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LinkedInShanghai, Mumbai, Dubai doesn’t really quite work. The CIC is in Beijing, not Shanghai. Singapore has committed more funds to troubled banks than Mumbai. Abu Dhabi, Saudi Arabia and Kuwait have a lot more cash than glitzy Dubai.
But Andrew Ross Sorkin’s alliterative phrase captures a deeper truth.
A group of banks that previously had advised most US companies that they had too much equity and too little debt have found themselves short on equity.
And a group of banks that in the non-so-distant past argued that state ownership was a barrier to development are now themselves partially state-owned.
The most money the IMF ever lent to the emerging world in a quarter?
$13.7b – in the third quarter of 2001 (Turkey and Argentina … )
That is just a bit more than the $13.4b lent out in the fourth quarter of 1997 (Asia). The IMF also lent out $10.9b in the second quarter of 2002 (Brazil) and $9.6b in q3 1998 (Russia and Brazil). And yes, two of the four biggest quarters for IMF lending came under the Bush administration’s watch. Foreign policy concerns trumped market fundamentalism.
Capital infusions from emerging market governments to US and European banks smarting from losses on US mortgages in q4? $28.4b, by my count.
The list includes:
$7.5b Citi/ Abu Dhabi investment authority (ADIA)
$5b Morgan Stanley/ China investment corporation (CIC)
$4.4b Merrill/ Singapore’s Temasek (with an option for another $0.6b)
$11.5b UBS/ Singapore’s GIC and some combination of Saudi royals.
I left out Barclays/ China Development Bank (CDB) since Barclays was looking to finance a big acquisition, not to cover big losses. I left out CITIC/ Bear since that deal was structured as a swap, not as a capital infusion.
If the banks haven’t yet put the worst behind them and are still seeking more capital — as seems likely, given today’s Wall Street Journal story indicating that Citi and Merrill are looking for more capital from sovereign funds — total emergency capital infusions into US and European banks over the next year from the emerging world should rather easily top the $29.6b or so the IMF lent to the emerging world in the four quarters during the Asian crisis when it lent out the most — q4 1997 to q3 1998.
The funds committed by emerging market sovereign funds in the fourth quarter already top the $22b the IMF lend out during the four quarters from mid-2001 to mid-2002, but that $20b was followed by another $17b or so over the next year, producing a two year total of around $40b. If the numbers the Journal mentions this morning are accurate, total capital infusions from emerging market sovereign wealth funds then will truly be comparable in scale to the funds the IMF provided to emerging economies.
Reverse bailouts are, I guess, one consequence of reverse globalization.
Capital now flows from the emerging world to the advanced world.
Back in 1997, investors worried about hidden losses in the emerging world – and central banks that had fewer reserves than they claimed. Now they worry about hidden losses in the US and Europe.
And governments in the emerging world are now bailing out private banks in the advanced world, particularly those banks who originate-and-distribute business model ran into severe trouble. Originating and distributing to your off-balance sheet SIV didn’t really disperse the risk.
Reverse globalization seems to have spawned reverse privatization.
Talk about a change.
The big story of the past five years, in my view, has been the reassertion of the state in global markets.
Large central banks and investment funds now drive the flow in much of the foreign exchange market.
Hedge funds used to strike terror into the hearts of emerging market governments. Now most hedge funds are looking to manage the money of emerging market governments. Sovereign funds have displaced pension funds as the key source of funds for the "alternative fund management" industry.
State ownership of banks used to be considered inefficient. Now banks that have not already sold a stake to China’s government worry that they will be at a competitive disadvantage relative to those that have.
And interestingly enough states with the most financial firepower these days are also not democracies. That too is something of a change — one that also may have important long-term consequences.
Bill Clinton argued back in 2004 that it was hard for the United States to enforce its trade law against its bankers.
It is presumably equally difficult to press for political reform — notwithstanding the FT’s recent leader arguing against finding "expedient allies" in autocratic governments — in governments that are bailing out your banks.
Especially since it isn’t at all clear that a democratic majority in the Gulf or China would be willing to take the risk associated with investing in a major US financial intermediary. It is striking to me that no democracy has yet committed funds to invest in a big bank or broker-dealer.
One last note: Assurances made back in 2005 and 2006 that the well-capitalized US financial system provided a buffer against the range of risks associated with quite visible macroeconomic imbalances now ring rather hollow. Forcing the financial intermediaries at the core of the system to hold more capital right now would be counter-productive, as they apparently lack enough capital to support their current balance sheet. But it does seem — in retrospect — that many failed to hold enough capital to support all the on and off-balance sheet risks that they were taking. I hope their regulators have taken note.
Right, the banks’ chiefs are asking their rich foreign customers to bail them out. But I wonder, what are their business plans like? How are they planning to turn a profit for their shareholders in the next 5 years, in a world that has decidedly less appetite for risk and credit than just 6 mos. ago?
Or.. are they just presenting them with the officially-sponsored “butter or guns” choice (give us your butter or our guns go home)? In a friendly state-to-state negotiation, of course..
Brad,
Recently, I have read the blog daily without making any noises. But your comment about “It is striking to me that no democracy has yet committed funds to invest in a big bank or broker-dealer” is too interesting to pass.
My observation is that, politicians in today’s democracies like to buy votes through “tax cuts” and/or “bigger spending for welfare”. Who doesn’t like a few more bucks in the pocket? Is it striking that from North America to Europe to Japan, excluding a few resource rich countries, all the democratic governments are in deep debt? You have to save for the rainy days first, then you may have “funds to invest in a big bank” when it is truly raining.
In elections, candidates “rush to the bottom” to challenge each other on “spend more but collect less”. If votes can be bought by pretending that everyday will be sunny, the thing becomes similar to the sub-prime lendings. Just as the sub-prime borrowers may not deserve the money, those voters how sell their votes so cheaply may not deserve the rights to choose the future leaders.
Do you think there should be a better form of democracy?
JYe
bsetser: A group of banks that previously had advised most US companies that they had too much equity and too little debt have found themselves short on equity.
bsetser: And a group of banks that in the non-so-distant past argued that state ownership was a barrier to development are now themselves partially state-owned.
It’s not so much that the banks really gave this advice. In the case of debt/equity, what happened in the 1980′s was that financial liberalization made leverage buyouts possible meaning that if you were a company with huge amounts of cash, you were now the target of corporate raiders. In the situation with state ownership, most of the talking was done by economists of the Chicago school and the IMF and World Bank, not by Wall Street.
Of course in both situations, the banks were happy to cash in. LBO’s and debt issuance meant lots of fees. Privatization meant lots of deals with lots of fees, so the banks were just happy to nod their heads and say “yes, yes, listen to that advice.”
It works the other way. If the prevailing sentiment is that companies have too much debt and too little equity, there will also be transactions that banks can cash in on. Banks really don’t care whether you have privatization or state-buyouts because both result in fees for banks. (Administrative nationalization is something different, banks would hate that. State buyouts, however. Great!!!!!)
It doesn’t matter what bets people make, the house wins in the end. Like any casino, if you have money and want to gamble, the house will tell you how smart and lucky you are.
This makes banks “practical” rather than “ideological” with the only ideology being to make money. Given all of the damage ideologues have done (Great Leap Forward and Iraq), I don’t consider this a bad thing. The fact that people on Wall Street are “practical” also means that they come closer to understanding truth and reality than the ideologues.
bsetser: It is presumably equally difficult to press for political reform — notwithstanding the FT’s recent leader arguing against finding “expedient allies” in autocratic governments — in governments that are bailing out your banks.
This is a very good thing for democracy. US democracy promotion efforts in China and the Middle East have been so totally incompetent that they’ve done far more to damage the cause of democracy than they have helped.
If the US *stops* pressing for political reform in China and the Middle East, then people in China and the Middle East who really want political reform might have a fighting chance. As it is one thing that is the kiss of death in the Middle East and to some degree in China is to be associated with the United States, so the less the US is associated with “democracy promotion” the better.
One of the problems is that democracy promotion is so mixed in with US national interest that being associated with human rights and democracy discredits it. Right now in China to call yourself a “democracy activist” or a “defender of human rights” is something that makes you look crazy or stupid, and we can thank the US government partly for that. (The way that you look good is to call yourself a “defender of legal rights under the PRC Constitution”.)
One lesson of history is that if you make people choose between food and freedom, they will choose food. The goal then is to set things up so that they don’t have to choose. The other lesson of history is that people do not like “outsiders” telling them what to do. The goal is then not to be an outsider and not to structure things as lecture.
bsetser: Especially since it isn’t at all clear that a democratic majority in the Gulf or China would be willing to take the risk associated with investing in a major US financial intermediary.
So perhaps democracy as the US defines it, really isn’t such a good thing after all for a developing country……
Economic power comes with money. And today the US doesn’t have it; Asia and the Gulf have it. And so US economic power is declining and theirs is rising. We are in the midst of the most important shift in economic power since WWII. And there is no way for the US to reverse the process.
2fish — my strong sense is that the cash pouring into the coffers of the gulf’s existing rulers has reduced pressure for reform, not created more space for it. there isn’t much conflict over the distribution of oil revenue when everyone’s cut can go up. china may be a different case, but it isn’t at all clear to me. the tight ties between business and government have coopted a lot of potential pressure (though it has created other grievances). read Gideon rachman’s piece in the FT yesterday on China and Russia. It was very good.
American economic power has lasted about half a century, from ca. 1950 to ca. 2000. And as it declines, so will US military power. A new age is being born, an age of US decline.
bsetser: “And interestingly enough states with the most financial firepower these days are also not democracies. That too is something of a change — one that also may have important long-term consequences”
Interestingly, the state with the least financial firepower these days is also not a democracy. It was ruined, not by the masses of US citizens, but by a select group of Americans involved in financial chicanery who were able to unduly influence/and/or buy out regulators and lawmakers.
FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. Given the perceived national security concern of Chinese FDI investment into the United States economy, the reality of the matter is that US Corporations have far greater direct investments in China’s economy than the reverse. The US remains the 3rd largest FDI investor in China after Hong Kong and Japan. China’s FDI into the US ranks 16th. Why is global FDI always considered a problem with China? While alarmed over any Chinese investment into the United States for National Security threat implications, isn’t it then also somewhat hypocritical to condemn US Corporate FDI into China as outsourcing American jobs for perceived cheap labor?
Rachman’s essay is very interesting and accurate, I would say. What he does not say, but implies, is that liberal democracy depends upon economic power. As long as the US had that, it could propagate its model around the world. Now that US economic power is in decline, so is the spread of liberal democracy. And, one needs to point out, liberal democracy has been dealt body blows in the US itself by recent fascistic moves by the Bush administration, justified by a paranoid fear of “terror.”
JYe,
How about telling the truth? Privatization has been turned upsidedown, inside out.
On the horizon, however, is more troublesome news–especially for the likes of China which subsidizes its price of oil as it makes its great leap forward.
Canadians are now being told to expect this year a 50% increase in the price of gas–and by 2012, oil will be at $150/barrel.
http://www.newswire.ca/en/releases/archive/January2008/10/c0114.html
If you read the news release, you might find it persuasive. I did, but I have been closely following energy news.
Yes, there will be demand destruction, but at what cost economically.
If oil continues to rise…however bumpily, then “state ownership” will come even more powerfully into play. That argument should be obvious.
bsetser: my strong sense is that the cash pouring into the coffers of the gulf’s existing rulers has reduced pressure for reform, not created more space for it
It’s important here not to get into the trap of talking about “reform” and “anti-reform.” Certainly having lots of money helps the Gulf rulers stay in power, but since the likely alternative are radical Islamist states, I don’t see this as a bad thing.
The reason the Gulf states are tremendously interested in investing their money is that they know that the oil is going to run dry in about twenty years, and they want enough money in the bank (literally) so that they don’t end up in front of a firing squad (literally).
The same motivation goes with the Chinese government.
The Communist Party of China are not the nicest people in the world, but in the past 100 years, China has already had two revolutions which have replaced a bad government with a worse one, and I don’t think it is a good idea to make the same mistake a third time.
One of the reasons I work in the job that I do is precisely to help keep the Communist Party in power for as long as possible, which buys time for social institutions to develop. (Yes it pays well, but there are other things that I can do for money.) Whether the Communist Party remains in power or not is for history to decide, but if it does, then a big country that looks and acts like Singapore isn’t such a horrible place to live in.
If the Party doesn’t remain in power it will likely be the result of some issue that has some part of China pro-Communist and some part of China anti-Communist and in that situation, you want a strong legal and political framework to keep things from falling apart as well as good reasons why people won’t push things too far.
If you don’t have a wealthy middle class then after the revolution everyone is going to start fighting and killing everyone else.
If you do have a wealthy middle class, then people have mortgages, jobs, and houses and aren’t so much interested in revolution, and if they have disagreements, they tend to talk them out rather than reaching for the gun. Compare the 2000 US Presidential elections with the recent ones in Kenya or for that matter Iraq.
Liberal democracies come about when you have several groups of people who don’t agree on how the world works or should work, and they are too tired or wealthy to be interested in killing each other over it.
I really don’t see how you can impose it from the outside. Also the US tendency of labeling one group “good reformers” and the other group “evil hardliners” makes it more difficult for these two groups to come to some understanding that leave things balanced.
Absolute power corrupts, so what happens is that if the “good guys” take absolute power they will quickly become “bad guys.” Also, it’s amazing how much nicer a nasty ruling party becomes once it loses power. (See the Communist Parties in various post-cold war states.)
Brad, investing in a troubled bank is a commercial decision. No democracy can make any commercial decision, since only a corporate can deal with the business calculation. There is a reason that no corporation is ruled based on democracy.
Thus, the reason that only non-democratic countries are investing is that their decison-making process is closer to a corporation.
Guest: American economic power has lasted about half a century, from ca. 1950 to ca. 2000. And as it declines, so will US military power. A new age is being born, an age of US decline.
I don’t think so. The US is declining in *relative* terms but that was because it was so far ahead that that couldn’t last forever. In *absolute* terms, the US has a lot of things going for it.
A great government and legal system, a wonderful economic system, tremendously good schools. Most Americans really don’t appreciate this because people insist on comparing the US with some perfect and unreachable standard rather than with something more realistic.
In general China needs net capital outflow, democratic or not. China ages faster than most other countries, which means, that at some point in the future likely they will need inflows. In more extreme forms this is true for Russia.
The gulf regions have fast growing population, but no export industry. Nothing except oil and that will not go on forever, therefore they have to buy assets for their oil.
I don’t think the behavior of these countries regarding foreign economic relations would be much different from the current one, if these countries were democratic.
It is not surprising that Rachman has little positive signs for China and negative ones for Russia. The Chinese economy is dependent on the good ideas of its population and will be more in the future. Oil drilling doesn’t need too much creative brain.
Stormy,
Did you ever consider that the largest “state ownership” program in the world consists of the direct US military occupation of Iraqi oil fields, refineries, and oil export terminal facilities? The French, Russians, and Chinese were forcibly booted out of the Iraqi energy industry. Iraqi oil development contracts with China Sinopec were declared null and void. China Sinopec is 20% public owned with shares traded on the Hong Kong and New York stock exchanges.
Dave,
Not sure I ever said I was in favor of what happened in Iraq. In fact, I have said quite the opposite.
Guns don’t cut it.
You’re funny: You think any criticism of China automatically automatically implies the author is rabidly in favor of all American policies.
Apparently, price controls in China hit a free market nerve? Are there price controls?
Nonetheless, Brad is documenting a major shift in how economies are functioning. That in itself deserves serious attention.
Stormy,
I am not sure I understand you post. However, since it is directed to me, I will try to respond. Maybe you can clarify your points after reading this.
About “Privatization”. I have not ideology against either privatization or nationalization. For me, the standard is fairness/efficiency/sustainability.
About “telling the truth”. What is the problem for China to subsidize its price of oil? It basically takes money from the producers ( mostly owned by the government) to consumers. I don’t think it is sustainable ( the new price control is aimed only for a couple of months). But it helps to smooth the transition to higher gas prices.
JYe
Stormy,
Price controls over the long term are obviously bad economics. However, if used judiciously in the short term, I think price controls have some good merit. For instance, after the Hurricane Katrina knocked out oil refineries in the New Orleans region, prices controls to prevent gouging were justified and should have been imposed. Within a year, the oil refineries were repaired, and the spot price of gasoline fell to a modest premium over the production cost. If Chinese industrial productivity can continue its roaring growth rate, a short term price controls on energy can be justified.
2fish — the term reform is loaded; i should not have used it. but the gulf states are not going to run out of oil in 20 yrs, at least not according to most projections. of all the oil exporters they have the least need to save b/c they have the most in the ground. and — setting kuwuit partially aside, as one of KIA’s funds has a clear inter-generational component and is clearly not the property of the ruling family — it isn’t at all clear to me if the funds are currently savings for the country or savings for the country’s ruling family.
“There you have it, stocks at new highs for the day…”
By the time Bernanke is finished with his term, Google will be a million dollars per share, but it will cost a thousand dollars for a gumball the supermarket. The war on savers never ends. A clamshell on the beach that the Indians used for currency will soon be worth more than the fiat paper US dollar. Thanks Bernanke for destroying the monetary value of every US dollar in existance.
Gold Surge to Record High After US Dollar Weakens on Bernanke Comments
http://biz.yahoo.com/ap/080110/commodities_review.html?.v=2
NEW YORK (AP) — Gold soared to a record high Thursday after Federal Reserve Chairman Ben Bernanke pledged to cut interest rates, undermining the dollar and boosting demand for the metal as a safe investment.
An ounce of gold for February delivery on the New York Mercantile Exchange jumped to $897.30, a fresh high, before easing back to $892.80, up $11.10.
The precious metal could hit the psychologically important $900 mark during the session, said Carlos Sanchez, a precious metals analyst with CPM Group in New York.
Moody’s says spending threatens US rating
By Francesco Guerrera, Aline van Duyn and Daniel Pimlott in New York
Published: January 10 2008 18:36 | Last updated: January 10 2008 18:36, Financial Times
The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s, the credit rating agency, said on Thursday.
The warning over the future of the triple-A rating – granted to US government debt since it was first assessed in 1917 – reflects growing concerns over the country’s ability to retain its financial and economic supremacy.
It could also put further pressure on candidates from both the Republican and Democratic parties to sharpen their focus on healthcare and pensions in the run-up to November’s presidential elections.
Most analysts expect future governments to deal with the costs of healthcare and social security and there is no reflection of any long-term concern about the US financial health in the value of its debt.
But Moody’s warning comes at a time when US confidence in its economic prowess has been challenged by the rising threat of a recession, a weak dollar and the credit crunch.
In its annual report on the US, Moody’s signalled increased concern that rapid rises in Medicare and Medicaid – the government-funded healthcare programmes for the old and the poor – would “cause major fiscal pressures” in years to come.
Unlike Moody’s previous assessment of US government debt in 2005, Thursday’s report specifically links rises in healthcare and social security spending to the credit rating.
“The combination of the medical programmes and social security is the most important threat to the triple-A rating over the long term,” it said.
Steven Hess, Moody’s lead analyst for the US, told the Financial Times that in order to protect the country’s top rating, future administrations would have to rein in healthcare and social security costs.
“If no policy changes are made, in 10 years from now we would have to look very seriously at whether the US is still a triple-A credit,” he said.
Mr Hess said any downgrade in the US rating would have serious consequences on the global economy. “The US rating is the anchor of the world’s financial system. If you have a downgrade, you have a problem,” he said.
Moody’s did once threaten to cut the rating of some of the US Treasury’s debt when Congress refused to pass the president’s budget in the mid-1990s.
I have begun to save a batch of certain insightful, pithy aphorisms taken from this blog in anticipation of one day bundling them in a little red book entitled “Quotations from Chairman Twofish.”
ST
incredible, Moodys tries to make politics. The US federal gov is spending more on military than on Social Security, Medicare, Medicaid. As well tax rate in the US is low. Despite that, Moody says US has to cut in these programs, and not just US has to worry about financial health – with whatever measures the congress thinks is appropriate.
A little off topic. But this CNBC yesterday Paulsen interview, today’s Bernanke speechmaking, and THEN just after its conclusion a rumour of B of A gobbling up hapless CFC and in addition airline mergers pushing Dow transports much higher. Why are these so linearly connected? Why not in any other order? To induce shorts, to fry shorts, to support thresholds in markets, to forestall severe corrections, and to buy time for the next palliative.
Bernanke is becoming a parody. Like a thick spectacled mad genius ratcheting every lever in his inventive flying machine which is quickly stalling out. Every fly-by-wire, every device that whirs and purrs is being gunned to the max as he rapidly moves through his limited toolbox of remedies. Anybody remember Oz’s many pull knobbed workstation behind the curtain? BINGO! His message? Stay out of this market–long or short, or you will be made sorry. I’m a consummate chessplayer.
That Bush might deviate from his ideology on IMF loans is given. I can see them in the strategy session discussing the bill to stop severely mentally ill people from getting guns, “…but this may lead to a slippery slope of semi-mentally ill people not being able to get guns!”
Why triple-A ratings are not always top notch
http://www.ft.com/cms/s/0/4c3e3e54-bfa9-11dc-8052-0000779fd2ac.html
Moody’s says spending threatens US rating
http://www.ft.com/cms/s/0/40f3a2be-bfa9-11dc-8052-0000779fd2ac.html?nclick_check=1
What might happen when US really loses its AAA? Coupled that with the massive channelling by SWFs/Reserves out due to conflicts in inherent directives (USTs no longer AAA, thus no longer eligible), investment strategies (shed overweight safe to riskier assets) and/or simply speculative (USD crash story)
Will it spark a mad rush for strategic assets, non USD? Or the prelude to a hegemonic shift?
And can we stop this ideology battle? Democracy and not.
We all know, as educated folks, end of the day bread matters. Its only when you don’t have enough bread or have too much bread, you start lamenting about freedom/ideology/democracy…
However difference between the two, the former being you face an immediate expedient issue to get some bread or even crusts on hand, the latter an issue of how to add more or preserve my vast share of bread?
JYe,
Privatization vs nationalization. I agree with your standard of fairness, etc. I am not against either per se. Dictatorial regimes do worry me….either from the left or from the right. In some cases, dictorial regimes promoted a brutal form of privatization–Chile/Pinochet. The U.S. collaborated in that one. China is a more complicated story. It certainly is centrally controlled, albeit not in the same manner as Chile was. It is leveraging its vast population to leap forward. It’s lack of fairness towards labor is the plum it is offering FDI–that concerns me a lot. If wages in Chinese Walmart stores are .75/hr–what precisely can that wage earner buy? There is one union in China, one–it is an arm of the communist party. There have been some modest attempts at labor fairness–the “contract” labor law; but there is no guarenteed right for labor to collectively bargain. End of story. The U.S.–since Regan–has neutered labor as well.
Here is my central concern: the WTO and its indifference to labor standards, labor regulations, or the environment. The fact that the latest WTO negotiations have stalled is a sign that many countries are upset. In short, trade policy has rewarded abuse.
As a consequence, wealth has been ever more centrally concentrated. Does that concern you? A few posts back, Boat 52 wrote a telling indictment on precisely what is happening to the U.S.–slowly but surely becoming a Mexico look-alike:
“Slowly but surely the United States is morphing into a larger size twin of Mexico. A small elite ruling class controls politics and enjoys wealth on a scale that is multiples of the average citizen. While the average person is able to enjoy an increase in their quality of life if measured in consumer goods, currency devaluations accomplished no significant increase in prosperity. If it wasn’t for Mexican law that made 100% foreign ownership difficult, Mexico today would be totally owned by U.S. based entities. The next presidential election will be the line in the stand to stabilize the U.S. ship of state. That stabilization must tax the wealthy elite, regardless of political affiliation, end the Roman empire like military base expansion globally, and turn our fighting ability to a war on energy with a real solution in the very short term. The U.S. needs a “dark horse” candidate to win and that individual faces the prospect of being a one term candidate if the measures enacted early in the new term do not show meaningful progress. Failure to elect a agent of change will surely see this decade as the turn in the “American Empire” no different than the turn of the British Empire many years ago. A visit to Mexico spent with the ruling elite (as I have) will open any doubters eyes to the future of the U.S. In conclusion, I must add that I am a lifelong Republican aged 63 who enjoyed a wonderful career on Wall Street and can do whatever I want. Sadly, I don’t see the U.S. as a wonderful environment for my grandson age eight unless changes occur very fast. This election as evidenced in a tiny way last night in Iowa (and some may say that basing forecasts on Iowa is laughable) offers a glimmer of hope. Not because of the stature of the candidates but because of the outpouring of voters who are demanding change.”
How about that as a first step towards telling the truth?
Stormy: If wages in Chinese Walmart stores are .75/hr–what precisely can that wage earner buy?
It’s about four times as much as the what they would make as a farmer and most factory workers in southern China send most of their money back home where it goes to support lots of relatives. The money also gets saved since a worker in a factory can work for about five years, and they are pretty much set for life.
Stormy: There is one union in China, one–it is an arm of the communist party.
Relationships between the union, the communist party, and management are actually rather complex. Walmart fell into the trap of thinking that the union was a rubber stamp, so when it didn’t let the union into its stores, there was a bad reaction.
Stormy: but there is no guarenteed right for labor to collectively bargain.
If the factory doesn’t promise wages, the workers walk and go home. If the factory promises wages and then doesn’t pay, the workers riot.
Something that does change the dynamics of the situation in China with respect to the US or Latin America is that if a worker quits, they won’t starve since they can go back to the countryside and farm, and having this alternative is keeps things from being too abusive.
The trouble with increasing wages via unions is that wages get increased for the union members, but people that aren’t employed are then out of luck.
It basically takes money from the producers ( mostly owned by the government) to consumers. I don’t think it is sustainable ( the new price control is aimed only for a couple of months). But it helps to smooth the transition to higher gas prices.
Written by jye on 2008-01-10 13:27:34
JYe – is it real fairness or just a reluctance to tackle problems /kinks in the economy that’s producing rapid inflation?
Stormy – Labour has been neutered by globalization, sad but if you want to reap huge profits in record time , some things have gotta give and more often than not the weak get exploited. Arguably, the retreat from protection for labour has been ignored in democracies as democracies have been comfortable in pointing towards the lack of protection in “less democratic states”. Could the demise of the Communist threat have contributed to complacency?
Neocolonialism has made much of the world uncomfortable, the supposed advent of reverse colonialism probably raises more heckles than others but hey, no one can hog the stage forever.
The fact that Fed member banks would force on themselves such financial situations seems to be rather strange. It is not believable that these institutions did not see this unfolding of events coming, much less the Fed itself. The major financial players cannot be given the benefit of the doubt. One should wonder what the ultimate purpose of this game is.
The incursion of non/transparent sovereign wealth funds from authoritarian states begs the question related to giant money laundering operations. Foreseeably amounts contributed by SWFs will not be subject to scrutiny.