the Church was powerful. (There were other reasons, Economists include them in their hand waving of “primitive accumulation of capital” which is why sociologists, anthropologists and historians have written most of the important literature in the area.)

If you want change, whether technological or social, you either have to get people to be OK with it (for it, or not mind) or you need to remove their power to resist.

It is that simple.

 

Austerity, Demand and Reindustrialization

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On October 24, 2024

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This blog is for understanding the present, making educated guesses at the future, and telling truths, usually unpleasant ones. There aren’t a lot of places like this left on the Web. Every year I fundraise to keep it going. If you’d like to help, and can afford to, please Subscribe or Donate.

So, it’s clear from the response to my last post that some readers aren’t familiar with the effects of austerity on balance of payments and vice-versa. Balance of payments is, oversimplified, how much money is going in and out of a country.

When money goes into a domestic economy, if it is used to buy something that is imported, that effects balance of payments negatively.

If you’re selling more than you buy, which can mean services as well as good, then that helps balance of payments. It also includes financial games: so if people are sending money to the London financial center, well, that improves BoP. London’s the world’s second largest financial center, after New York.

Now here’s the thing. Britain doesn’t grow enough food to feed its population. It doesn’t have a lot of industry left. North Sea oil is depleting, to the point that Britain became a net importer of oil in 2013. (Take a look at that chart.)

When the government spends money it isn’t magically siloed from causing import demand. The government cut back on heating subsidies, for example, and limited child support payments to two children. Without that money, oil and other demand is not as high as it would be otherwise.

Indeed, nothing is really siloed. If the government spends, almost always some of that money is going to go overseas and spike imports.

Britain controls its own printing press. It can print as many pounds as it wants, but it can’t make people in other countries take the money. The more they print, the less the pound will be worth, and the more inflation there will be because the dropping pound will increase prices of imported goods.

The pound is not the world trading currency any more. It hasn’t been since WWII. It can’t print pounds the way the US can print dollars and expect everyone to just take them.

Austerity is, in many ways, cruel and stupid, but if Britain (or Canada, or Australia, or even Europe) is to print money without it causing serious economic issues and to actually reindustrialize, it has to be done intelligently, along with serious industrial and domestic economic policy. (Currently tons is printed, but siloed to the rich, which keeps general demand from exploding but destroys markets’ ability to function properly.)

Now the thing is that Britain is a high cost of living economy: food and housing are expensive. Very expensive. Workers need to be paid well to survive, and that makes Britain un-competitive against lower cost (or higher productivity) countries.

If you wanted to make Britain competitive again, you’d have to crash housing and rent, to start. You can imagine how politically fraught that is: people who have high net worth due to real estate aren’t going to like it.

Then there’s the issue of the City, the financial center. Financial center profits are HIGH. That’s a problem, because people would rather put money into finance than into industry or farming or whatever since returns are better. Finance cannibalizes the rest of the economy. So you have to weaken the city and silo it, and probably tax it a lot. That’s hard to do, because the City has a lot of power, and there’s a real issue because it does, actually, bring a lot of money in to Britain, it’s just that money doesn’t get spread around.

When you industrialize, or re-industrialize, you have to make sure that money in the domestic market buys domestic goods, doesn’t buy a lot of foreign goods, and is used primarily on industrialization: capital goods, primarily. It’s unpleasant, it means a lot of goods (imported goods) aren’t available or are very expensive. Your new industry, ideally, either serves the domestic market, or is good for export, or both.

Austerity doesn’t exist just because governments are run by stupid psychopaths (though that’s part of it), it exists because of very real constraints caused by a need to send more money out of the country than is coming in to the country. In the seventies the UK was in so much trouble it had to actually go to the IMF for help, and join the EU so Europe would help it bail out.

Now, again, there are ways around this, but they require taking on powerful interests and hurting a big chunk of the population, especially in the short to medium term (about twenty years or so.) It means, as much as possible, making do with what you can produce yourself, and when you can’t, going cheap. No foreign fresh fruit imports, except the cheapest (hope you like bananas.) Cheap phones and appliances. Etc…

It also means ending all sorts of stupid financial games: no more Private Equity. No stock buybacks. No huge stock option grants. You want money reinvested. Currency controls so money doesn’t flood out. Possibly a dual currency.

All of this is painful. But if you don’t do it, decline inevitably continues and eventually you’re back to being a third world country.

Austerity is a pressure bandage on a wound that still won’t stop bleeding. It slows down the decline, but it doesn’t heal the wound.

Update: Just for kicks, here’s Germany’s BOP:

And China:

The “China Cycle” Is Mostly A Thing Of the Past

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On September 9, 2024

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So, this was true once:

The Chinese learned a lot from Western Joint Ventures, and I remember talking to a consultant back in the early 2000’s about tech transfer. He said it was very clear: you got into the Chinese market and/or used their lower cost production and what they got in exchange was tech transfer. This isn’t some evil conspiracy, back in the 80s when the US fell behind on cars they basically forced Japanese car companies to set up factories in the US, and yeah, there was transfer of knowledge to American companies.

Now, for the West, what Western companies and the West in general got in return for their tech was not worth the cost: it was stupid and short-sighted, but companies were lining up to do it and economists and business gurus and politicians in the West were for it: the only thing that mattered was making more short to mid-term profits and all sorts of nonsense about it not mattering where goods were produced was espoused by very important intellectuals and officials. There was no attention to the long term cost in terms of loss of technological lead and moving the industrial base to China. I know: I was one of the voices warning, publicly, to stop taking short term profits by selling China our future.

But at this point it’s no longer accurate. Chinese car companies are more advanced than Tesla: they have better batteries, better HUDS, better auto-pilots and they also have faster product cycles.

Again, in most fields the Chinese are now more advanced than the West: the remains are important but in a minority—things like lithography and aerospace, but they’ll catch up in both in time and for Aerospace I’d already buy a jet-liner from China before Boeing, and Boeing’s problems have nothing to do with China. Airbus is still clearly better, but it won’t be in twenty years, and possibly not even in ten.

The West was 100% complicit in the “China Cycle”, but that cycle is almost entirely over and China is now just straight up more advanced and out-competing us.

The West made this choice. We could have maintained our tech lead for another fifty years or so if we wanted to and followed the necessary policies. We didn’t, and to expect China to not use the same methods every other major country used to industrialize is insane. Every accusation made in the “China Cycle” is something the US did to Britain back in the 19th century.

Perhaps China could have industrialized without it being disastrous for the West, but not under any sort of laissez-faire or neoliberal international trade regime.

If you’re young, learn Mandarin. Maybe even if you’re not young.

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China’s Rise Is Normal

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On June 17, 2024

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China used trade protection and cheap wages & grabbed industry from the leading industrial power exactly the same as the US did with Britain.

 

The tech/science lead follows the manufacturing floor, with some delay, this was, again, the same with Britain & the USA.

The dynamics of industrialization are well understood at this point. The first books to read are “Bad Samaritans” and “Wealth and Democracy”.

Unlike Japan or South Korea, China has a larger population than America (same as America vs. Britain) and is has a large land mass and plenty of resources. In fact, it has slightly more land area than America.

Initial industrialization in England is an interesting story and still hotly debated. Later industrialization waves are mostly all the same. (The USSR is an exception, as are city states.)

Big leaps, as opposed to adaptations of existing models almost always come from states in hot competition, and among them the peripheral states usually win (Britain, for example, is peripheral to Europe.) The biggest tech surges in Chinese history came during warring states periods.

I’m very impressed by China’s rise and the West’s sheer incompetence in enabling it, but it’s not a huge leap the way the industrial revolution was. It’s just an extension of a previously existing model.

Japan’s rise was more impressive than China’s, as the first non-European nation to pull it off. But as an island nation with limited population, they were sharply limited. They made 2 runs at the US, one a war, one industrial, and neither let them become the foremost power.

The West was very good at keeping everyone but client states from industrializing. Even Japan needed British aid (the first time), then America’s (the second time.) But the West got stupid under neoliberal “end of history” ideology & let China run the playbook, thinking it wouldn’t challenge the West. Oops.

Americans probably should have learned from the Western experience with Japan. The British enabled Japan’s rise only to have Japan attack British possessions. Without American aid, that loss would have been permanent. But China is a continental power w/a massive population. The stupid was epic.

A radical change in economic model hasn’t happened yet, and seems unlikely to before ecological and economic collapse puts an end to the viability of the current model. Looking at Chinese cities with the 7 lane highways is instructive. It’s just a better version of the same old

A complete change of the permission system will be necessary for radical economic change. No one in power, whether in the West or China, wants that or can even imagine it.

Who knows, radical economic change might happen in China when collapse really starts biting. After all, they have the manufacturing base. But usually it happens at a periphery or in a tight area with multiple competing states.

This stuff is fairly well understood. However it’s not economists who put the pieces together, it’s sociologist and historians and even some anthropologists. Economists have done more damage to the West than astrologers did to Chinese dynasties. MBA factories get an honorary mention. (They mostly weaponized economic theories, as when they noticed economic theory saying that high profits come from not competing.)

One of the most instructive trends right now is watching so many people screaming about population collapse, when what the world actually needs is a lower population. (We could have avoided that necessity, but the window is closed. Sometimes you have to act at the right time.)

All people who yell about lower birth rates can imagine is economic growth through population expansion. Anyone who thinks that way can’t create a new economic model, they’re stuck in the old one. (Elon Musk is a good example.)

People who can’t even understand population overshoot are incapable of the thinking required to deal with the world’s actual problems.

We’ll talk about permission systems at a later date. As noted, they’re key.

Using Comparative & Absolute Advantage To Explain China’s Rise

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On May 14, 2024

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Economists spend a lot of time talking about comparative advantage: France has just the right climate and land to make great wine, for example. In the Industrial Revolution England had good quality coal in just the right place. Germany has a lot of good industrial workers and craftsmen.

Most comparative advantage, however, is cost advantage. If it’s cheaper and you can produce it for less, it’s hard to compete against you.

Absolute advantage is different. Absolute advantage is when you are the only one who sells something other people want or need. For most of the 20th century if you wanted commercial airplanes you could only get them from the US or Europe or Canada (until Canada’s aviation industry was mostly destroyed in the 50s under threat from the President of the US.) Cars were available from the West and the USSR, then from Japan and Korea. Most advanced medicines were made only by the West, though India came on strong for a lot of generics towards the end of the century.

Absolute advantage is far superior to comparative advantage: you can charge much more.

This is the second article on the West’s situation via China. If you haven, read the first “You can’t run industrial policy or a war economy under neoliberalism.”

Absolute advantage can be created. The rise of England didn’t start with the Industrial Revolution, it started when England banned exports of wool to the Netherlands. Be clear, English weavers sucked in comparison, but it didn’t matter. England produced most of the wool, and if you wanted woolens, you had no choice but to buy them England, inferior thought they were at the start, or do without.

This sort of policy used to be fairly standard. When I was young Canada would not export raw logs or raw salmon, for example, but by the 80s we had begun to do so. African nations have recently started insisting on doing primary processing in country: refine the ore or hydrocarbons, tin the fish, and so on. It’s not the same as advanced manufacturing, but it captures more of the value. If you have a resource there is more demand than supply for, you can insist. Perhaps tinning or smoking fish in the US or Mexico saved ten cents a can, but so what, before fish farming there was never enough salmon.

The problem with absolute advantage, though, is it makes you lazy. When you’re competing on comparative advantage, you have to drive down costs or increase quality, or ideally both. People don’t have to buy your goods, so they have to be better or cheaper.

Now the problem is that for about two centuries the West has had absolute advantage. For most intents and purposes everything we made had absolute advantage outside the West. We had better weapons, machines, clothes, medicines, transport. Everything.

Japan was the first non-Western nation to catch up, but an island nation without significant resources, it couldn’t compete and was conquered and made into a satrapy. South Korea was given the same treatment, and allowed to industrialize, as was Taiwan.

I was a young adult when Japan roared in the 80s, but Japan was never a serious threat, simply because it didn’t have enough population. It was never going to unseat the US or Europe, only claim its place in the (still) Western system.

China is a different matter. The reason China is eating the West’s lunch is that it has overcome most of our absolute advantage and is now competing with us on comparative advantage: Chinese goods are cheaper and in some cases, like EVs, Chinese goods are better. This often isn’t a small difference: you can buy an EV in China for 14K, and it’s a decent car.

Further, China has a massive domestic market. Oh, incomes are still not as high in the West, but the population makes up for it, and Chinese industries mostly aren’t oligopolies or monopolies. In 2019 there were over 500 EV companies. As of 2023 there were still about a hundred. The competition was fierce. There is nothing like it in the west, where car companies are essentially an oligopoly, and don’t truly compete on either price or quality.

China moved up the technological chain. They actually practice competitive market capitalism much more than we do: their markets are closer to “free” than any western country’s. They have effective subsidies due to the exchange rate and direct government intervention, of course, but that’s not the key issue any more (though it was for a long time), it’s that they are genuinely better at manufacturing than we are, and more responsive to what buyers actually want.

Many nations in the West used to have competitive internal markets, with a myriad of companies competing, but under neoliberalism, and to be fair to a certain extent under Bretton Woods liberalism, they were replaced by oligopolies. The problem with real competition is that you might lose. Fake competition is far safer, and offers far better returns for the ownership and executive classes.

Until, of course, you run into companies which are used to real competition, and they eat your lunch and you scream to the government for tariffs and trade war.

Mind you tariffs aren’t a bad idea, but if they are to work, Western companies must actually become competitive again and they don’t want to do that, it’s too much like work. Nor, as I’ve noted before, is it easy for them to do. Internal rent in the West is very high, and thus so is the cost of living. If they’re involved in a trade war, they have to sell to their own citizens, but the only way they know to reduce prices is to crush wages and if they do that, well, the internal market isn’t what it needs to be. (This is what FDR and Keynes realized, which is why New Deal and post-war capitalism emphasized having wages rising faster than inflation. It created a robust market.)

Offshoring anything another country doesn’t already know how to make is stupid, because when you offshore the locals learn how to make what you offshore and eventually they make it themselves for themselves and compete with you. “Friendshoring” can’t work, it can only crate new competitors with lower costs.

The days of the West’s absolute advantage are over. We threw it away for a few decades of high profits funneled to elites, and now we must learn to compete on comparative advantage again, something we mostly don’t have and aren’t used to being necessary.

It’s the bed we made and we have to lie in.

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How To Use China To Make Your Left Wing Government Succeed

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On November 28, 2023

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Back in 2016 I wrote a piece called “Seven Rules For Running a Real Left Wing Government.” It proved to be one of my most popular pieces, particularly loved by activists. Since then I’ve often been asked for an more and I’ve finally written a partial update and companion piece.

The Sixth Rule was “Reduce Your Vulnerability to the World Trade System.”

This rule is still true, but how it is applied has changed — you can use a relationship with China to, over time, reduce your dependence on the old system which required you to stay poor and dependent..

Back in 2016 China was massively important, but the rules of the system were still all-powerfully American. Those rules are breaking down now and your government can take advantage of that. Though the title of this piece is about China, much applies to bilateral relationships with other countries. China’s the biggest and most advanced and most useful right now, however.

What working with China can do for you.

  1. Movement up the industrialization chain;
  2. Modernization
  3. one time infrastructure
  4. cheap loans
  5. Training and teching-up your scientists, engineers and designers.

All of these benefits are available, but you have to be smart and structure your deals to give you a long term advantage, China won’t do that for you, but they are open to such deals and won’t sandbag you. To use modern bargaining speak win/win deals are available if you seek them. There are limits, of course, but those limits are far higher than they were and are under the old WTO/US system.

How The World & China Have Changed And How You Can Use Those Changes

China is now the largest trade nation in the world and caught up to the West or surpassing it in most, though not yet all, technologies.

Post-Ukraine war it has been structuring many non-dollar deals.

These deals settle outside of the banking system controlled by America and Europe and thus you are not forced into structures which automatically try to keep you from moving up the value chain without being a US satrapy (like South Korea and Japan and most of Europe) or seeking moderate economic independence. (See the original 7 Rules article for how the old system works.)

De-dollarization and a nascent non-Western banking system make it possible to break the stranglehold the old international trade and finance regime put on left wing governments.

To take advantage of this opportunity you need to understand China’s domestic issues:

  1. China has far more construction and development capacity than it needs. It has built most of the buildings, roads, ports, hospitals, schools, power plants and so on it requires. China could get rid of those jobs and cut the industry in half OR it could use it overseas and not throw a pile of people out of work and destroy half an industry. This means, among other things, that China is willing to put up infrastructure for very low prices in order to keep the people employed.
  2. China has a vast need for resources: food, fuel, minerals and so on. If you’ve got it, odds are they need it and they want long term secure deals.
  3. China is moving up the manufacturing value chain and moving into services. In many cases the Chinese government has forced industries to shut down low value manufacturing plants that are still profitable. They want the lower chain industry out of their country, and over time what counts as “lower” moves further up the chain.

What all this means is that China is willing to build your country what it wants for cheap in exchange for deals for your resources and, more importantly, to relocate industry to your country.

You have to take advantage of this in the right ways, or it is just another trap, but it’s still a big opportunity because the US offered this deal to only a few nations and required satrapy status in return. Think South Korea and Japan and Taiwan.

This isn’t to say that China doesn’t have some non-negotiable requirements if you want to be cut in on the good deals, however, they’re just less onerous than the old US and European deals were. Let’s discuss that next.

China’s Non Negotiable Requirements

These are simple. You will not recognize Taiwan and will stay out of the Taiwan/Mainland dispute. You will stay out of anything relating to Tibet and that will most likely include not hosting the Dalai Lama at the senior government level. If you are not in the South China Sea, you’ll stay out of that dispute.

These aren’t particularly onerous, though you may find they stick in the craw slightly. Still, it’s a lot less than what the US and Europe require.

What You’ll Lose By Aligning With China

Simply, good treatment from Europe and the US. That means reliable and fair access to the western financial system, the ability to buy Western military gear and expect to get parts and ammo when you actually need it, and to a lesser extent, access to western goods and services.

The financial aspect is the most important, but will become less and less important. The whole point is bilateral or multilateral deals outside of the Western financial system anyway, and it’s that financial system which has been primarily responsible for keeping the global South down for the last 70 years.

The military aspect is negligible at this point. It’s clear that the West’s military production system is sclerotic and can’t keep up with major demand spikes: we’ve seen that in the Ukraine where they can’t even keep Ukraine supplied with enough dumb artillery shells. You’re better off getting your military supplies from China, Russia and Iran. There isn’t even much of a quality gap and in some areas, like missiles, you’ll receive better.

As for goods and services, increasingly, outside of pharmaceuticals (which they’ll withhold from you in a crisis anyway, as Covid proved), China can supply what you need, including advanced telecom equipment and more of the production stack than the West can these days. You’re giving up very very little and in ten years it will be essentially nothing.

What Types Of Deals To Cut

There are three types of deals you want beyond the basic “we sell you stuff and then buy goods from you.” There’ll always be some of that, but the idea is to make your country more independent and more prosperous and your people better off over time. That will not happen if you just sell resources and then turn around and buy goods.

Bilateral up the chain deals.

This means “we give you resources or low chain goods and you help us move up the chain.” If you’re not already on the chain, that’ll mean starting with textiles, most likely, but you have to start somewhere.

Bilateral Cartel Deals

In these deals you agree that you’ll own a particular industry and the other country won’t compete with you. In exchange there’s an industry you won’t compete with them in and both of you will buy the others products. These deals take a lot of trust: both sides have to believe the other side won’t cut them off in the future. One “semiconductor ban” and the deal is shot, and most likely shot permanently.

China’s capable of taking over most industries if it really wants to, but there’s an opportunity cost to doing so, and they need and want good relations. In many cases these deals will be cut with a side “and if you let us keep or have this industry, and buy from us, we’ll keep selling you grain/oil/nickel/whatever.”

China wants secure deals. Give them that security and be rewarded in exchange.

One Time Infrastructure Deals

As discussed earlier, China’s the infrastructure King. If you needs roads or ports or hospitals or power plants or almost anything, they can build it fast and cheaper than anyone else and the quality is good. Maybe not Japan good, but good enough.

You’ve got to cut these deals, all of them, right, though, or you’ll wind up not receiving what you want, or in the case of infrastructure deals wind up with white elephants you can’t afford to maintain. So—

How To Structure Deals To Ensure You Benefit

The objective here is to gain local knowledge, skills and capacity. This means a few things.

No Branch Plants. You want partnership deals, 49% China, 51% you. The plants or whatever get set up in your country by their engineers and managers, in partnership with your managers and engineers. At first the foreigners take the lead, but over time they are largely phased out, the capacity becomes indigenous.

Move the parts and repairs. You don’t want to just be putting goods together from pieces made elsewhere. You want the parts moved to your country too. Lots of small companies usually support big companies. You want that network. Without that network in your country, you don’t actually have industry. With it you have the culture of industry which is required to start making your own advances, to create new products and types of work. You have the chance to get a dynamic economy which innovates.

Buy Infrastructure you can maintain. If you’re going to constantly need the Chinese to come back and fix your power infrastructure, or roads, or ports or anything else, or to constantly buy parts from them, then you haven’t really bought anything. All deals must include the necessary training for your locals to maintain the infrastructure and that most of what is needed for maintenance is made in your country.

(This is a reader supported Blog. Your subscriptions and donations make it possible for me to continue writing, and this is my annual fundraiser, which will determine how much I write next year. Please subscribe or donate if you can.)

Be very careful about large asphalt and concrete deals. Concrete and asphalt does not last and needs constant and expensive maintenance cycles. The world which supports that is going to go away as climate change and environmental collapse do their damage. Find ways to increase the lifespan of infrastructure and make it easier to maintain, ideally with as unskilled labor as possible.

If you can’t maintain it, you don’t really own it and it won’t be there when you need it.

Educational Exchange

Let’s be clear here, sending students overseas to learn from more advanced societies isn’t all it’s cracked up to be. A lot of them stay, others become compromised with values which are inappropriate to your society and much of what they learn at university isn’t all that useful in industry, unless they’re in real engineering or science and even then, less than you’d think.

Still, do some of that.  It’s not a hard deal to cut, because it’s flattering to the Chinese and thanks to Chinese culture, you’ll see less of the students stay in China than used to stay in America. They’ll have to learn Mandarin, but that’s good. English will stay the lingua franca for a while, but the gravity is to Mandarin and if you’re following the advice herein, well, China’s your big trade partner.

The other exchange you want is to get your engineers and scientists and managers into partner companies in China so they can get real world experience with how industry and business works. Get them from the lowest levels where they see the factory floor to the highest levels. Have them make contacts, have them work on real products. Again, some are going to stay, but many will come home and you will benefit massively.

Most of the most important information about how products and businesses and societies work is never written down. You need your people to learn it.

So get those exchanges going. And if you need to flatter the Chinese a bit, swallow your pride and do it.

Concluding Remarks

China’s still on the rise. Countries on the rise are much more generous than countries in decline or even mature countries, economically speaking. There’s still tons of possibility and present and future surplus to share. The emphasis is on increasing the size of the pie and not fighting over a static or shrinking pie. On top of this China needs and wants friends and wants desperately to be admired. If someone wants admiration, it’s cheap and there is plenty that can be admired without hypocrisy.

Take advantage of this opportunity but remember, the goal is to increase your own country’s real prosperity by increasing your indigenous production ability and the skill and knowledge base of your own people. It is not to gain fleeting prosperity from selling resources or bottom tier products.

And remember also, this economic age, the age of heedless industry, is coming to an end. Build smart: lots of passive solar, for example. Trains and rapid transit, not expressways. Infrastructure that is easy to maintain. Goods that aren’t frequently replaced.

Learn from China but don’t be just like them, use them to create a non car-centric, non-disposable economy. If you do so, you’ll be one of the nations who prospers in the next age.

China is an opportunity to get on a ladder. Choose the right ladder.

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The Supreme Stupidity of the “End of History” And Its Consequences

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On August 31, 2023

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I remember the first time I heard of Francis Fukuyama’s “The End of History”, and I remember thinking “no one can be stupid enough to believe that.”

But I knew I was wrong, because it kept popping up. The article became a book, even, and fools further down the intellectual stupidity chain made careers out of sub-theses, like Thomas Friedman’s “the world is flat”.

The thesis of the “End of History” was that the ideological wars were over: democratic market capitalism had won, everyone knew it, and history was in effect over because the great ideological war of the 20th century between capitalism/democracy, communism and fascism/democracy had ended. Everyone admitted that democratic capitalism had won and was the best system and now inevitably it would sweep the world and usher in an era of prosperity and relatively good government.

This is what elites wanted to hear after the fall of the USSR and Francis was the one to tell them. He was considered a great intellectual, made lots of money and elites proceeded to act as if he were right.

There were a lot of knock on consequences but there two were most important. The first was that without a competing model, western elites felt free to really rev up the immiseration train started by Reagan and Thacher. Post-war elites had been genuinely scared of Communism, in the “we could wind up dead” way and that had driven a lot of their acquiescence to cutting ordinary people a good deal. (A lot, not all. Much of it was just that the Great Depression cut their legs out from under them, and FDR then broke their kneecaps.)

The shipping of industry to allies and to the third world did not start at the end of the Cold War, but it did go into overdrive. The old police was to make sure that the countries it was sent to were not a real threat: either small to medium developing, or American allies. Now, however, the offshoring and outsourcing train traveled to China. Deng had opened up markets and privatized a large chunk of the economy, and Fukuyama had said that capitalism lead to democracy, so by shipping all that industry to China, well, the West would make them into a democracy.

The Chinese Communist party, in this storyline, were a bunch of suckers, who were inviting in the very forces which would overthrow them.

The line in poker is that if you don’t know who the sucker at the table is, it’s you, but the real danger is when you think someone else is the sucker, and they aren’t.

The CCP had understood Americans and the West very well. Ironically they were aided in this by Marxism and their belief that capitalists were blinded by greed. They offered Western elites cheap labor and high profits and dangled the dream of access to a market of a billion people.

There was a time when it was understood that what made countries mighty was industry, and that you kept the industry at home. In the post-war era that was relaxed: by you still didn’t send your industry to anyone who might well become an enemy.

But history was over and there were no enemies and the West, with its transnational elite largely shorn of patriotism figured they’d co-opt Chinese elites and make them no longer nationalist.

They didn’t understand that the CCP didn’t feel that way: they were proud of being Chinese and they also believed that if they lost power a lot of them would wind up dead. They obsessively studied the fall of the USSR (and its communist party) and were determined that wouldn’t happen to them. And they deeply resented the west, including America, for the “century of humiliation.”

Sure, they were willing to go to a mixed economy with a lot of capitalism, but they were determined to stay in charge and never become democratic capitalists, and they wanted to return China to its natural place as the richest and most important country in the world, a position it had occupied for most of the last 2,000 years (before that it was India, and before that it was Mesopotamia with Egyptian interregnums.)

So you had two bets. The West, led by America, bet that if they shipped industry to China, China would become just another country like them, happy to be part of an international community running on laws that had been created when China was at its weakest.

The Chinese Communist Party bet that they could let some capitalism in and catch up in technology, and even exceed the West in terms of industrial base.

We now know who was right, and it wasn’t the West. Our tech boycotts are a sign of weakness, not strength. We know we can’t stay ahead of them without restricting their access, but it’s very much a case of slamming the barn door after the horses have left. The tech lead moves to where the manufacturing floor is. Britain stayed in the lead technologically for about 20 years after the US became the manufacturing power, for example, but it was a lagging indicator, and ironically Britain had done the same thing America has done with China: it invested big time, built the factories and transferred a ton of tech.

Fukuyama was full of it. He sold a fairy tale to an elite desperate to believe they had won forever and he in selling it and they in believing it took the exact steps required to ensure it wasn’t true, by empowering the only nation in the world strong enough to challenge America. (India was never in the running due to severe corruption and governance issues.)

But the people who engaged in this foolishness (from the POV of the Americ and its allies) reaped their mortal reward: the elites became stinking rich, and Fukuyama become wealthy and was regarded as a genius for telling the story his audience wanted to hear, even if it was obviously wrong.

History never ends. There is no end-state ideology or system and when someone tells you the world is exactly as wonderful as you want it to be, run.

Folks, it’s your donations and subscriptions which make it possible for me to keep writing (since I need to eat and pay rent and the cost of both have skyrocketed) so please (if you aren’t struggling) DONATE or SUBSCRIBE.

The Essence of Capitalism

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On February 21, 2023

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Eric Anderson wrote an excellent post on how late-stage capitalism engenders mental illness. I thought I’d follow it up with a simple post on capitalism.

As the name implies, capitalism is the accumulation of capital. This doesn’t mean money, primarily, that’s not what the early theorists meant by capital: they meant the means of production: land, workers, resources and capital goods: machinery in particular.

Capital is the ability to make and grow items. Because of economy of scale, if you concentrate capital it is easy to increase how much you make: Adam Smith’s famous pin factory.

But to concentrate capital you have to take it from a large number of people and put it in the hands of the few. This has been covered by a number of authors, and it involves taking away the commons rights of people in Europe (their right to use the land, which had existed for about a thousand years or so). We demonize serfs and peasants, and they had to engage in demeaning acts of servility, but they had strictly defined obligations to their lords for a certain amount of work, crops and animals and once that was taken care of they were able to spend their time as they pleased and they could grow crops on land they had right to; pasture their animals and so on.

Economists call the concentration of capital “primitive accumulation” but what it was was taking away property rights from people so they couldn’t support themselves. This forced them to go to cities and work in factories and so on, where they lived shorter lives, worked a hell of a lot harder (6 1/2 12 hour days were pretty common) and were sick a lot more often. The freedom of capitalism is the right to sell your labor, not the right to control how you spend your day. Unlike serfs and peasants, who were tied to the land, you could choose your master, but for most of the population, that’s what it was, a choice of masters, at least when there weren’t enough workers.

In the rest of the world European capitalism was about conquering land and into the 19th century, about taking slaves. The only thing better than workers who are desperate being workers who you didn’t even have to pay.

Capitalism, again, is about concentrating the means of production, capital, in the hands of the few. It is justified by the idea that concentrated capital is more effecient and therefore everyone has more. There’s a lot of arguments about whether that’s true and we now know, for example, that land clearances didn’t increase agricultural productivity much more than on communal lands, and in the case of some crops, communal lands were more efficient.

But it’s hard to make the case for the path not taken. Perhaps communal forms could have worked, I think they could have, and would have produced more prosperity in time, since they didn’t involve impoverishing people and two-thirds of the non-European globe, but… the water is passed and the argument is important not for what might have been, but for what might be in the future.

But all systems are made up of means and ends. Capitalism justifies removing the ability of most people to support themselves without working for others beyond what amounts to taxation by the violent authorities (that’s all governments. Don’t pay your taxes and eventually the big men with guns will show up, just like the knights did when a peasant didn’t meet his feudal contract.)

The means of capitalism in the modern world amount to “wage slavery,” something well  understood by they yeoman farmers who were being forced off their land in the 1800s, and who seem to have coined the phase. You will have a master and if you can’t find one, you will starve.

It’s important to separate “capitalism” and “industrialization”. Because we industrialized under capitalism we think of the two as the same thing, or perhaps as co-joined siamese twins, but it’s not hard to imagine industrializing, which is about machines and assembly lines, in different ways: perhaps with communal organizations co-owning the means of production. This is distinct from Soviet communism, in which the government effectively owned everything, leading to the normal problems of totalitarian organization. Plurality and capitalism and synonyms.

This is something you need to think through; to imagine, for yourself. Try and come up with different ways industrialization and technology could have advanced, and don’t be caught up in historical inevitability. If you think that the past could not have been any different, then you effectively believe the future is determined.

This is one of the issues of Marxism: historical determinism. When it turned out (at least so far) that the historical dialectic didn’t work out how Marx and Engels envisaged, well, the house of cards collapsed. You have to give up inevitability to have choice and the ability to adapt.

We have plenty of options for the future and do not have to make the mistakes of the past. The first principle is that if your means are bad, no matter how good your ends, your society is going to have huge problems. You can’t routinely do evil, day in and day out, and expect the some invisible hand to lead to a good world for all.

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