That’s Not the Goal I’m Working For

by John Brian Shannon

It was fascinating to read the Project Syndicate article by Former US Secretary of Defense Harold Brown on America’s trouble with China discussing some of the history and modern-day challenges to Sino-American relations.

Although I have the greatest respect for former Secretary of Defense Harold Brown, I respectfully disagree with his proposed solution to the present challenges. Starting a new Cold War to secure America’s future is a step backward — not a step forward.

Rather, as both Western and Chinese interests converge at so many levels in the modern paradigm, it is in our best interests to work on solutions together.

Instead of the “Win – Lose” thinking of the past, it is incumbent upon us to find ways to “Win – Win” as so much is at stake.

We survived the last Cold War, but that is no guarantee we would survive another one. It’s simply too big a risk to take — especially when there are better options available. And, there are.

The former Secretary of Defense states that; “China’s export-led economic model has reached its limits…” and I believe this is a most profound point.

IF China has reached it’s export-led model as he asserts, it has only done so because there are presently a lack of purchasers to purchase Chinese goods.

For years, China has manufactured products to sell around the world and as long as there has been plenty of disposable income in the West, there has been plenty of sales.

As the Western economies fell backwards — so did Chinese exports.

Funny how that works.

In case policy-makers haven’t yet reached the same conclusions as I, let me say the situation I describe above is easily verifiable and directly correlates with the economic events of the early 21st century.

Whether political leaders in the U.S. or China like it or not, the relationship has been, is, and must continue to be, a symbiotic one.

China NEEDS a healthy, stable and frankly, a wealthy Western world to sell it’s wares to — and the West needs a source of low priced goods to assist growth to continue at lower cost than otherwise would be the case.

The U.S. needs a large export market for its billions of tons of coal and millions of barrels of petroleum that it must sell every year to support those industries here.

By 2017 the U.S. will surpass Saudi Arabia as the world’s #1 oil exporter — according to the IEA — but in actuality, this may occur in 2015.

http://arabiangazette.com/us-top-oil-producer-2017/

Not only that, so many products are manufactured by American corporations in China at lower cost than they could be here — therefore personal happiness is enhanced on a massive scale by products Western consumers can afford. Thanks China!

And without a healthy China (and Japan) who will continue to buy all those T-Bills to float the American economy? Along with all of the other China-driven (and increasing yearly) investment and purchasing of American goods and services.

For the next few decades, the only politics that make over-arching sense will be the politics of economics. For now, more than ever, the politics of self-interest will be the politics of economics and the politics of economics will be the politics of self-interest.

The stronger the Chinese economy, the better the effect on Western economies and Western governments. The stronger the American and other Western economies, the better for Chinese exports.

Any other model will be a lesser model and will bring it’s own problems with it.

As for the long-range bomber advocated for by former Secretary Harold Brown. I too, want a strong, secure and freedom-loving North America — but let us hope the days of Mutually Assured Destruction (MAD) are over.

Instead of sabre-rattling and an ever-present nuclear threat, let us hope that our thinking as a species has moved on.

A Pentagon report laid it out in stark terms a couple of decades back, “it is not a case of if, but of when” a nuclear exchange will take place under the MAD paradigm.

If we can’t co-exist, if we can’t form and retain viable and symbiotic relationships with other nations — every one of us will be dead, eventually. And then, none of it will matter.

That’s not the goal I’m working for.

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Read more at: http://www.project-syndicate.org/commentary/from-competition-to-confrontation-for-the-us-and-china-by-harold-brown#yD3qLMzsctZhgiyR.99

JOHN BRIAN SHANNON

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Communist Price — or Western Value?

by John Brian Shannon

Hey, stop, what’s that sound? Take a look around. Is everyone driving the cheapest car or carrying the cheapest handbags?

Hell no!

And why is that, exactly? Why isn’t everyone driving the latest Chery car — which is an extremely affordable car built in communist China? Or, why isn’t everyone buying the blue communist party uniforms made from a long-wearing material that will stand up to the elements for decades? Why are people all over the world buying expensive cars, handbags, jewellery and electronics, just for a few examples?

The reason is; There are effectively, only two kinds of markets in the world. Upmarket and downmarket and there are legitimate reasons for the existence of both markets.

On the one hand, you have upmarket goods and services, which have traditionally been the preserve of the rich Western nations along with an entire middle class in the West able to well-afford those upmarket goods and services. How convenient!

Could it have been planned this way? Why yes, it was. It has been the economic miracle of recorded history.

On the other hand, downmarket goods and services which have traditionally been manufactured and sold in the developing world — are priced according to local market conditions there. Very convenient for the developing world.

Since the industrial revolution, this is how the marketplace has worked. Upmarket goods were manufactured and sold in wealthy Western countries and downmarket goods were manufactured and sold in poorer countries.

Until now.

Suddenly, many upmarket goods are being manufactured in developing nations and a small but growing percentage are being purchased in developing nations.

The West used to own this part of the market, but for the first time since the Industrial Revolution, the East is increasing it’s ownership of this formerly Western-only marketplace. At the same time, the downmarket goods and services haven’t gone anywhere and are still being manufactured by and sold in the developing nations.

Translating into ‘a loss for the West’ if you see things through the Western prism. If you see things through the Eastern prism, you might call it, ‘Advantage East’ or something like that. I call it something else, but more later.

Let me speak clearly on the situation the West now finds itself in; When you haven’t manufactured downmarket products in the first place, but then relatively suddenly, you lose fully half of your upmarket manufacturing to the developing world — that can only be called a paradigm shift in the marketplace.

Some Western politicians, corporations and junior economists have looked at this and in a panic, have announced that we must lower our costs — to match our competitors costs in the developing world! And, either by lack of action, or by actively supporting this line of thought, they have allowed this trend to continue in the Western nations and over time the problem has become much worse. Unwitting traitors, all.

Wages, benefits, unions, workers, unemployment, health care, retirement age, the housing market, traditional Western upmarket manufacturers — all these have felt the winds of change blowing in from the developing nations. It’s a race to the bottom.

“We must compete with China, we must match their labour rates, lower our social entitlements, we must lessen our national infrastructure spending — otherwise we will be beaten in the international marketplace by countries which already have those lower costs built right into their economy” — or so the thinking goes.

Which is wrong.

Rather than call this new paradigm, ‘Advantage East’ or ‘Loss to the West’ — I call it what it really is, ‘Opportunity Knocks‘ for that is what it is. The shift in the world economy is not a time to recoil in horror and then race to the bottom to try to match our competitors costs.

It is a time to do what we do best. It is a time to do what we do better than any other nation or bloc of nations. It is time to remember what has made us great since the beginning of the industrial revolution — and profoundly, do more of it.

If the great wisdom says that we must win, or at least compete in the great race to the bottom by lowering our labour and other costs and manufacture products of lesser quality, why aren’t we all driving Chery cars and buying no-name handbags?

Why are car companies like GM, Ford, Mercedes, BMW, Land Rover, Toyota, Lexus, Infiniti and the like, selling at near-record volumes and recording great profits? Why are Chanel, Louis Vuitton, lululemon and many others selling their wares at good volumes and profits?

Value vs. price.

In the race to the bottom, the only thing that matters is price. Price of labour, materials, production line, merchandising and profit. Price, price price, comrades!

If price was all that mattered, wouldn’t we all be driving cars built by China’s Chery Motors, or India’s Tata Motors? But, we’re not. And that is not to knock those cars — as I said above, there is a legitimate market for BMW’s, just as there is a legitimate market for economically-priced cars.

If price was all that mattered, we would all wear the blue communist party uniforms, which cost the equivalent of $2.00 U.S. dollars. But, we don’t. Many of us in the West think nothing of walking out of the mall with a $60.00 pair of jeans, or a $100.00 pair of dress shoes. Why? The ‘price-only mindset’ says it is illogical to spend money on clothes.

But we do, because we know the value, of, well, value. If you are fortunate enough to own a Toyota or a Mercedes, you know that you enjoy the ownership experience of a quality vehicle, that you will be well-protected in case of a crash, it will last a long time (assuming you do the proper maintenance) and you can in good conscience, gift it to one of your kids after they graduate and know that they will have a safe, reliable car to drive to college and it will still be in great condition many years later.

Why do many women buy a Louis Vuitton handbag? Why not a purchase based on price alone? Well, I can’t answer that question for you. But, I notice those bags continue to be very popular and it is the rare woman in this part of the world that doesn’t have at least one. It is completely illogical from the ‘price-only’ perspective.

Which is my entire point. The price of something is just the price. Anybody with any disposable income will always opt for a better-quality ownership experience and will pay more for a better quality product  and sometimes, much more!

Which proves it’s not about price. It’s about value for money. So, let’s stop trying to compete on price.

Our economists must convince government policymakers of that fact. We need to stop trying to out-compete the communist system and their communist-priced products. It is a battle we will lose every time, for they have already won that battle. The  downmarket was always theirs. It is a state-subsidized market. We can’t compete in that low-profit world, unless we merge our corporations with our government to create our own communist state. Not many takers on that idea, I’ll bet. Goodbye Louis Vuitton — goodbye Mercedes!

We need to compete on what we do best. And why not? The statists compete on what they do best.

Here in the West, we build quality. It costs a little more. Our products have something intangible, something that will convince people to pay more — and that intangible is called value. This is what we do best, so let us return to compete on what we do best. We not only build products — we build value.

Let’s not race to the bottom trying to beat state-subsidized companies. We can’t win there. Rather, let’s create products with value, not only for Western consumers — but for a huge, new and growing middle class with real disposable incomes — the (conceivably) five billion (non-Western) consumers in the developing world, many of whom are approaching middle class status in their respective countries.

And, lets keep the manufacturing of our value products here, to provide jobs to Western citizens — so that the West can continue to have a middle class too!

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John Brian Shannon writes about green energy, sustainable development and economics from British Columbia, Canada. His articles appear in the Arabian Gazette, EcoPoint Asia, EnergyBoom, the Huffington Post, the United Nations Development Programme – and other quality publications.

John believes it is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Check out his personal blog at: http://johnbrianshannon.com
Check out his economics blog at:
https://jbsnews.wordpress.com
Follow John on Twitter: https://www.twitter.com/#!/JBSCanada

How Does China Do It?

by John Brian Shannon

Why do all the jobs keep going to China? Everyone wants to know.

The Western nations are short of jobs. At present, 150 million jobs have left Europe and North America over the past 40 years and have been relocated to Asia.

This trend has been in play for a few decades, but it began in earnest back in 1973 when the Arab Oil Embargo caused millions of Americans to purchase economical Japanese cars instead of Detroit’s offerings at the time – the thrilling but thirsty American gas guzzler.

Since that time, not only Japan but South Korea too have exported cars to the Western democracies by the millions. The market share of imported cars registered in 1960’s North America was microscopic but now sits at over 50%. China is now exporting cars worldwide and they are increasing their market share in Western nations.

That about covers the automotive market discussion.

But it is not the entire story. There are other factors at play some of which I will cover below and in future blogs. It’s a big topic… trust me.

For another example, when the West decides to design, engineer and build a new fighter plane at a cost of 100 billion U.S. dollars (a hypothetical number, just for comparison purposes) up to one-third of that money is diverted to corporate profit and doesn’t influence the final product.

When communist China decides to design, engineer and build a new fighter plane at a cost of the equivalent of 100 billion U.S. dollars (a hypothetical number, just for comparison purposes) all 100% of that investment goes towards the design, engineering and build quality of the fighter plane.

This is but one example which can be demonstrated many times over. It’s not just fighter jets. Every military ship, airplane, vehicle, guns, ammunition, along with civilian cars and trucks, industrial mining equipment, farm machinery, electronics, railway cars, locomotives and even the railway tracks can be built for less in China.

Communist corporations which do not have to make accommodations for profits have an advantage over ones that must make accommodations for profits. On the hypothetical American example above, 30% of 100 billion U.S. dollars is… drum roll please… 30 billion dollars! That is a lot of R&D money diverted to corporate profit from product testing, build quality – or marketing and advertising which almost always results in more sales.

Anything we can manufacture, China can manufacture at a lower cost when compared to the Western manufactured item. Thirty percent is just the beginning as some items can be manufactured for 1000% less than comparable products in Europe or North America.

During a telephone interview in February, a sitting Member of the Parliament of Canada told me that it is much cheaper for North American oil companies to dig up the tar sands in Alberta, Canada, transport that material to China for refining and then transport it back as finished products to North America.

It’s easy to do some quick math here. The Canadian Enbridge Northern Pipeline is projected to cost over 5 billion dollars if it gets built. The plan is to pipeline the material to Canada’s west coast (highly diluted with petroleum condensate) and ship it across the ocean to China where it can be refined into pure gasoline, motor oil, diesel fuel and other products normally made from conventional petroleum.

Super-tankers will pick up the tar sand/condensate mixture, which is called ‘dilbit’ once it is mixed together into a consistency which will flow through the pipeline system and transport it in that form to China, where new refineries are being built to receive the dilbit material. New Chinese oil refineries cost 1 – 2 billion Canadian dollars (equivalent), while new North American refineries with their higher land, construction, permitting, labour and emission control costs are estimated in the 12 billion Canadian dollar range – which is why no new refineries are planned for North America.

New SuezMax super-tankers cost between 500 and 900 million dollars a copy, depending on how many barrels of oil they carry and whether they are single-hulled ships or an infinitely safer design – the double-hulled super-tanker. Some super-tankers carry over 1 million barrels of toxic dilbit. Expect China to run 24 – 32 new super-tankers between the west coast of Canada and China 365 days per year.

After refining in China, SuezMax super-tankers will return the finished products to North America for distribution throughout the western United States and Canada’s western provinces.

Even with all these additional transportation costs and other activities – the gasoline, diesel and other products will cost 30% less than when compared to Canadian or American oil refineries performing the same refining operations here.

It remains to be seen whether the oil companies will pass along those cost savings to consumers.

John Brian Shannon writes about green energy, sustainable development and economics from British Columbia, Canada. His articles appear in the Arabian Gazette, EcoPoint Asia, EnergyBoom, Huffington Post, the United Nations Development Programme – and other quality publications.

John believes it is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Check out his personal blog at: http://johnbrianshannon.com

Check out his economics blog at: https://jbsnews.wordpress.com

Follow John on Twitter: https://www.twitter.com/#!/JBSCanada

JOBS: The Key to Capitalism’s Success

by John Brian Shannon

As we all know, several political/economic models are in use in the early 21st century. A little refresher for you first, if your high-school political science classes didn’t especially thrill you.

The capitalist system employed by the Western nations and some other nations, is often referred to as the Free Enterprise system, the Free Market system, Wealth Accumulation, Capital Accumulation or the Open Economic model – depending on the context of a conversation. Politics can vary within capitalist systems – which are often a variant of democracy (civil rights enshrined in a constitution, the right to vote, rights to property and person and freedom of expression) form part of this model. Socialist parties represent the “left wing” and conservative “right-wing” parties are represented along with independent candidates as elected by the registered voters.

In the capitalist system, greed is the primary agent of economic change. If you want to eat, you work for money to buy your food. If you would rather drive to work than walk, you work for money to buy a car and insurance. An individual “works” to earn “profit” to purchase goods or services. The underlying premise being, that if an individual has a decent education and works “smart” and “hard” you will accumulate wealth over time. Western corporations and governments operate in a similar fashion.

So, why isn’t it working?

“It IS working!” wealthy Western individuals emphatically state.

“It IS working!” Western corporations emphatically state.

“It IS working!” Western governments emphatically state.

And in those cases, it most emphatically IS working!

But the rest of us are not. Working, that is. You know… jobs, working, making a living, paying the bills, making the rent… and all the rest of it.

You will recall my words from a previous paragraph; “An individual “works” to earn “profit” to purchase goods or services. The underlying premise being, that if an individual has a decent education and works “smart” and “hard” you will accumulate wealth over time.”

All good there. Except what happens in the capitalist system when there aren’t enough jobs?

The short answer is; A failed economic system. Ever more wealth becomes concentrated in a ever smaller percentage of the general population. You guessed it — 1% of the Western population will always agree that the Open Economic system works well for them.

For Western nations it is death by a thousand cuts and only in the interests of economic survival will our present system evolve into something very unlike the present model and it may take as long as 50 years to do so.

Let me back up a bit.

I promised you a political science refresher and here is the other half of it. The Communist system, sometimes called the Statist model, the Centralized Economic model, or the Closed Economic model, does not employ greed as the primary driver of human activity. Profit, either at the individual or corporate level is unknown and all economic activity is considered the property of the state. The only things that really matter to a communist is the national GDP and the sovereignty of the country. Of course, civil rights and personal freedoms are enshrined in the constitutions of communist countries – although at the end of the day personal rights can be and often are subjugated in the best interests of the state.

For one example of this, in the former USSR alcoholism rates were astonishingly high. But this was never reported in the Soviet media as it was thought that publicizing this knowledge would emotionally depress workers across the nation – and thereby suppress economic output. Therefore and officially, in the former USSR there was no alcoholism – and hence, the government-owned hospitals failed to devise a treatment for a disease which only occurred in the decadent West! If a citizen of the former USSR arrived at a hospital or doctor’s office for treatment of his alcoholism, he was told that he suffered from “an imaginary disease” and was counseled to stop “trying to get attention” by emulating Western behaviors. And no doubt put on some sort of watch list for good measure.

Eventually the former USSR collapsed mainly due to internal forces. However, some communist nations remain and are thriving. China has surpassed India, France, the UK, Germany, Japan and every other country except for the United States in GDP and accumulated wealth – and has done so by employing the statist economic model. According to most economics Professors, China will surpass the United States GDP by 2040. That’s 28 years from now in case you are a Chinese economist counting the days.

The main reason for the dramatic growth-driven economic performance in China is that many Western corporations have chosen to do business in China rather than the West – due to lower land and construction costs, lower labour rates, the lower costs associated with a relaxed or non-existent regulatory environment (depending on the industry and region of the country) and other cost-lowering factors associated with operating a business in China.

Beginning about 1999, U.S. corporations especially, have embraced the opportunity to lower their costs by closing their North American factories and building brand-new factories in China – sometimes with significant communist Chinese government assistance! Other western corporations too, have been closing our factories by the thousands in America and Europe and relocating their manufacturing operations to China – and on account of this economic activity, the Western economies combined are at present, 150 million jobs short of full employment. This trend of creating jobs in communist China whilst simultaneously creating higher unemployment in the Western democracies will continue as long as Western voters don’t complain too much.

By 2030, the Western democracies will be much-weakened in comparison to a still-booming China and the other Asian nations. At that time, Asia will be supplying almost all the manufactured goods for the Western economies which will by then, have lost 300 million jobs to Asia.

Also by 2030, perhaps as many as 700 million Westerners will be retired persons receiving some form of Social Security – while millions of younger people won’t be old enough to join the workforce. It will be a time when less than half of the West’s population will be employed and able to support the Western economies. From the Western point of view, this trend gets worse until 2060 when economic performance is expected to plateau in Asia.

A paradigm-shift has been taking place right under our Western noses for three decades now and we have just now begun to notice. China will soon be the dominant world power – and we handed it to them in exchange for higher profits for Western corporations.

It’s said; “He who has the gold makes the rules” – and it is shaping up to be a very different world indeed.

Follow John Brian Shannon on Twitter: https://twitter.com/#!/JBSCanada

Harper Should Lobby for Free Trade with China | MY COMMENT

Harper Should Lobby for Free Trade with China — The Huffington Post – Canada
by Yuen Pau Woo, President and CEO, Asia Pacific Foundation of Canada   January 13, 2012

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MY COMMENT — Free Trade agreements are becoming more common world-wide­. It is up to the countries involved to set their own particular free trade agreement rules and conditions­. Every bi-lateral agreement is different.

But it is a trade matter — it is not a venue to browbeat the other country over their human-righ­ts situation etc. it is simple matter of you sell us X and we will pay Y, on as many products or services as both sides decide to include in the accord.

One thing that we like about this scenario is that by engaging in trade with Western nations developing nations learn our ways. This helps them to progress in real time in all matters, including among other things, best practices for the business community, human rights, environmen­tal legislatio­n and the reasons for those standards.

Where there is better communicat­ion — better relationsh­ips result.

A FTA with China, Japan, India and other countries will facilitate better relationsh­ips with those countries AND improve Canada’s economy.

Will an FTA solve every problem? No, obviously not. There will never be one big agreement that will address every identified negative policy or procedure in a developing country. An FTA will however, play an integral part of that process going forward.