Mon, Jul 05, 2010 page11

• INTERVIEW: Fighting change is futile, Thurow says

  Lester Thurow, a professor of management and economics at Massachusetts Institute of Technology’s Sloan School of Management, believes that recessions and crisis are natural in capitalist economies. During a recent visit to Taipei, he sat down with ‘Taipei Times’ staff reporter Shelley Huang to talk about what will happen as the two sides of the Taiwan Strait increase their economic interaction

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  Taipei Times: Which countries have been the biggest winners and losers of globalization?

  Lester Thurow: I don’t think there are countries that are winners or losers, but companies. Apple is a winner. It makes its parts in China, designs its products in America, but sells them all over the world. Microsoft is a winner. Its products are designed in America, but sold all over the world. So the winners are not countries; they’re firms.

  TT: Do you think these companies will continue to remain the winners?

  

  Massachusetts Institute of Technology professor Lester Thurow gestures during an interview in Taipei on June 27.

  PHOTO: CHANG CHIA-MING, TAIPEI TIMES

  Thurow: Sure. I believe that in 50 years, you might say, “I live in Taiwan,” and I might say, “I live in America,” but we both work in a global economy. We work in the same economy.

  TT: So country boundaries are disappearing.

  Thurow: It already happened in the European Union. France, Germany and the UK are becoming less important, but it takes a long time.

  TT: Do you think the process is accelerating?

  Thurow: No. It’s always been happening, but it’s happening slowly. You would say you are Taiwanese, but why? Why don’t you say, “I’m a global citizen?” The disappearance of national boundaries takes a long time. Your grandchildren will probably say, I’m a global citizen.

  TT: How long will it take for the emerging markets to be equalized with the rest of the world?

  Thurow: Some will never be. Who was the world’s largest economy over 4,000 years? Ancient Egypt. What are they today? An underdeveloped country. Who was the world’s wealthiest economy for 1,000 years? Greece. Today, they’re semi-developed. Who was the world’s wealthiest economy for 600 years? The Roman Empire. Today, they’re semi-developed. Who was the wealthiest economy for 300 years? Spain. Today, they’re semi-developed. Who was the wealthiest for 200 years? Great Britain. Who was the wealthiest economy for 100 years? The United States. We will all be replaced, sooner or later.

  TT: You once said that greed produces economic growth, but that it also creates financial crashes. Do you think greed was the main ingredient in the credit crisis that began two years ago?

  Thurow: Sure. Why do people want to get rich? Because of greed. Do you know anybody who doesn’t want more money? The wealthiest man in Taiwan will want more. The wealthiest man in the US will want more. Greed is what makes the world go around economically. The world has always had financial crises. Capitalism comes with crises. Name a period of capitalism that didn’t have crises. The dot-com bubble, the Great Depression … Capitalism has recessions and crises; it’s the nature of the beast, like how elks have horns.

  TT: What do you think we can do to stop such financial crises, or should we stop them?

  Thurow: No, we shouldn’t. Communism doesn’t have crises. There was no recession in the Soviet Union from 1919 to 1991 — 70 years, but they couldn’t generate economic growth. Every system has its problems. The problem with capitalism is recessions. The problem with communism is it generates no growth. One day, something will replace capitalism, but I don’t know what that will be. They didn’t have capitalism in the 1500s. Capitalism began with the industrial revolution; eventually, it will die out, just like communism is dying out.

  TT: Taiwan signed the Economic Cooperation Framework Agreement [ECFA] with China in an attempt to increase economic cooperation across the Taiwan Strait. Can you comment on what you foresee will be the impact on the two economies?

  Thurow: Probably nothing. Taiwan is very small compared to China. So it has a free-trade agreement with China. Who cares? How many people think about China? Nobody in Africa thinks about China. Almost nobody in America or Europe thinks about China. The Taiwanese think about China, it’s true, but the world does not think about China.

  How many Americans, do you think, have passports? Americans can’t even go to Canada or Mexico without a passport, but only 10 percent of Americans have passports. Ninety percent of Americans never think about leaving America. If you want to go to the North Pole, you go to Alaska. If you want to go to the equator, you go to the Virgin Islands. If you want to go skiing, you go to Colorado. Why would I want to go to China or Taiwan?

  TT: How might the signing of the ECFA impact economies in Asia?

  Thurow: It will make them grow faster. If you add all the imports and exports of the world, what do they add up to? Zero! You can’t grow faster based on exports, because if you grow faster, somebody else grows slower. So in Japan, exports are going up, but somebody else’s exports are going down.

  TT: There’s been controversy about whether the ECFA is a free-trade agreement under the WTO’s rules. Some people say that because the ECFA is a free-trade agreement, it should be subject to WTO rules, and therefore, China and Taiwan will be forced to open at least 90 percent of goods and services to free trade across the Strait within 10 years.

  Thurow: Sure, it will happen. The rule is basically, whatever you give to one country, you have to give to everyone else. You’re going to start importing a lot of things that you don’t make yourself. If you’re forced to buy Japanese products, is that a bad thing? You do buy Japanese or Korean or Chinese products because they’re cheaper. Now if you come to America, and you look at the shirts’ labels. Are the shirts made in America? No, they’re all made in China. Do I care? No.

  TT: What about factories and industries that can’t survive because they are flooded by cheaper goods from China?

  Thurow: That’s true everywhere. Factories always close down. Suppose you take the 10 largest firms in America in 1900. How many of them are alive in the year 2000? One. Nine of 10 have died. Firms live and die. We shouldn’t protect firms from dying; it’s natural. Do you protect individuals from dying? When I die, will the world GDP get smaller? No. Somebody will take my place. The nine largest firms in America in 1900 that died — somebody took all their places, because they do different things.

  TT: In your opinion, is the Taiwanese economy over-reliant on China?

  Thurow: Taiwan does not rely on China. Taiwan relies on America. All that Chinese buy are parts that they put together to send somewhere else. Who in China buys consumer products from Taiwan? What do you sell that Chinese actually buy? What’s made here that China needs to buy? Nothing. You have to ask yourself, where is the ultimate buyer? If the ultimate buyer is in China, then China is an important market. If the ultimate buyer is in America or the European Union, then they’re important markets.

  TT: One of the most controversial issues about the pact is that more Taiwanese businesses might be encouraged to move their production facilities to China, because labor is cheaper there and the pact allows the two sides to have greater economic ties. What are your thoughts on such free-trade pacts and their impact on a country’s employment?

  Thurow: Employment lags behind the GDP. Employment is a problem in China, in America, everywhere in the world. The cheaper wages in China will affect everybody’s wages. For example, the supplier to General Motors is Delco [Electronics]. Delco used to pay its employees US$61 an hour, including health care. General Motors says, we have to compete with China, where they pay only US$14 an hour. The workers at Delco go from US$61 an hour to US$14 an hour. They’ve gone from middle class to lower-middle class, but they still have a job. They’re poorer, because they have to compete with the Chinese. Some people are richer.

  If I’m a capitalist, what do I like to see? Lower wages! If I’m a worker, what do I like to see? Higher wages! So the competition is, who can drive wages up, who can drive wages down. That’s why we have unions.

  TT: What happens when the factories move to China and Taiwan’s unemployment rates soar?

  Thurow: Then you have to be innovative. That’s a real worry, they’re not making it up. In Japan, what product has people lined up on the street? The new iPhone 4. The leading product in Japan is designed in America and made in China, not made in Japan. If I’m Japanese, do I care? I just want an iPhone. I don’t care where it’s made or where it’s designed.

  TT: So the politically sensitive issue of whether Taiwan will be unified with China would no longer be an issue in the future?

  Thurow: In the long run, there would be no issue, but in the short run, Taiwanese have a right to be worried, because they may lose their jobs. Their wages may be cut, like Delco. Is this a good thing? No, but it happens.

  TT: Taiwanese technology giant Hon Hai Precision Industry Co (鴻海精密) recently announced two wage hikes for its factory workers in China. Several other businesses have followed suit. Do you see wage increases as a long-term trend for Chinese workers?

  Thurow: Wages in China are going to go up. That’s what it means to be a developed country. You don’t pay underdeveloped wages in a developed economy.

  TT: Can multinational companies still cut costs by moving production processes to China, or will there be a new country to take China’s place as the “world factory floor?”

  Thurow: Multinational companies will move their production to wherever it’s cheaper than China ... Companies chase the lowest wages.

  TT: When are we going to use up all these cheap-labor countries?

  Thurow: Long after you and I are dead. Remember, people don’t care about what happens after they’re dead. I’m 72, I care about the next 35 years, that’s all.

  TT: What about your children, and your children’s children?

  Thurow: That’s their problem. I can educate them, so they can care for themselves, but I can’t be around to take care of them.

  TT: China recently announced its decision to make its exchange rate more flexible. Can you discuss what you foresee will follow, in terms of global economic stability and trade?

  Thurow: Probably won’t make much of a difference. In the long run, the renminbi [yuan] will go up. Whether they agree to do it now or after the G20, it’s all the same. Economic stability depends on the whole world, it doesn’t depend on China.

  The Japanese economy is an ­export-led economy. They’ve had to keep the yen low, but in the long run, they can’t do it. One of the reasons is that the Japanese have had no growth for 20 years as they’ve tried to run an export-led economy. The Japanese are rich, so they can afford 20 years of no growth, but you cannot; China cannot.

  TT: Will the US no longer be the “land of opportunities?”

  Thurow: In the next 100 years, the US will probably remain the land of opportunities, but in the long run, everyone’s had their day ... Every country falls. Somebody will eventually replace America. Who it is, I don’t know and I’ll be dead then anyway.
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