September 22nd, 2010

China is One Big Greenfield Project

For those of you unfamiliar with him, I recommend you read Thomas Friedman of the NY Times. In an OpEd piece today entitled “Too Many Hamburgers?” The passage that really caught my eye was:

“With enough cheap currency, labor and capital — and authoritarianism — you can build anything in nine months……But have no illusions. I am not praising China because I want to emulate their system. I am praising it because I am worried about my system. In deliberately spotlighting China’s impressive growth engine, I am hoping to light a spark under America.

For democracy to be effective and deliver the policies and infrastructure our societies need requires the political center to be focused, united and energized….. For democracies to address big problems — and that’s all we have these days — requires a lot of people pulling in the same direction, and that is precisely what we’re lacking.”

It reminds me of something from a while back, “Becoming A “Go-Ahead” Nation … Again” in which I had written:

“No wonder the stock market can’t move ahead. And it won’t until it finds new technologies, new industries, new growth vehicles, new catalyst to spark this century’s “go-ahead” enthusiasm. That’s where the country’s leaders should be focused…..Rather than punishing the majority, they should fund technological innovation, incentivize capital investment, reward risk taking and innovation, spur hiring.”

Ah, great minds thinking alike (with no disrespect meant nor intended, Mr. Friedman).

Graduate school was so long ago that there isn’t much I remember from it but one thing that has stuck was a class discussion comparing the US steel industry with those of Germany and Japan (without giving too much personal information away, let me say that the discussion could have taken place anytime between 1965 and 1975).

Those two economies were devastated by World War II and yet their steel production capacity was more efficient and profitable than ours. Our behemoths were US, Bethlehem and Inland Steels; theirs were both small specialty and large commodity producing mills. How did they do it? The answer was in the fact that they didn’t have any “legacy mills” to refurbish. Their whole economies started as greenfield projects, with their slates wipe clean because of the War, they had no legacy projects, they were building from the ground up.

The situation is true of China today. Not only do they have cheap labor and an authoritarian regime as Friedman points out, but they also are starting from the ground up, with greenfield projects, with little in the way of legacy plant and equipment that needs to be refurbished. That’s why they can build bullet trains, new train stations and new convention halls (see the Friedman article).

When’s the last time you heard of a new train station, airport, convention hall or rail line being built here. Have you heard of new bridges, dams, hospital centers or universities being built. About the only thing we build these days are sports stadiums.

Competing against the Chinese (and we have to think in terms of competing because not competing means stagnating, falling behind becoming second rate and withering away) begins by reallocating our Federal budget, cutting our defense spending (yes, perhaps ending the wars) and shrinking our global footprint so that more of our human and material resources can be redirected to those things that will help us compete in the 21st Century.

In the meanwhile, you investors keep one eye on FXI. By the way, the Chinese symbols read “The journey of a thousand miles starts with a single step”

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  • Kos

    Truly enjoyed your post today and couldn't agree more.

  • Anonymous

    "For democracy to be effective and deliver the policies and infrastructure our societies need,"

    Friedman is a shill for the government.

    Democracy as defined in the US takes away, life liberty and property.

    Notice the countless wars it is involved in, the liberties it has taken, and the revenue it has collected. God forbid if he believes our society needs more of this!