I, for One, Welcome Our New Chinese Capitalist Overlords
Or, Why Chinese is Good for You

Bourgeois nations cannot sustain autarky. Any survey of history will demonstrate this fairly clearly. No nation with a large, affluent population (whose affluent members are not necessarily part of the ruling elite) has ever been capable of maintaining a fast grip on the standard catalogue of dictatorial powers that most of the human rights lobby most detests. The powers of the most despised dictatorships usually include a heavy hand in the economy which keeps out all but insiders, party leaders and those capable of providing substantial tribute (be they local oligarchs or foreign corporate figureheads). They also include a general lack of respect for the privacy and autonomy of a person's daily activity (usually in the way of actively dictating the career, consumption and relationships of private citizens). Such powers also usually allude to a strong military integration with political power, in the sense that the military and its generals are involved in the everyday decisions driving the directions of politics.

I would argue that the first two factors listed above are almost entirely absent in China today (meaning right now, 2006). On the first count, private start-ups and small businesses are burgeoning in China. Laymen are creating corporate empires and forging massive contracts with multinational corporations both behind the backs of officials, and even in front of them with absolutely no sanction. Growth on China's current scale is impossible to conduct under the auspices of central planning, let alone centralized definition. China is a far more open economy today than even America was in its industrial heyday of the late 1800s.

The fact that there is emerging an incredibly consumer-conscious urban middle-class in China is incredibly telling: they have choice in what they buy, who they marry, and where they go. They are traveling, investing, and thus analyzing the world around them. They might not get the same results as their friends on the west side of the South China Sea when they type in "democratic revolution" in their Google toolbar, but such trivialities can hardly constitute a totalitarian limitation on their social mobility.

Domestic spying is widespread and politics is a career only available to a slim, well-connected minority. That's one complaint I've always had about America. Despite the fact that China mimics these particular American traits, its government plays a far lighter role in large-scale economic activity than America's. Whereas the Anglo-Saxon world covets and coddles the small-businessman and shopkeeper like a national treasure, China resembles more closely the Continental model of public-private partnership in pursuit of national champion corporations.

This brings us to another fear often voiced by the non-Chinese paranoiarama: that China's economic growth comes at the expense of growth in Europe and America. I call bullshit on that by a huge factor. If growth is sluggish in Europe, it is because Europeans are all well-educated and well-leisured and European corporations are limited by regulation and capital budgets. If growth is sluggish in America, it is because Americans are deeply in debt and pouring far too much of their capital plant into real estate, fuel and consumer goods. In either case, China's economy is not at fault for these imbalances. China's growth is being fueled almost exclusively by its open economy.

China offers no natural or 'spiritual' advantage to any other large, populous part of the Earth. Its largest single advantage is the same advantage any empire possesses: uniformity of environment. Anglo-American empire of the early 20th century offered the advantage of a global network of open industrial economies based around common legal framing and a common language. This allowed first the British and then the American empires to dominate world trade. Now we have China - a huge geographic entity enforcing a uniform legal framework and common language and culture on a population of nearly a billion and a half individuals.

That's an indisputable advantage against a state such as France or Chile or South Africa. But it's not an advantage that China has obtained from the economies and states that loathe it. It's an accident of history or a result of empire-building, depending on your choice of spin. It's still not an advantage over a (potentially) unified Europe nor an open and immigrant-friendly American free-trade bloc. That's where a vast, unskilled, poor population comes in.

This is no advantage. It's touted as such by every pundit and China-basher on TV, but it's an absolute thorn in any nation's side. It's not even a real advantage to the Western multinationals that take advantage of it every day - it's a ticking time bomb. Every fast-growing poor country on Earth will, without proper structural thoughtfulness, destroy its own success because of this so-called advantage. The reasons are the two little economic daemons called education and wage inflation.

The more open an economy, the more potential that economy has for growth. The more raw resources an economy contains, the faster that growth will be. The easiest raw resource to exploit is labor. Unlike other commodities such as oil or gold, however, mining the labor pool does not make labor scarce because it gets used up, but rather because humans have a habit of investing the returns on their labor in education and labor-reducing capital expenditures. The latter is often a consequence of the former, since education tends to increase the cost of labor as the skills performed by the laborer become more valuable. As the pool of low-value labor becomes more scarce, capital investments are made in labor-saving devices to replace the low-value laborers that are no longer available.

This is the way all open economies operate. As I stated earlier, China is an incredibly open economy. Thus, it is growing incredibly fast and the process of wage inflation and low-value labor replacement is matching this pace.

If there was a permanently limited global pool of one million software designers, and wages were always lower in China, it would be feasible to see all these jobs eventually go to China. However, technology changes, as do labor needs. The number of jobs available worldwide in any given field are limited only by the pace of innovation and economic openness across the globe. And as one economy becomes more skilled and total investments in its labor pool increase, its wage earners demand greater rewards. Eventually, Chinese software designers will be demanding as much or more compensation as their counterparts in San Jose (some American firms endeavoring to recruit in eastern China are saying it's already happening).

In the meantime, American and European workers fret that their wages are being depressed by Chinese competition. Boo hoo. The alternative is protectionism. Do some research on the relative openness of world economies over the past century and you will find that the time during which trade barriers and economic regulations were most intense were in the miserable and volatile years between the two great wars. Since the 50s, global trade has gradually opened more and more and since the 90s, its barriers have been virtually eradicated. It's little wonder that the poorest countries that have participated in this opening are benefiting most from it. But look around at the gadgets and improvements in your life in that same period. I would guess you're not doing to shabbily from it either.

The fact is, without the openness of trade precipitating the explosion of growth in Asia and Latin America of the past two decades, America and Europe would not be experiencing the modest to moderate growth they have in that time span. When real competition with Asia and Latin America really begin (eg, when skilled wages reach something resembling an equilibrium), growth will slow rapidly in countries which have not properly attended to their economy's structural balance. Countries which have trained too many people in the wrong skills will find their education investments losing value. Economies with poor innovation in their corporate culture will be in direct competition with firms across the globe who "think outside the box" and whose employees ask for similar wages. This spirit of innovation and corporate culture will become the new wage competition. Most firms put a premium on efficiency and originality - America and Europe have experience on their side and may fare well on this front.

Of course, if America were to continue in its ruinous asset-price inflation and negative savings rate and equity market bubbles, it could crash and burn for decades even after Chinese workers start making more money than their American counterparts.

Or China could learn these dubious skills, too, just as fast as its creative urbanites learned Perl. The point is, China is experiencing far more rapid growth than Europe or America, but this growth has not been at the expense of Europe or America. China's growth has been the result of the opening of its economy in an era when world trade was unprecedentedly free already, and that economy full of cheap labor has generated massive consequent efficiencies.

No one needs to wait for true wage competition to come to notice the advantages of Chinese growth. The products coming out of China - both the manufactured and the intellectual - are among the highest quality in the world. And no one can afford these products more readily than America and Europe. And these products - especially the most technologically advanced products - are improving efficiency and productivity in Europe and America - from office machines to robots to heavy equipment and powerful software.

It's hard to keep a straight face when hearing hippie pundits whine that China is making cheap, low-quality goods that Americans have to borrow to afford. The truth is, most borrowing is due to unsustainable reinvestments in inflating assets such as equities and real estate. The vast majority of the goods shipping from China are cheap consumer goods and industrial durables, and account for a very slim percentage of consumer debt. China's industrial and service product are among the most welcome and useful in the global economy, and their demand is being driven not by their price but by the continued growth and innovation still driving the economies of Europe and America (and Asia, and Latin America).

We can of course, return to the structural issues: can China sustain this pace when faced with increased wage competition from abroad - from such places as Vietnam, India, Indonesia and Bosnia? I argued previously that China's economy more closely resembles the state-corporate culture of continental Europe than it does the Anglo-American model. This could prove a severe hindrance to a high-wage, high-cost country within a decade or so. China will prove to be an expensive place to live, due to geography, population density, and a general dependence on imported food and energy. This means wage competition with the populations of California and Germany will be fierce, and if China has a corporate culture which shuts out innovation or labor-market flexibility, as recent trends demonstrate the economies of Europe are persistently wont to do, it will stagnate and creep along in desperate need of reform like modern Germany and France.

Which brings us back to China's autocratic national government. China's government, though very open and encouraging of economic expansionism, is a stodgy and conservative sort, severely lacking the openness and penchant for freewheeling as America, or even Europe. The past twenty years have shown the state explicitly encouraging and favoring the growth of the industrial and manufacturing base, to the detriment of the higher-value industries such as software and biotech that savvy startups in Bangalore and Delhi have latched upon. Either this government will liberalize and free its economy of one last great wall in its way to global economic dominance, or it will remain in place and the burgeoning Chinese middle class will begin investing their new wealth abroad in industries and countries with more of a future.

Which brings us back to the final question: whether China's growth is merely a means to an end for a dictatorial, expansionist, militaristic government bent on eventually undermining or replacing American power and influence, or if China's growth has gotten completely out of the control of the communist party and its military arm.

My advice: take some classes and learn some Chinese now. You're far more likely to use it as a visiting corporate executive than as a WWIII prison-camp inmate. China's leaders, no matter how power-hungry and myopic they may be, cannot possibly miss the fact that an open economy and free global trade are what have given them their power, and that they disturb that balance at their peril. China may (nay, will), eventually match and surpass the economic and military might of America, but chances are, the lessons of a century of free and global trade will mean Americans will greet with open arms their Chinese corporate bosses, military alliances, and trips to Mars on Chinese rockets.

Free your trade, and the rest will follow.