A Long View--Part 2

Until the fall of communism, the economies of a large part of the world were held down by their governments. Most of their people were locked into perpetual poverty.

Communism, however, was not the only culprit. India, though nominally capitalist, was heavily socialist. Its economy too was held down by excessive state control.

China's economy had been brutalized by Mao, with various Five Year Plans and the infamous Great Leap Forward. But in the late 1970's, things began to change. The vise-like grip loosened.

Today, though China's government is still heavily involved in the economy, the winds of capitalism and free enterprise are blowing hot and heavy. The Chinese economy is growing like crazy. And they seem to be kicking our butt.

China has the advantage that Japan had 30 to 40 years ago--low-cost labor that can do quality work. And their population is huge. It would seem that it would take a very long time for their wages to rise, as Japan's did, to the level of developed nations.

India, too, has reduced government control of its economy, and it too is growing rapidly. It too has a large population that works for wages far lower than those in the US.

Other areas of the world are entering the so-called global economy. Most of Asia is proceeding with rapid growth.

All these billions of people producing low-cost products and services represent a down-draft for wages and prices in the US.

To look at it in a positive way, after so many years of talking about lifting people in poor countries out of poverty, now we are doing it. We are doing it by buying products made in their factories and by buying services out-sourced to them by American companies.

Wages in China are actually starting to rise a little. Thus it would appear that their supply of cheap labor is not quite as infinite as we might have thought.

This is a fluid situation, not one that will always remain the way it is now. Maybe China will catch up and pass us. But we thought Japan would do that. They didn't. However, it is certainly true that China is much bigger than Japan.

But the question is not one of who will be bigger or richer. The question is whether wages and standards of living will reach some kind of equilibrium.

And, since the pie we share is not static but ever growing, can that equilibrium be at a high level? Can we avoid having our standard of living pulled down by theirs? Can we raise theirs up instead?

In reality we may be experiencing some degree of drag on our standard of living from the current lack of equilibrium.

We could erect trade barriers against cheap products from overseas. But the lessons of the past seem to indicate that trade barriers lead in one direction: down. Everybody loses.

We have embraced and pursued free trade. It is dangerous and uncomfortable. But we feel that the competition makes us stronger.

Other nations may pursue us and come close to catching up. But so far no one has been able to lead like we can.

It is easier to pursue than to lead.