Brian Holmes on Thu, 27 Mar 2008 21:29:02 +0100 (CET)

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Re: <nettime> Brits in hock--or, Atlas shrugged again

On Thursday 27 March 2008 11:06:39 Felix Stalder wrote:

> Apparently, it's not just because China is, overall, still a poor
> country that there are so few consumers, but a result of government
> policy, at least according to a great article which appeared in the
> Atlantic Monthly earlier this year. Below is a quote, but the whole
> article is worth reading.

Thanks for prolonging the conversation, Felix. I'm now gonna rephrase my 
tongue-in-cheek argument about the Brits, with the greater respect due 
to more distant neighbors: the Asians, and particularly, the Chinese.

For the the last thirty years -- and even more intensely, for the last 
ten -- the enigma of global economics has been this: Why do the Asians 
pay, through financial flows, for the English-speaking countries to 
consume the very things that are produced in Asia? Why do they pay for 
the right to work for low pay? And the same question can be put in even 
more general terms: Why, throughout a decade-long financial boom, has 
the underlying economic picture been one of falling prices, i.e. 

The general form of the answer has been twofold. First, only the 
increasingly debt-financed markets of the Anglo-Saxon countries have 
been able to absorb the vast outflow of goods created by the 
combination of the world's most modern technology and the world's 
cheapest labor -- especially since East Asian internal markets 
collapsed in the wake of the 1997-98 financial crisis. So it has been 
in the direct interest of the producers to sustain those markets, 
especially the American one, through the purchase of Treasury Bonds in 
particular. And second, concerning the US dollar in which payment for 
exports is tpically made, the very size of the East Asian stake has 
long been so great that if any of the countries were to pull out of the 
dollar (and I mean even Korea, let alone Japan or China) the US 
currency would begin to fall precipitously, and in the course of a few 
days the resulting run on the dollar would obliterate the value of all 
dollar-denominated holdings, ushering in a period of economic chaos 
with unpredictable consequences. So everyone prefers to stay in! And 
that includes the Gulf states with their petrodollars, by the way. The 
result has been what some call "Bretton Woods II": a new international 
agreement to maintain the hegemony of the US currency after the 
collapse of the postwar deal in 1971-73, but this time, according to 
the kind of tacit, informal terms that are typical of such arrangments 
in East Asia. The New Left Review has a quite good article on all this, 
focusing on the biggest lender to the US, namely Japan. Check it out, 
they are serendipitously offering this one for free:

However, the specific case of China is so important and so unique that 
it can't just be subsumed under the regional equation. The situation 
that now exists in China is, to my mind, an awesome and tragic outcome 
of the general case of raw insanity called integrated world capitalism. 
This is what I tried to describe in my text, "One World One Dream."

China has been partially modernized over the last thirty years through a 
tremendous influx of direct foreign investment. For this to occur, 
however, the country had to continually demonstrate one thing: that its 
rock-bottom labor costs could consistently produce the highest possible 
return on investment, in the concrete form of the most cheaply 
manufactured goods on earth, which could be resold abroad at great 
profit. For development to continue, what had to be maintained was the 
China Price, i.e. the lowest price on the planet for any category of 
basic manufactured goods. This in turn meant that the wealth generated 
by China's modernization could not be evenly divided: for if it was, 
how could labor remain so cheap? What has resulted, and what I tried to 
describe in my text, is the maintenance of the rural/urban divide, 
whose legal expression remains to this day the hukou household 
registration system: an outmoded imperial system of territorial 
governance, which helps to maintain the subordinated status of the 
country dwellers even when they come to do the dirty work of the 
industrial cities.

China's impoverished migrant laborers have been the motive force, not 
only of the country's explosive growth, but also of the progressive 
deflation of prices for manufactured goods over the past decade, since 
1997-89 when the Asian Crisis broke the backs of the regional economies 
and forced them to engage in a downward spiral of competitive price 
wars. At this time they moved even more completely into an 
export-oriented system that has effectively exported the deflation of 
their economies to the Western consumer "paradises," where jobs and 
entire industries disappeared beneath the onslaught of cheap imports, 
while the only thing that grew -- as we're realizing today -- were the 
inflated values of stocks till 2001, and thereafter, the structured 
finance of home-equity debt, which seems to have been the final refuge 
of the so-called "wealth effect," the consumer manna from financial 
heaven. So these two things, deflated goods and inflated finance, were 
the extremely dubious foundations on which China's development 

One of the tragic aspects of this whole process is that China has been 
modernized to produce shlock: i.e. vast quantities of throwaway goods 
at bargain-basement prices which depend on the most humanly and 
ecologically destructive manufacturing processes imaginable. And though 
the factories are often light, almost throwaway affairs themselves, the 
heavy infrastructures of these production processes are fixed into the 
landscape for generations, through capital investment in things like 
innumerable scrubberless coal-fired power plants or the immense Three 
Gorges hydroelectric dam. In short, China's modernization has been 
configured to a huge degree, both by artificially stimulated Western 
appetites for largely useless consumer "goods," and by the capitalist 
rules under which those commodities can undercut the prices of other 
Asian producers, such as Thailand, Vietnam, Indonesia and India. China 
today is largely the result of those fickle appetites and those 
iron-clad rules.

All of this matters tremendously, when the question of inflation and its 
dangers for China comes on the table. And this, by the way, is exactly 
what I was not able to write into my text One World One Dream, it's the 
reason for the fairly obvious hole at the end, because I have only 
understood the full dimensions of the enigma through the mental 
acceleration brought by a crisis -- namely, the one that's happening 
right before our eyes. So let's finally get to the nitty-gritty.

James Fallows was entirely right when he said that Chinese officials are 
worried about the inflation that could result from a reinvestment of 
export earnings back into the national economy. But are they really 
only worried about hungry people stampeding in super markets whenever 
cheap cooking oil is offered for sale? That is, are they worried about 
the prices of consumer goods on their internal markets? Or rather, are 
they not worried about what inflation would do to the China Price, and 
with it, the country's ability to continue expanding economically -- 
and, by that same token, the country's ability to employ the migrants 
streaming into the cities from the countryside?

Felix, if you look again I guess you will see from the argumentative 
weakness of precisely the paragraph you quoted that Fallows, too, was 
unable to think the full equation to end. The point is, inflation is 
not just the price of goods. It is above all the price of salaries. Low 
salaries are the key to the China Price. And salaries just around the 
corner, in Thailand, Vietnam and Indonesia, are very very low indeed, 
almost as low as in China. Not to mention labor prices in India, again 
dramatically low. At the slightest inflation, China's privileged 
position in the world market could decay -- too soon, too soon, cry the 
government officials! Their idea has been to extend the export-driven 
boom to the entire country of 1.3 trillion people. But the irony is 
that the very motor of economic expansion makes equal participation in 
its fruits impossible. Not only must someone get rich first, as Deng so 
famously said -- but the newly rich must keep somebody poor, or another 
pyramid crumbles. Deflated prices are both the key to prosperity and 
the lock on the gate between the city and the countryside. They are the 
new name of the gaping class divide that marks the global division of 

No don't get me wrong at this point: If there is one thing China's 
leaders truly want, it is development for the people. Not least because 
this is their only hope to hang onto power. For an unemployment crisis 
in socially volatile China could all-too easily lead -- in the 
calculations of the Communist Party -- to an explosive situation. Some 
800 million people are inceasingly aware that they are not part of 
their country's rise to economic power on the world stage. The 
countryside looks with envy and anger on the glittering dream of the 
coastal cities. Eventually, the government thinks, China must consume 
what it produces, eventually, its 1.3 trillion people must become its 
own largest market, prosperity must be shared and harmony must be 
achieved. But when? When? When?

So far, the very mode of China's development has pushed the answer into 
an uncertain future. That future holds the key to the awesome and yet 
potentially tragic destiny of a country that has followed the 
development path of integrated world capitalism. And the amazing thing 
is, that future could literally come tomorrow. Because today, not only 
are the pyramid-schemes of debt-financed consumption collapsing -- 
leading inevitably to a sharp reduction in the export-markets on which 
all of Asia and particualarly China depends -- but also, we have never 
been so close to a run on the dollar. The rules of the game could 
change tomorrow. This is what I mean when I say, Atlas shrugged again. 
In the context of the current crisis, it is as though the Western 
consumer populations, replete with all the supposed artistic, 
scientific and financial genius that Ayn Rand famously ascribed to 
them, had involuntarily "gone on strike," not against the bureaucratic, 
talent-squandering communism that Rand decried, but against the very 
capitalism that propped up their illusions and then suddenly pulled out 
the rug beneath their feet. Finance, the ultimate "creative industry," 
is about to let the burden of consumption slip from Western 
shoulders -- and in consequence, it seems as though the global economy 
might really go adrift.

If this seemingly imminent collapse of the Western consumer markets does 
finally lead to a run on the dollar, the results could be chaos, that's 
for sure. Everyone capable of imagining these things looks into the 
crystal ball with fear and trembling. But could this reversal of 
fortunes not also be a moment of tremendous opportunity? Could this not 
be the time for the Asian societies to begin developing _for 
themselves_, and no longer in the image of the Western consumer dream? 
What if Arrighi and his colleagues were ultimately right: Could this be 
the moment of the long-awaited shift of hegemony to East Asia? And if 
so, could this transformation of integrated world capitalism as we know 
it not finally be the time to reconsider the contemporary mode of 
development? Isn't a deep, long-running crisis the only chance we have 
to awaken from the one-world dream and put an ecologically sustainable 
mode of development on the economic agenda? Isn't this the turning 
point, the possible bifurcation that so many people have been waiting 

These are the things I wonder, with an excess of passion and still a 
minimum of hope, on Thursday March 21, 2008, at 6 pm in the tranquil 

best, Brian

> And the government doesn't want to increase domestic spending
> dramatically, because it fears that improving average living
> conditions could paradoxically intensify the rich-poor tensions that
> are China's major social problem. The country is already covered with
> bulldozers, wrecking balls, and construction cranes, all to keep the
> manufacturing machine steaming ahead. Trying to build anything more
> at the moment--sewage-treatment plants, for a start, which would mean
> a better life for its own people, or smokestack scrubbers and related
> 'clean' technology, which would start to address the world pollution
> for which China is increasingly held responsible--would likely just
> drive prices up, intensifying inflation and thus reducing the already
> minimal purchasing power of most workers. Food prices have been
> rising so fast that they have led to riots. In November, a large
> Carrefour grocery in Chongqing offered a limited-time sale of
> vegetable oil, at 20 percent (11 RMB, or $1.48) off the normal price
> per bottle. Three people were killed and 31 injured in a stampede
> toward the shelves.

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