China has more potential to boost productivity than Japan in the 1950s and South Korea in the 1960s. Whether that’s realized is a $15 trillion question.

In industries such as financial services and telecommunications, where barriers to entry and preferential policies for state-owned enterprises deter competition, China remains far behind developed-world competitors.

via China Potential Outstripping 1950s Japan Is Reform Prize – Bloomberg.

I find it interesting that nowhere in this Bloomberg piece on productivity growth, which does include some discussion about labor, is there any mention of what happens to the workforce if there is actually “success” in China over the next few years.

Maybe I’m a cynic and pessimist, but I’m always looking for the downside. Productivity gains are sorely needed in China, and this is generally a very good thing, particularly now that China’s growth has perhaps moved to a flatter glide path.

But if the stars align and firms here learn how to wring more work out of their people, from better tech or other efficiencies, what will that mean?

Well, I recall what happened when we had significant reform of State-owned Enterprises under Zhu Rongji. This coincided to some degree with military restructuring. The result was a huge number of folks terminated from their jobs, many of which had never experienced dismissal before.

Painful stuff.

My point here is that China will definitely need to see significant productivity gains to realize the new economy the country has been striving for over the past ten years. However, the knowledge economy isn’t exactly known for its reliance on unskilled or semi-skilled labor. Just do a survey of anyone over 40 years of age at a retail or fast food job in a U.S. city and ask them what they think of the knowledge economy.

I’m not saying that the U.S. economy did not benefit from productivity gains or that somehow those advances should have been obstructed. I’m not a freakin’ Luddite. On the other hand, the U.S. did not do such a great job transitioning its labor force. Just two examples: education and health care. See where I’m going with this?

China productivity gains will no doubt translate into big-time layoffs. Yes, most of those folks whose jobs are replaced by Foxconn’s new robots will find work elsewhere. But how easy will that transition be? What will be the effect on wages? Unemployment in general?

The mood of the Chinese labor force in recent years hasn’t exactly been rainbows and unicorns, particularly in the manufacturing sector. One can’t help but wonder how major productivity growth might exacerbate some of those tensions.


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