Wednesday, June 20, 2007

Made in Japan vs. Made in China

Everyone talks about how much crap, and I mean it, crap is made in China these days. Why can't we buy something that says made in the god damn USA! Our country. Yes American manufactring is on the decline in number of manufacturing jobs, but total American exports have hit all time highs. See this little thing called the productivity miracle in the 1990s made the American economy super efficient, but like a double edge sword, in times of growth, that higher efficiency meant we did not have to hire more workers to produce more goods. Doh! Hat tip to Barry Ritholtz, who does answer the emails of lame bloggers like me. Instead of paying attention to this and writing about it, the media focuses on jobs going to China. Oh yes, those Commies who found capitalism and combined it with forced, slave labor. Made in China is just following in the footsteps of Made in Japan as a source of grief and cause for angry outbursts. In reality, Made in China enbodies a totally different idea: cost vs. quality.

This horrifying story in the NY Times shows how Chinese products can be dangerous and poorly made. Better yet, let's put poison in pet food. Maybe I could bring up the other dangerous exports. Nah, the list is too long. Thanks China. Or should I say thank you American corporation who saw fit to move manufacturing into China with the help of an oppressive regime to save dollars and increase profits... Let's think about this. We're getting what our companies, which we as investors in the stock and bond markets paid for by shipping jobs over there. This is not computer coding and other white collar customer service center work that requires some skill like the giant operations in India. This is brute manufacturing, performed usually by poor peasant farmers leaving the horrible conditions of the interior for the growing coasts. These entities do not have standards, and our ports can only inspect so many crates that enter US ports (ask Homeland Security). No one thinks of Made in China and thinks "this is quality top notch shit". It's wow, this knick knack is a piece of shit that will probably break in 2 years.

That feeling is completely in contrast with what Made in Japan meant 20 years ago and still means today. Japan is a democracy, but where the elite have even more power and control than conspiracy theorists acuse rush US citizens of having. The economy is vibrant but has an odd tradition of being made up of keiretsu. It is a scary idea to think of how much capital is controlled by so few "houses". A Japanese classmate of mine once explained keiretsus in this basic concept. A bank facilitates capital being spread out in diverse enterprises to protect against risks. Some keiretsu even go so far as to make sure that all subsidiaries are owned 51% by the higher company. Therefore, final control always goes up the chain. These companies took advantage of their nation's compulsion to save and made huge capital investments. High quality products were made, and standards for production and manufacturing were created that many companies globally follow today. Teh chinese can follow those standards today and have success. Still, the Japanese had one major power over their current Chinese counterparts. Innovation.

Innovation is truly what drives an economy's growth. If you do not create, think and innovate, your power will erode and you will be replaced. This is what makes America so great economically. We innovate. If things don't work well, companies crash and burn, and like the phoenix, new ideas or companies emerge. The Japanese were known for making highly dependable cars, small yet outstanding electronics, and refined technologies. There is a reason the US markets get the high tech toys a year after the Japanese market. They are created there. Japan is currently a leader in robotics, with a ton of space between japan and number 2. This is a critical difference: Japan innovates with electronics, industrial robotics and ideas, China just duplicates.

An esteemed economist from Singapore once presented to my International Trade class his fears about Singapore. He was from Singapore and had been a consultant for his country's government, but they did not listen to all his advice. He spoke of Singapore 'making' things, saving money, but never innovating. The entire process of industrializing brought with it materialism, erosion of traditional values, and what the red hot chilli peppers call "californication". His biggest fear would be that foreign companies would find a cheaper place to make their knick knacks and move production there. He wanted more variety to the economy and to the type of job. His fears were well founded, and the economy is in the process of diversifying. (I know it is trying to be the Asian version of Switzerland for banking.)

This fear of a cheaper foreign market of labor is something China does not have to worry about right now. China has countless poor citizens looking for work, who will continuously pump the supply of labor so that it keeps wages down. When that fails, forced labor will keep wages down. China has not shown the innovative touch that the Japanese economy has, and they do not need to for a while. I still think they have major political hurdles to clear before full potential can be realized. In addition to the political challenges, China has no 'exciting, new' products for consumers worldwide. China's problem of innovation is not solely restricted to China as other Asian countrie just believe in export, export, export never bothering to create. They artificially keep their currencies depreciated, which makes it impossible for trade balancing to happen for the US. The bill will come soon when the crack addict known as the US consumer goes to rehab and comes clean, and the dealers (Asian exporting economies) are left holding tons of product. In the end, they will holding onto boxes and crates of useless knick knacks.

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