Monday, August 2, 2010

Heading Towards Convergence

There's a good Economist article discussing the trends occurring in China that are leading towards convergence with the developed world. Basically, labor unrest is growing, disparaties between coastal and inland development are shrinking, the labor pool is being reduced, and productivity growth will likely begin to slow. This is good news and will lead Chinese incomes to grow making more of their development based on internal demand rather than export reliant which should help to increase imports and foreign jobs, including some here.

This all leads to a couple of thoughts. First, we have to manage our relationship with China carefully. We need to remind them how important we are as well as try to get them more fully imbedded in international institutions so that they support these and help them grow and adapt to a changing world rather than feeling that they'd rather upset existing arrangements so they can try to shape events and institutions to their own ends from scratch. Based on this, I continue to favor the more conciliatory policy we've been pursuing to China on trade, while we're suffering the costs now bearing them makes it more likely we'll enjoy the benefits later, which will be much longer lasting and more beneficial than the pain the present costs are causing.

I also like the harder line we're taking on matters that we have more influence over. The offer to aid talks over disputed South China Sea islands reminds China that while we may have little freedom to maneuver on economic matters at the moment we still have very significant freedom of action in other areas. It also nicely serves to remind them of how much value we place on international institutions and multi-lateral action (short aside, I think perhaps the most critical foreign policy goal right now should be to strengthen our international institutions while we still have the power to do so, nothing is more important with so many other powers rising and becoming bigger players in the international system, the short term benefits of pursuing unilateral action come at too much expense to our long range priorities, I hope we have time to heal the damage from earlier unilateralism). This is exactly the kind of strategy we should be pursuing towards China, playing to our strengths and waiting for better conditions where we are currently vulnerable.

The second thought is that as a result of these changes in China we're nearing the point where the great divergences in wealth and power between societies is coming to a close. This was an unusual shift in world history that has only been true for a few centuries, with most of Asia experiencing convergence this disparity is coming to a close. The Asian round of convergence still has a little ways to go, China's not quite done yet and there's still some ways to go in South and Southeast Asia but the great disparities should be gone in a decade or two. There's probably one more round of convergence still to happen in Africa that will give us another round of cheap manufactured goods as they industrialize. After that, it's over. The successive industrialization of underdeveloped areas and the cheap consumer goods coming from that will be done with (assuming mechanization doesn't beat out low wage rates in this development, which is a viable alternate scenario). This strange and unprecedented chapter of world history will be over and the world will go back to normal after a few brief unusual centuries.

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