Home-brewed cold war bad for business
Patrick Porter, an Australian strategist teaching in the UK, has an op-ed which considers the role of war generally and whether Asian is the next battlefield:http://www.smh.com.au/opinion/politi...617-20hzt.html
There a couple of sentences that struck me, here is one:
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America and China are economically interdependent. The truth is, they really can't afford a major clash. China, by investing so heavily in US Treasuries, has become America's banker. In turn, it relies on American demand for its exports, as the consumer-in-chief to feed its growth.
Straying from topic, but...
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Originally Posted by
Fuchs
This turns into an investment calculation with great dependence on expectations. Wrong forum to do it.
Certainly so, but for the purposes of this discussion may we take it as agreed that there is an extent beyond which it is no longer economically rational to subsidize an unprofitable enterprise?
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Originally Posted by
Fuchs
This shows you didn't understand. A country as a whole has to support its population's goods and services consumption with its economy.
A given quantity of workers - unemployed or working - has to get its goods and services from their economy (closed economy model for simplicity).
This only gets easier if they keep working (for example in the shipyard) and more troublesome to the rest of the economy (not less!) if the example shipyard closes!
That makes sense if you are subsidizing a limited number of enterprises. Unfortunately, once you subsidize some, others demand the smae treatment, and all of them have all sorts of emotionally compelling reasons why they should be on the public teat. At some point this will become unsustainable: what do you do when the number of industries being subsidized exceeds the number that are self-sufficient, or the number of workers whose salaries depend on subsidy exceeds those with salaries not depending on subsidy? If the uncompetitive are to be subsidized, the subsidy must ultimately be paid by the competitive, no? Who else will pay it?
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Originally Posted by
Fuchs
Many workers will not get a decent job in another sector, given their age, qualifications et cetera.
What really counts is thus the middle ground between your "temporary" and your "perpetually". It makes usually perfect sense to keep even substantially uncompetitive companies/industries above water until their non-versatile workers have retired (an exception is extreme lack of competitiveness, such as higher losses than labour costs).
Again: Low productivity work is more productive than no work at all.
You won't be able to sustain the industry purely with the non-versatile workers. You'll have to hire new workers to keep the enterprise afloat, thus creating a new generation of workers that need to be subsidized. Essentially you walk onto an unending wheel in which industries have to be subsidized just to keep the workers employed. Obviously the final calculation will depend on how badly uncompetitive the industry is to start with, but I expect that if the industry has little to no chance of ever being competitive, it will in most cases be more effective to close them and retrain or adapt as many workers as possible. For the few that cannot adapt, many of whom will be approaching retirement anyway, simply paying their salaries to retirement age will likely be more cost-effective than sustaining and entire uncompetitive business just to keep them employed.
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Originally Posted by
Fuchs
Playing the markets in order to sustain (or replace) this system may be tricky, but China as a nation is having surpluses in trade and has thus proved that their system works without net foreign input. It is most likely possible to stabilise it.
Didn't the Japanese maintain a strong trade surplus right up to and into their lost decades? A trade surplus is a nice thing to have, but it's not a guarantee of economic health.
The difference between Japan and China, of course, is that Japan's social structure allowed it to sustain a high degree of political stability through an extended downturn. That's not likely to be the case in China.