As a US presidential candidate, Donald Trump made keeping manufacturing jobs in the country a key economic issue. He promised to bring back jobs from China, Mexico, Japan, and elsewhere; he pledged to force companies from Ford to Apple to Nabisco to open or re-open factories on American shores; and he vowed to revive the coal and steelmaking industries. His promise to create industrial jobs was key to his electoral victory.
Still, many were—and remain—deeply skeptical of Trump’s plans. Mark Cuban, internet entrepreneur and frequent thorn in the side of the president, says that bringing back manufacturing will backfire and lead to overall job losses. Instead, he says, the US ought to invest in robotics to compete with China. “We have to win the robotics race,” he says. “We are not even close right now.” (For what it’s worth, Trump’s labor secretary Steven Mnuchin recently disagreed, saying robots aren’t even “on my radar screen.”)
Cuban is on the right track, but the fact is that it’s too late to go head-to-head with China on building robots alone. We can’t compete with China’s robot revolution. But we can complement it.
It is widely understood that China needs to move from an investment-intensive growth model to one based on science, technology and innovation. But before I take up this subject, let me take a detour to tell a tale of two countries.
Both countries are small. One has a population of 5.5 million people; the other has a population of 8 million. In both countries, the dominant ethnic group is about 75 per cent of the population and minority groups make up the rest.
Both countries are rich. One country has a per capita gross domestic product of US$52,000 and the other country has a per capita GDP of US$35,000.
Both countries have faced existential security threats from the outside and armies in both countries have mandatory conscriptions. One country was actually kicked out and evicted by its now much larger neighbour, because the union would have threatened the political dominance of the main ethnic group. The second country is located in a region surrounded by hostile nations.
According to Democracy Index of The Economist magazine, today about 47% of the countries are democratic; 53% are either authoritarian or are a hybrid of democratic and authoritarian regimes. The election of Donald Trump as the 45th president of the United States must have given an electric jolt to that non-democratic 53% of the world. Authoritarians cheered. Vladimir Putin was among the first to call to congratulate and so did President Xi Jinping of China.
In an opinion piece for the New York Times, Eric Li, a Chinese venture capitalist, who rose to prominence for his fierce defense and assertion of the superiority of the Chinese political system, wrote that many people in China supported Trump’s candidacy. Trump, Mr. Li argues, is a business pragmatist and will engage with China without what he calls “the shackles of ideology”—i.e., an ideology of democratic and liberal values. This would be good for China.
On October 29, China adopted a policy of two children per family, instead of one. This change is, in large part, intended to mitigate the adverse demographic trend plaguing China’s social security system: the rapidly declining ratio of active to retired workers. The ratio is falling from over 6:1 in 2000 to under 2:1 in 2050.
However, the new two-child policy is not likely to have a big impact on the worker-retiree ratio, so China’s retirement system will remain under stress. To sustain social security, China needs to implement other reforms — moving from a local to a national system and expanding the permissible investments for Chinese pensions.
The one-child policy always had exceptions, such as for rural and ethnic communities. These exceptions were broadened in 2013 to cover couples where both were only children. Yet the birth rate did not take off.
In 1983, the UN gave China and India awards for their efforts to control the population. The recipient for India was its then prime minister, Indira Gandhi. She famously pushed for a compulsory sterilisation campaign and even suspended elections in order to enforce it. Her programme failed miserably, and one of its enduring effects is a pervasive distrust of India’s health care system, which still plagues public health efforts today.
By contrast, China’s one-child policy was in place for 35 years until this October, when the government announced a shift to a “one couple, two children” policy.
The contrast in duration between the Chinese and Indian population control policies cannot be sharper, and it is this, among other differences, that prompted some Western observers to argue that the authoritarian Chinese system is more capable of enforcing politically tough but economically rational policies.
The reality is much more complicated. It is true that India has a higher fertility rate than China and it is also true that India could not enforce population controls as effectively as China has. But there are many other differences between China and India that would account for a lower fertility rate in China, regardless of policies. Chinese women enjoy a higher socio-economic status than Indian women. Chinese basic education and public health are far superior to those in India. All these factors would have led to a declining fertility rate in China even if China did not have the one-child policy in place.