India & China - Threats for western economy 7 replies

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Relander

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8th April 2005

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#1 11 years ago

The so called "China phenomenon", companies moving to China, has worried a lot of people in western industrialized nations. Many people have lost their jobs as companies have moved their production to China due to much lower labour and material costs. China's economic growth has been huge at last couple of years, but what many people haven't noticed is ever strenghtening Indian economy.

Unlike China, India also offers some high technology and even skilled, professional labour for more demanding industries and its GDP growth has been over 9,2 % last year, only one percent behind China. Both countries form a serious economic threat for rather stif, miscellaneous European economies but also for the USA & Canada, even more severe one if China & India start close economic cooperation in the near future.

What should the western nations do in order to counter this threat? More economic cooperation & less tariffs between EU and North America, more funds for technology & education, less restrictions for enterprises or what?

What's your idea for solution?

P.S. I'm not an expert in economics either so don't be shy to take part into the discussion.




masked_marsoe VIP Member

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#2 11 years ago

My Indian flatmate last year complained about how much stuff in India was marked "Made in China".

I would rather see increased tariffs than freer trade. The possibility is that the West becomes the high-level managerial wing and India and China the accountancy and factory floors. That's a global economy that will ignore billions of people, and create massive unemployment and social problems across the West, and confine India and China to being labourers. I think that it is at this point that global capitalism reaches its death spiral. With nowhere to grow but ontop of themselves, economies will begin to overinflate. With nothing left to cut from the budget, and no new markets to exp (...lore/...loit), something will have to give. The market will start to bottom out as production reaches full capacity, and short of massive wastage, there will be nothing to keep it growing.

Take for example TVs; if everyone has a TV, then noone will want a new TV immediately (as opposed to a person without a TV who wants a TV), so there will be a tiny market for TVs. Unless people throw out their TVs every month and buy a new one, the market for new TVs will only be as large as needed to replace old TVs. There will be noone wanting a TV because they do not own one. So almost all the people making TVs will be out of jobs. If the market reaches this sort of saturation point, and it theoretically has the potential to do so in this century, then the production industries will collapse.

The only solution under this model is to continually invent new things for people to have, and to colonise space and create impoverished markets to sell things to.




Junk angel

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#3 11 years ago

Take for example TVs; if everyone has a TV, then noone will want a new TV immediately (as opposed to a person without a TV who wants a TV), so there will be a tiny market for TVs. Unless people throw out their TVs every month and buy a new one, the market for new TVs will only be as large as needed to replace old TVs. There will be noone wanting a TV because they do not own one. So almost all the people making TVs will be out of jobs. If the market reaches this sort of saturation point, and it theoretically has the potential to do so in this century, then the production industries will collapse.

That's why tv's are now made as consumer goods. They only have a certain lively hood.

Europe in my opinion cannot ever contest with the pure manpower of the dragon and elephant. It has to find alternative routes to create niches that those two countries cannot fill. It probably has to strongly invest into it's high tech assets. While indian economy does indeed incorporate high tech assets as, it does not have the same "tradition" in them. Both china and india, are probably the greatest threat to large, tertiary sector specifyc countries like Polland or the Ukraine.

But a high economic growth is not limited to China and India. Some european countries show a great annual growth as well--for instance the Czech REpublic had an annual growth of over 6%.




Rysonue

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#4 11 years ago
Take for example TVs; if everyone has a TV, then no one will want a new TV immediately (as opposed to a person without a TV who wants a TV), so there will be a tiny market for TVs.

This is very true and was one of the causes of the great depression.(except not with TV's XD) Tariffs will encourage more economic growth by making people not want to buy good from other countries, but the tariff should not be on good not available in the country other wise. (For example a J-rock band CD. ) Then there is the issue of making sure everyone is employed. If the entire world was ruled by one company there would be very few jobs, obviously. Because the company would only need a few people in each division. This is why having many companies is a good thing. Each company will need a different person for each job. That's why the mergers going on hurt the economy. One reason companies ship out to other countries is cheap labour. I read some where( but lost the source gosh durnit) that even EA was thinking of shipping jobs to India. The pro-globalization way to handle this is force a world wide minimum wage. I'm not an economist so I don't know how feasible that would be. Either way I hope something from here Helps the problem.




Vasili

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#5 11 years ago

We should do it like all western countrys sort things! Have a war to settle things then nick all their stuff. Harsh words? Meh its been going on for years.




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#6 11 years ago

I don't really see China and India as threats. Yes they are certainly going to be competitors in the future but why should we see that as threatening? Inevitably, just as in the U.S. and Europe in the 19th century, the workers in those countries will demand better working conditions and better pay, and so moving a company there will no longer be profitable. Yes, in the mean time they are somewhat harmful to the Western economies but in the long run they won't be.

And in reality the U.S. economy isn't doing too bad. Our deficit is massive but that is because of the war. The only state doing particularly bad is Michigan.




MrFancypants Forum Admin

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#7 11 years ago

This problem is most likely going to cause a few problems for our generation. More competition isn't necessarily bad, but many European and American companies have bad and rusty management which is just asking to be swept away by innovative newcomers.

I guess in the near future China and India will have increasing demands of all sorts of goods, which might be profitable for western companies. Once that demand is covered and Chinese and Indian companeis begin to expand towards the west there will be problems though. Especially if the west loses it's technological advantage, which is bound to happen if we pour billions into pointless wars while ignoring education.




Relander

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#8 11 years ago

masked_marsoeThe possibility is that the West becomes the high-level managerial wing and India and China the accountancy and factory floors. That's a global economy that will ignore billions of people, and create massive unemployment and social problems across the West, and confine India and China to being labourers.[/quote] That's true only partially. The service & health care sectors (vendors, barbers, attendants, doctors etc.) are growing rapidly in western countries due to the retirement of baby boomers, low birth rates and increased living standards & lenght of life. Hi-tech industry needs researchers, designers, analysts, management and highly trained workers which can't always be found from India, Taiwan, Malaysia or South Korea. Plumbers, construction workers, cleaners, teachers etc. are always needed where the people are living: you can calculate the wages of Irish workers & handle accounting of local Irish firm from India but you can't build houses or clean them from there. There will always be jobs available for people, at least for most of them.

With nowhere to grow but ontop of themselves, economies will begin to overinflate. With nothing left to cut from the budget, and no new markets to exp (...lore/...loit), something will have to give.

There will always be new markets to explore in global world. Ten years ago mobile phones we're more of a luxury product or reserve telephone but today they are regarded as basic consumption product as can of milk. Technology creates us new consumption products every year and as the standard of living keeps growing & older products become obsolete, people have to buy new ones.

World and especially Europe already have stable monetary policies and it's not like the cake (economy) remains in the same size as the merchantilists believed, it grows when more money is printed and investments flow across the globe. In western economies and especially in Nordic countries, there's a lot to cut from the budget for subsidies and tax cuts which will return most, if not even more money back for the state in the form of tax money & increased employment.

The market will start to bottom out as production reaches full capacity, and short of massive wastage, there will be nothing to keep it growing.

There's always something new to produce and buy. No-one buys sewing machine anymore in these days but mobile phones, plasma TV's and digiboxes. If at one sector the "full" production capacity is met, the enterprise will start producing something else.

The only solution under this model is to continually invent new things for people to have, and to colonise space and create impoverished markets to sell things to.

And that is what the people & enterprises are doing, invent new things and improve old ones. As the world's resources become increasingly limited, development of technology becomes even more important and idea of colonizing space isn't distant dream anymore but a long-term necessity.

RysonueTariffs will encourage more economic growth by making people not want to buy good from other countries, but the tariff should not be on good not available in the country other wise.

If tariffs would just increase economic growth, there would be nothing else than tariffs around the globe but it doesn't work that way. Where as tariffs protect domestic market & seemingly secure domestic jobs, they also discourage foreign investments and flow of foreign goods, limiting competition and keeping the prices & quality in the same level in the expense of the consumer.

Protectionism is a thing of the past and one major reason why developing countries remain poor: due to high tariffs & subsidies provided for European companies by European governments, African countries can't compete with their own products at the European market and they simply remain as producers of raw materials with non-existent economic growth. Protectionism causes trade wars and political confontration between countries while encouraging merchantilist idea of self-sufficiency which may eventually lead into conflicts: as a country wants to become more powerful & self-sufficient and as the neighbouring country is doing the same, some kind of conflict will arise sooner or later.

What comes to mergers: in most cases they decrease some jobs but also secure the existing ones. Mergers are made in order to challenge or answer for challenge of foreign companies: powerful foreign company will easily crush numerous smaller companies and thus force them to merge with itself or bankruptcy, but if these smaller companies have merged together against this foreign company, then the latter one's changes of creating superiority are seriously weaker.

[quote=Afterburner]I don't really see China and India as threats. Yes they are certainly going to be competitors in the future but why should we see that as threatening?

China & India are threats for western manufacturing & assembly industries and even for middle-level management sector such as accounting & consulting, thus causing unemployment and decrease of tax money in shorter or longer term. Aren't you worried about the fact how US auto industries are moving their production capacity in Asia, leaving a lot of unemployed people behind, a city without tax money and enterprises without consumers? The situation might fix itself in long-term though there's no guarantee for that.

Inevitably, just as in the U.S. and Europe in the 19th century, the workers in those countries will demand better working conditions and better pay, and so moving a company there will no longer be profitable.

Sure, but this will take a lot of time and possibly causing political instability & violence which don't belong to our interests as humans. Moreover, it's much harder for Asian workers to properly organize themselves than it was for their western counterparts: eastern governments & business know what happened in the west and their societies in general aren't as stable & democratic as western ones.

And I wouldn't be too confident when it comes to US economy. In short term the USA economy looks like doing OK but in the long term the huge national debt will come to haunt you: huge debt means huge amount of money to be put on paying its interest which is straight off from rest of the budget. The US housing market has already become too "hot" and as baby boomers get into retirement & birth rate remains low, the insurance & health care payments will blow up into the hands of the administration ruling in that fateful period. The USA needs more money to be put on technology development & education and for employment measures but as long as the war in Iraq is going on, significant funding increases for these sectors aren't possible.

I agree with MrFancypants here: education & technology are the keys for economic survival & success for the west in ever harder global competition: we have to concentrate on quality & specialities and leave the numbers for Asian economies. The Lisbon strategy calls for increased funding & attention on research & product development but the plans outlined in the strategy are still largely just plans.