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The Real Economic Lesson China Could Teach Us

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Highlighting today's summit between Chinese President Hu Jintao and President Obama is China's agreement to buy $45 billion of American exports. The President says this will create more American jobs. That's not exactly right. It will create more profits for American companies but relatively few new jobs.

Nearly half of the deal is for 200 Boeing aircraft whose parts come from all over the world. The rest involves agricultural commodities that don't require much U.S. labor because American agribusiness is highly automated, and chemical and high-tech goods that are even less labor-intensive.

General Electric and other companies are signing up for deals with China involving energy and aviation manufacturing. But much of this will be done in China. GE's joint venture with Aviation Industries of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes) will be based in Shanghai.

Here's the real story. China has a national economic strategy designed to make it, and its people, the economic powerhouse of the future. They're intent on learning as much as they can from us and then going beyond us (as they already are in solar and electric-battery technologies). They're pouring money into basic research and education at all levels. In the last 12 years they've built 20 universities, each designed to be the equivalent of MIT.

Their goal is to make China Number one in power and prestige, and in high-wage jobs.

The United States doesn't have a national economic strategy. Instead, we have global corporations that happen to be headquartered here. Their goal is to maximize profits, wherever they can make the most money. They'll make things in America for export to China when that's most profitable; they'll make it in China and give the Chinese their know-how when that's the best way to boost the bottom line. They'll utilize research and development wherever around the world it will deliver the biggest bang for the dollar.

Meanwhile, Republicans and deficit hawks are cutting publicly-supported R&D. And cash-starved states are cutting K-12 education, and slashing the budgets of their great public research universities, such as the one I teach at.

No contest.

And no hyped-up trade deals are going to change this fundamental imbalance.

Some say all we need to do is put our currencies in better balance. But even if the Chinese upped the value of the yuan and the US (courtesy of the Fed) reduced the value of the dollar -- so everything they bought from us was cheaper and everything we bought from them, far more expensive -- they'd still win. We'd have more jobs than now because our exports would be more attractive in world markets, but those jobs would summon fewer goods from around the world. In other words, we'd be poorer.

Let's get real. We're losing ground. The U.S. labor force is now smaller than it was before the Great Recession began and most American families are worse off. December's unemployment rate dropped to 9.4 percent from 9.8 percent but almost half the improvement was due to 260,000 people dropping out of the labor force.

Average hourly wages grew by three cents in December; weekly wages, by $1.02. And almost all the gains in income occurred at the top. The major assets of rich Americans are financial -- whose values have increased as corporate profits have grown. The major assets of the middle-class asset are their homes, whose values continue to drop.

The President now says the answer is to help American business. "We can't succeed unless American businesses succeed," he said recently. "And I'm going to do everything I can to promote their ability to grow and prosper."

But the prosperity of America's big businesses has become disconnected from the prosperity of most Americans.

Republicans say the answer is to reduce the size and scope of government. But without a government that's focused on more and better jobs, we're left with global corporations that don't give a damn.

China is eating our lunch. Why? It has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for shareholders.

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http://robertreich.org/

Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.
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Why don't we calculate the value of the intellectu... by John Sanchez Jr. on Friday, Jan 21, 2011 at 9:34:57 AM