MCBASSI & COMPANY

Labor unrest in China

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The seemingly endless pool of labor in China has finally dried up, wages are quickly on the rise, and emboldened workers are beginning to organize to demand better conditions.  The Chinese government is demonstrating a surprising degree of tolerance, knowing that rising wages are both unstoppable and ultimately necessary to the political stability of the country.

This evolution is an essential step in achieving a more stable world economy.  Unless and until China begins consuming more of the goods that it produces, trade imbalances and unsustainable borrowing (particularly in the U.S.) will continue to escalate. 

So we should all keep our fingers crossed that this stage of China’s economic evolution is allowed to unfold peacefully, since attempts to constrain it will result in repeated cycles of violence as well as prolonging the much-needed adjustment to more sustainable levels of consumption throughout the developed world.

Yes, we will have to pay somewhat higher prices.  But paradoxically, as workers’ wages and standards of living begin to rise in China, so too will they in the developed world as jobs that heretofore would have been shipped to China slowly begin to return.

India vs. China

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Who will be the next great economic superpower – India or China?  This is a topic of open and frequent debate in India. 

Indians summarize the major advantages that the Chinese have over them as (at least) threefold:  a controlled, orderly society; greater investments in infrastructure; and a large surplus of cash.

Indians, on the other hand, have a considerable language advantage (many more Indian people speak much better English than do Chinese people, a big advantage in a business world where English is typically the common language).  In addition, India has a much more under-employed economy, whereas labor shortages are already emerging in China

And then there is the issue of China’s much more controlled economy vs. India’s wildly chaotic economy.   (Indeed, some Indians openly yearn for a bit more Chinese-like control and planning in their economy.)

In the end, I think this last factor is the key that will determine which of the two economies will win the race to superpower status.   Will India achieve greater growth through chaos than China does through control? 

Still a lot of unknowns, but based on what I’ve experienced during my visit here, I’m placing my bet on India.