China is the next USA. Minus the democracy, of course. And the property rights. And the compunctions about slave labor. What we were to the world at the beginning of the last century--an energetic, expansive, economically irresistible force, the next big thing--1.3 billion Chinese are now. The mainland miracle inspires enormous trepidation and enthusiastic trade. We embrace its promise of low-cost plenty even as we're sent reeling by it. Consider the phenomenon of Wal-Mart providing Chinese-made bargains to the same people it's helped throw out of work.
"If you were a European waking up to the fact that the United States is on the way, figuring out how to make things better, faster, cheaper than you," says Ted Fishman, "then you would have been feeling something similar" to what we are now.
A Chicago-based financial reporter and the author of China, Inc., recently published by Scribner, Fishman makes it clear that we still have an awful lot of waking up to do before we're fully conscious of just how much has changed. His reporting from China, Germany, Japan, and American outposts like downstate Pekin combines human-interest vignettes with muscular fact-finding to create a portrait of a new international order in the making.
Tony Adler: Would you give a quick overview of the book?
Ted Fishman: China, Inc. is about how the enormous changes in China are changing the rest of the world. It starts with the largest migration in human history--which is 300 million people picking themselves off the farm and walking into an urbanized, industrialized economy--and how that is changing the way Americans, Europeans, Japanese, and most other people in the world shop, work, act as citizens, and raise our children.
TA: Those changes have done a lot of harm to manufacturing in America. Is the worst over?
TF: Our economy has suffered very little compared to what it may suffer in the future, as China gets more sophisticated. So far it's taken the low-wage jobs that were there for the taking, but now it's trying to take the best jobs on which we've spent the most money training talented people. This is a wave that's about to hit.
TA: And we're helping it happen.
TF: We've made it extremely easy for our best companies to transfer the best of what they have to China. As we move our better manufacturing there and large, very sophisticated companies move essential functions like research and development and have Chinese scientists and engineers--who work for a tenth of the wage of Americans--doing work that was formerly done here, we're going to lose our edge in innovation.
TA: Can't we control the process, the way we would with any contractor?
TF: The innovation comes from the environment in which products are created. As the deep expertise on manufacturing moves abroad, so does the potential for innovation. People often bemoan the fact that the Chinese haven't invented anything great for the modern consumer economy yet. But China invents fantastic production lines. That's what they do. They invent factories.
TA: The Chinese are famous for pirating all kinds of intellectual property from technologically advanced societies like ours.
TF: What the Japanese and the Germans sell the Chinese is equipment to fuel their boom in factories. What Americans have to sell, and what we sell the rest of the world and do very well selling the rest of the world, is the software and expertise to run those factories--which is just as valuable as the machines. But the thing is, the Chinese have decided that things that exist in the idea realm don't have as much value as things that are put together with nuts and bolts.
TA: Do you think that's a strategic decision?
TF: I absolutely do. The big mistake Americans make when we talk about this issue is to say, "Oh, Microsoft's losing money, or Hollywood's losing money." It's very hard to get people sympathetic about Microsoft or Hollywood. They just sound like crybabies, and they're so wealthy anyway. But the real victims of the current regime are not just Microsoft and Hollywood. It's any company in the United States that has to pay full boat for technology and still compete against a Chinese company that doesn't pay for it.
TA: Is there any enforcement at all on their side?
TF: So often something that looks like an enforcement action against a copyright or trademark violator is something else altogether. On Chinese TV all the time they have these reports of Chinese soldiers or policemen walking into some giant DVD factory where they produce millions of pirated DVD disks a year and they seize the machines and they destroy the disks. But what looks like a police-enforcement action might just be one powerful interest using uniformed power to wipe out the competition and support their own pirated DVD business.
TA: Is the Communist Party a help or a hindrance?
TF: Often the central government's motives are very good. They signed on to the World Trade Organization to bring a framework of international law to China because China itself had a hard time enacting these laws internally. So they actually signed on to an international agreement to strengthen their domestic laws. But so far the regional interests have been so intertwined with this free-for-all economy that it's very hard to drive a wedge of regulation between and among all these crisscrossing conflicts of interest.
TA: So they have the same sort of regional/federal tension that we have.
TF: Much more. Their central government in the business realm has far less control than ours does. In the United States you have states competing for factories by offering tax incentives and funding for training and things like that. In China you have municipalities competing on those same terms, but they also give you direct access to relationships with the political elite in the area. They may very well be your business partners.
TA: How can we get some leverage in this situation?
TF: Since we buy $170 billion more worth of goods from the Chinese than we sell them, we have the power to say, "We're going to be far less willing buyers when things come out of factories in which your production relies on a very loose regime in regard to what we offer you."
TA: Tariffs, in other words. But there are interests that like things the way they are: cheap labor, low prices. They're not going to want to punish China. Do you expect American corporations to choose national loyalty over economic self-interest?
TF: No, I don't think you can expect that. The business of America is business, right? But right now there's this big conflict between large corporations in the United States--the Fortune 500--and all the businesses that are under them that supply them with what they use to make stuff. The vast bulk of American enterprise is in medium and small businesses. They can't get up and move to China as easily as these rich companies. So there's a big split in the business agenda. It's the large corporations that think of the world as their community, and the smaller ones that think of their community as their community.
TA: But if the large corporations keep going with their interests, isn't the drain on America and the enrichment of China a done deal?
TF: It's only a done deal if we make it easy for them--and currently we make it very, very easy for them. But it's not inevitable if they're made to pay a price. It's not inevitable if we acknowledge that there's a price we all pay for that and try to get a return on our investment. One thing that we do as a nation is pour our public treasure into making workers. If a person graduates from a public university after having gone to a public school, then goes through a graduate program in engineering or the sciences and then through postdoc, the public treasure that's been spent on that person could be a million dollars or more. That million dollars gets poured right into the workplace in the form of that person. Companies like to take credit for all the great things they do on their own, but they all exist on the shoulders of this vast public expenditure. So I don't think it's unreasonable, as a country, to protect that expenditure.
TA: I just don't see the large corporations as having the same interests as the rest of the country in that sense.
TF: Right, I agree. If you listen to CEOs of large companies talk about how much they're in love with China--they love it because they don't have to pay health care, they love it because the workers work really hard and really long, and they love it because they can get really smart people for one-sixth or one-tenth of the price of the people here. The subtext of that is that everyone who works for them at home is vulnerable. And that's a message they want out there.
TA: That they do want out there?
TF: Yeah. When outsourcing became a big issue in the press and IBM announced that it may well ship large numbers of jobs overseas, there was an initial wave of shame and finger-pointing at IBM for being the first company to make this big announcement. But once IBM broke the ice, every other company got in line to do it. It's like, "Oh, they absorbed the shame; now let's go as fast as we can." Even my book, which raises these issues, will, I assume, provide food for people to rethink all their strategies at home and send work abroad.
TA: Do you consider that--
TF: A bitter delivery of my message? Not necessarily. These trends also create reactions, and what's already beginning to happen is that the rest of the business community under the large corporations is finding a voice and demanding that these issues be added to the policy debate. That's the only way they're going to be discussed. Because politicians on their own don't like to say, "Oh, China's about to supersede us." That's a very dangerous thing for a politician to say.
TA: Do you worry that the things you're saying will lead to another red--or yellow--scare?
TF: I do. The big problem for us is to remember that whatever remedies we take with the Chinese have to be remedies we take. How good are we at what we do? You can talk yourself blue demonizing them, but maybe we should respect them for using the power that they have for developing their economy and look at ourselves and say, How easy are we making it for them to do this?
TA: But that's not going to play well in Pekin, Illinois.
TF: Pekin's probably doing OK with China. The farmers expect to do well with the Chinese. Caterpillar, which is nearby, in Peoria, is now very prosperous within China. So as workers, the people in Pekin seem to be doing fine. It goes both ways: Caterpillar's suppliers feel the constant threat that what they do could easily be replicated in China. So it's not perfect for them. And Pekin's downtown is a shell of what it used to be because there's a Wal-Mart on the edge of town, and Wal-Mart is a conduit for the Chinese economy into the American economy. So you have this town that by a fluke was named after a Chinese city but for 150 years had nothing to do with China--and now virtually all enterprise in Pekin, like in the rest of America, is tied in some way to China.
TA: I'm wondering if the book will be accused of antiglobalism.
TF: It could be, but that would be wrong. What the book promotes is a world of rules in which everybody prospers. In which there's free commerce according to the norms in which everybody's sharpening everybody's game.
TA: But we're not going to have the United States we've grown used to.
TF: No. China's economy is going to be bigger than ours no matter what. The idea that America will be the political arbiter, cultural arbiter, and banker for the rest of the world indefinitely is now an absurd idea.
TA: Do you see the Chinese making mistakes that will jeopardize their future?
TF: It's possible that their awful banking system will collapse. It's possible that millions of justifiably grouchy people in China, who are aggrieved by the skew between the rich and the poor and the disparities in economic development, will get out of hand. But the United States had all those problems, too, and somehow things worked out. As long as you're not going back to the darkest days of communism, China's future is very bright, and it's going to grow and grow and grow.
TA: What's going to happen when Chinese workers want more money?
TF: China's biggest competition is China. We tend to think of China's biggest competition as the rest of the world, but one reason costs are so low in China is because competition inside China is so fierce and so intense, company to company. And part of it--like most things in China--comes back to scale. Because economies of scale can be reached so quickly there and because the mass market is so huge, companies are very willing to work on extremely thin margins. They can get very big numbers if they capture any market share at all. So you wonder what's gonna happen when the Chinese want to live better and demand a higher wage. Well, there's still 800 million dirt-poor farmers. There's a very long way to go before there's enough pressure within China to force those wages up.
TA: If they're hooked into the living standard of the rest of the world, aren't they watching and saying, "Why can't I have that?"
TF: Their per capita income has quadrupled in 20 years. They're coming from a very low base and very happy to rise up from there.
TA: They've shed a lot of their Marxist political culture in a very short time. Is there any recidivism?
TF: Oh yes. There's this thing called the new leftism in China, which tries to bring back some of the social-justice concerns of the original reformers. And in a peculiar way even China's most avid capitalists or market economy advocates within the government still think of China in Marxist terms. They feel Marx had something very important to teach about economics, and they've put it into action, and it's worked phenomenally well--though now Marx is more important to them as a describer of how capitalism evolves. They've kind of rejected his solution [laughing]. Yeah, the solution didn't work for them but the description was very powerful.
TA: They're building at an incredible rate.
TF: Almost every city in China looks like a new city because they just tore down vast swaths of old housing and all the cities are growing in size--at least the ones in the eastern part of China and a few inland that are doing well. But Chinese cities are spectacular to look at; they really are a marvel to behold, if only because they're growing so fast. They are monuments to nouveau riche taste. You get Venice, Versailles, London, and Paris all in one country villa or downtown office building. China is urbanizing so quickly that they have to add urban environments the size of Philadelphia or Houston every single month.
TA: Did the Chinese want to talk to you?
TF: Yeah. They loved talking to me. They've got an amazing story to tell. They've been through this very dramatic century and things are going very right for them. There's a definite sense of national destiny. For most of human history China was the richest and most powerful place on earth, and they've had a small setback and they think they're on their way back. The historic humiliation of the last 150 years will be fully redressed. They can't come here and colonize us with their army, but they can do it with their computer mouses and keyboards and take all of Microsoft.
TA: Is Bill Gates worried?
TF: Bill Gates loves China.
Art accompanying story in printed newspaper (not available in this archive): photo/Mireya Acierto.