Note by HealthWrights staff

It is ironic the capitalist countries in the West should complain of unfair competition from China. After all, isn’t competition what it is all about? With its rather dismal record on human rights, we would hesitate to hold China up as the example for rest of the world to emulate. Also, its continuing development may create real problems for the earth’s ecology. However, the success of China presents a clear challenge to the neo-liberal economic theories that now dominate the West. China’s model is neither the state socialism that proved to be unworkable in Russia, nor the laissez-fair capitalism of the West. The crux of the matter seems to be that the state provides the capital needed for development. A major reason the Western countries cannot compete is because of their need for huge profit margins. Perhaps the world can no longer afford an economic system whose motivational main-spring is making the rich even richer. Minimally one must conclude that economic history has not ended. New models that work continue to emerge. Perhaps a model could be developed that is both efficient and more equitable than any we presently have. One is tempted to speculate, for example, on what would happen if governments made of point of investing capital in worker owned businesses. This is the kind of speculation that is needed if we are ever to develop the economic base for a healthy world.

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Le Monde

Everything is going too fast. On each return from China, the leaders of western companies can’t help making the same observation. Between two visits, even in a short lapse of time, they don’t return to the same country. New skyscrapers have sprung up; factories have appeared; new products have come out. Behind the China that produces t-shirts and socks, many see a much more dangerous Empire of the Middle Kingdom emerging: technical and innovative, capable of surging into the domains of health, space, and information technology - the spheres of excellence for western economies.

For company directors, the competition in those sectors is seen as inevitable. And it won’t be so different from the competition presently unfolding in textiles. Petrified by this prospect, groups ask themselves what the best response to this challenge is. By virtue of its size, its human and financial organization, its speed of adaptation, China raises questions of principle concerning global economic integration, even for the most convinced defenders of the benefits of free trade.

The questioning is all the more intense in companies, since they have the feeling they’re not fighting with the same weapons as their Chinese rivals. That they are placed in a competitive situation that is Mission Impossible. How can they compete with firms capitalized by the State, when Western companies find themselves subject to capitalist and market imperatives as well as the obligation of providing a 15% return to their shareholders?

The West thinks profit while China thinks growth, development and market conquest - backed by the total power of the State and its support for companies.

Faced with this new reality, all the schemes constructed in the 1990s appear savagely out of synch. To have global size or a global brand is no longer a protection, but, on the contrary, a risk of becoming a partial target. Outsourcing, which was supposed to be simultaneously an answer for how to maintain reduced costs and how to integrate emerging countries, now seems a derisory measure, as the end of textile quotas now illustrate. Even Bangladesh, India, or Tunisia have become too expensive compared to Chengdu or Canton. Tomorrow, this reality is likely to muscle in on the mechanical, plastics, and chemical industries which had thought they had found the answer for improving their competitiveness by establishing themselves in Eastern Europe.

Enlargement of product range, increase in value added, innovation, and technologies that have been presented as so many solutions for withstanding competition from the Southern countries, are no longer perceived as assured paths to success. China’s disregard for intellectual property nullifies many innovation and marketing efforts. Numerous groups have been surprised to find their products, their techniques - even their factories - copied exactly, right down to the color. To protect themselves, the large Japanese public electronics groups, such as Sony and Mitsubishi, have decided to withdraw some manufacturing from China and to conceive of their latest innovations in closed centers in Japan. Western groups believe that by exporting or transferring only already-known technologies, they can maintain their leadership. That’s the gamble taken by GE, Schneider, and IBM.

Unequal Combat

Is this illusory? For more and more company heads, there is a real risk that groups that have chosen this strategy will be reduced by it in the long run to nothing but managers of global brands, with production entirely in the hands of the Chinese. A development in the style of Nike, the sort-of-manufacturer of sports articles. But with the danger of being entirely dispossessed one day of its manufacturing knowledge and techniques.

Beyond the real problems raised by respect for intellectual property - which is in the process of becoming an obsessional sore point for industrialized countries - there is a still more disturbing aspect to this issue. Another China, a China that invents and creates, is in the process of emerging. Without any restrictions in number, without any quota, the country is cranking out scientists, researchers, doctors, engineers. Universities are overflowing and laboratories opening everywhere. The scientific level has become so elevated that big international groups such as Saint-Gobain or Philips are opening research centers there. Tomorrow, these centers will be able to sustain comparison to Western laboratories without any embarrassment.

In this unequal combat, some are beginning to ask themselves whether their only chance is not to turn toward less global lines of work and rediscover non-tariff protections. The expressed desire of Alcatel, tossed around by competitive forces, to enter the defense and military sectors by taking over some of Thales’s activities can be seen in that light. The markets themselves are now militating for concessions in the road-building, energy production, cement, and medical instrumentation industries, spheres that benefit from territorial barriers or legal or technical norms that offer them a certain protection.

Seeing their example, industrialists are asking themselves whether they shouldn’t be inspired by it to build new models more anchored in regions or based on fairly loose networks between producers and distributors. For the moment, these scenarios remain fluid. But everyone feels something must change, feels the need to come out from known frameworks to invent a way to integrate China into the global economy.

Such reconsideration, however, cannot succeed if it doesn’t extend to the financial world also. Overly rigid management criteria and excessively high profitability requirements, burden the companies experiencing this mutation with a risk of asphyxiation. Markets cannot continue to deny that risk, under pain of condemning whole sections of the Western economy, unable to sustain a competition in which some are forced to pay a high cost of capital while others are freed of all constraint.

Translation: t r u t h o u t French language correspondent Leslie Thatcher.