China-Unemployment

Unemployment in China

No problem is more socially painful or more politically consequential than unemployment. China's unemployment problem is very serious. Officially, the unemployment rate is a little over 2%, but reports circulate of up to 200 million people actually unemployed or underemployed. (Equivalent to perhaps a 30% rate). All these numbers are completely unreliable.

Usually the unemployment problem is formulated in terms of the loss of jobs created by reform of the state enterprises and by the collapse of business that suddenly  have to compete with more efficient foreign firms. This is not the problem. The problem is that a system of socialism and protectionism ensures the emergence of huge, bloated firms and bureaucracies which are not serving the real market needs and therefore cannot provide gainful employment for their employees. The consequence is a huge build up of disguised unemployment. Each firm becomes a miniature welfare system, whose size and costs escalate until they eventually ruin the firms and the country.

Reform along the lines of the Asian miracle economies begins to solve this problem through the creation of millions of net new jobs. The labor-intensive industries on which these take offs are all initially based are by definition job-intensive. Making shirts, shoes, toys and cameras requires lots of workers. But reform rips the veil away from disguised unemployment.

Great lessons can be learned from the experiences of the other Asian take offs. Even in tiny Singapore, sociologists of a generation ago counseled that the economy would never be able to generate enough jobs to overcome unemployment. They added that if the unemployed were educated people, discontent over unemployment would lead to the creation of organized political dissidence and would destabilize the country. The government believed these arguments and hence discouraged large families and limited the availability of higher education. When the prediction proved wrong, Singapore found itself with a severe labour shortage and a severe shortage of highly trained people. Today, it has an urgent program to expand educational opportunities and to persuade Singaporeans to make more babies. In South Korea, when reform began, unemployment was around 40%. After a while, efficiency created better products at better prices. These reached a broader market, creating more jobs. More people had jobs, so more people bought things, and therefore the market expanded still more.

When the time comes to shut down some giant state enterprises, another phenomenon will become clear. The employees of giant state enterprises can organize more easily when they become unemployed, so they are politically more dangerous. The Chinese government is tough enough to face down those who would strike or riot and bring reform to a halt. China government keep the economy growing fast enough to keep the rate of job creation high. And it acts adroitly to implement reform in phases, to spread the pain geographically, and to explain the process so that discontent never reaches a critical mass of anger and organization. In a country large as China, this is a huge problem, huge enough that there will inevitably be some strikes, riots and very visible crime.

Corruption, bureaucracy and the legal system

The transition from government ownership and control to market control includes some very messy intermediate phases. Among the messiest aspects are the intermediate steps in the realization of government control. These create enormous opportunities for corruption, misunderstanding, confusion and delay. For instance, the first phase of reform allows private companies to form, but leaves most housing, raw materials, credit and employment firmly in the control of the state and party bureaucracy. So, a private citizen can legally start a company, but his workers will not have any housing, his factory will not have any steel, his company will not have any credit from the banks, and his workers may be chosen fro him by an organization which has a strong interest in keeping all  the able, energetic workers where they are. These problems can be fixed by members of the families of senior Party leaders. In return the party families shares fully in the proceeds of the new firm. Then, the private entrepreneur has to deal with all sorts of state regulations, some published, many unpublished. On top of that he will find that many more government departments will claim to have authority over any given area than actually do. Among those that do, he will discover conflicting policies and power struggles that delay his factory and cost him more and more money. If there is a dispute, the law are ambiguous and the procedures for dispute settlement revolve around highly personalized, moralistic arbitration procedures rather than legal procedures. Those who have to negotiate a contract and build a factory for the first time are frequently amazed that the process can work at all. But the Chinese government can maintain control and press to a larger market economy; as a result the discipline of competition take over and businesses that are too corrupt cannot survive. Like Taiwan, South Korea, Singapore and Hong Kong, Chna has a ruling elite which, despite other faults, is primarily devoted to building the country rather than to self-enrichment. Nobody has ever accused Mao Zedong or Chen Yun or Deng Xiaoping of being motivated primarily by financial greed.

The pattern of economic growth

China's spectacular growth has a distinctive structure. The coastal take off can be conceptualized as four joint ventures and their nearby ramification. The first and most advanced of these joint ventures is that between Hong Kong and its neighboring Guangdong Province. This one comprises territory and population the size of France: a region of 66 million people, largely Cantonese speaking, who have experienced a dozen years of growth that have averaged above 12% annually. Hong Kong finances the industries of Guangdong, employs half of the manufacturing workers of the province, provides the technology and the designs, and markets the products. Guangdong provides the workforce and the land. Never in the history of mankind has a population the size of France experienced this kind of growth. The other three joint ventures link Taiwanese with neighboring Fujian Province; former souther mainlanders on Taiwan with the Shanghai region; and South Koreans, Japanese and former northern mainlanders on Taiwan as well as South Korean and Japanese investors with the Shandong-Tianjin region on the northern coast of China.

The driving force behind this coastal take-off is a remarkable coincidence of necessity and opportunity. When Taiwan and South Korea democratized at the end of the 1980s, wages rose extremely fast. At the same time, the US was successfully  demanding that these countries appreciate their exchange rates. The result was an increase  in labour and other costs that threatened to render the two countries industries completely uncompetitive. Parallel trends were occurring in Hong Kong and Japan. Hong Kong standards of living had reached levels higher than those of southern Europe, and wages and other business costs were continuing to rise quickly. Japan was adjusting to a substantial upward revaluation of its currency on top of normal wage rises.All of these countries needed desperately to move their labour-intensive and land-intensive industries to cheaper areas. It was at this time that the Chinese option became truly attractive. Chinese land and labour costs were a tenth of Hong Kong's.

Along the coast of China you find a population the size of European Community, over 300 million people, and they were experiencing economic growth at an average rate somewhat above 10% annually. Never in world history has it occurred in a population the size of the Economic Community.

This EC-sized economic takeoff is dragging along with it the remaining 900 million people of China--a population comparable to all of the former Soviet Union plus all of Africa and all of South America-

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