13:   China Teaching Technology to the US?

William Krehm

The United States is being tested on several fronts. At the heart of its problem is the clash between a financial sector driven to an exponential voracity for the maintenance of its market valuations, and the responsibilities of an imperial power. Promoting Globalization and Deregulation allows an ever freer field for reshuffling the playing cards and disposing of those that don’t serve its game. This would, of course, include the disregard of its own protectionist traditions and those of all evolving industrial powers.

The one exception was Britain that got there first. Contrast that with knocking down all cultural barriers, even the right of traumatically disadvantaged nations to their cultural identity. At times it seems that the US is extending its brusque internal assimilation of immigrant cultures in a campaign to market its own huckster style throughout the world.

Contrast that with the Roman empire that not only acknowledged the existence of other cultures, but in some instances even bowed to their superiority. That was notably the case with Greek letters and philosophy. Compare that with the pushy American insistence on removing a degree of protection of Canada’s sickly magazine efforts. One trouble with this bias is that it precludes alternate ways of looking at problems. Herodotus tells us that the rulers of ancient Persia before adopting an important policy paused to consider it in two different ways – once in a sober state, and again when they were drunk. Too often, we get the impression that Washington examines its foreign policies only once – when drunk with its sense of limitless power.

At bottom the struggle is to rig the trade terms to favour the imperial power over the provinces acquired. The Romans managed that with sweeping military operations that at times reduced much of the population to slavery. Those who retained some freedom were often placated by the respect shown their culture, and even their puppet kings and their gods. The United States seeks to achieve much the same goal with debt. No matter how unconditionally its universities teach the virtues of the free market where supply and demand on the margin determine price, the reality is that Third World export prices are set not by supply-demand but by the IMF’s pressure to service debt denominated in foreign currencies. Production for export becomes a function of the diktat to increase exports even though they may already be below costs.

To grasp all the important factors in the terrorism that is sweeping Islam, you cannot ignore the collision of this backbone item of the Washington Consensus, and the Koran that considers interest in any form as a sin damnable with eternal hell-fire. You might think that the advisers of President Bush would have recognized this in their efforts to track down the roots of terrorism. Yet I have yet to see a reference to it in the flood of research on terrorism out of Washington.

The Seignorage of Our Lone Imperial Power

Meanwhile the superpower position has brought the United States a bonus: the role of its currency to serve as by far the largest reserve currency – supplying 60% of the total in the world’s central bank reserves. Since the gold standard was abandoned in 1971, that is tantamount to creating the money with which to it settles its huge import surplus with a mark-up that approaches 100%. A credit-based reserve rather than one based on gold, increases the seignorage – the spread between its nominal value and the cost of producing it physically.

And deregulating the banks shortly after their massive bailout of the early 1990s gives us the measure of the power that goes with such a position. This contrast between the debt-determined export prices of the underdeveloped lands and the US’s near-costless imports paid for with its own paper dollars, is bound to be paid in blood. It is an indulgence that neither the US nor the rest of the world can afford.

Enter China, Great Turner of Tables

What makes China the one really formidable eventual challenger of the US is not only its immense population, its powerful cultural tradition, but its long experience in contriving defences against invasions by land and sea. This extends from the building of the Great Wall against the invaders from the north to the closing of the land routes to the West, the Boxer rebellion against the barbarians arriving from the East, the nationalist uprising of the 1920s against extra-territoriality, to the Communist revolution itself. China’s pioneering technology reaches back to their invention of paper, gunpowder, paper money, and much else. Their failure to profit from their own great inventions haunts them today. It is certainly a factor in their hard-nosed bargaining for Western technology as a condition for opening its markets to world trade. Their own resources for coming to the fore in the modern world have been vastly enriched by the Diaspora during the Cold War accepted and encouraged by the United States itself.

Western-trained scientists and engineers returning to a somewhat freer China are producing surprising results in many fields. And one positive thing that they brought out of the Communist period is a sensitivity to the vulnerabilities of Western capitalism.

As the United States becomes more entangled in its preemptive invasion of countries fallen out of its favour, it is turning more frequently to the good offices of Chinese diplomacy. That is becoming a distinct asset for Beijing’s insistence that it be given access to higher technology in return for entry into the potentially huge Chinese market.

This context lends special interest to the article in The Wall Street Journal (11/09, "Invisible Supplier has Penney’s Shirts all Buttoned up" by Gabriel Kahn):

"On a Saturday afternoon in August, Carolyin Thurmond walked into a J.C. Penney store in Atlanta’s Mall and bought a white Stafford wrinkle-free dress shirt for her husband, size 17 neck, 34/35 sleeves.

"On Monday morning, a computer technician in Hong Kong downloaded a record of the sale. By Wednesday afternoon, a factory worker in Taiwan had packed an identical replacement shirt into a bundle to be shipped back to the Atlanta store."

Americans Absentees in Running their own Domestic Business

"This speedy process, part of a stream-lined supply chain and production system for dress shirts that was years in the making, has put Penney at the forefront of the US retailing revolution. In an industry where the goal is speedy turnaround of merchandise, Penney stores now hold almost no extra inventory of house-brand dress shirts. Less than a decade ago, Penney would have had thousands of them warehoused across the US, tying up capital and slowly going out of style.

"The new process is one from which Penney [itself] is conspicuously absent. The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penney’s shirts from its stores in North America, then runs the numbers straight through a computer model it designed. The Hong Kong company then decides how many shirts to make, and in what styles, colours and sizes. The manufacturer sends the shirts directly to each Penney store, by-passing the retailer’s warehouses – and corporate decision makers.

"TAL is a no-name giant, the maker of one in eight dress shirts sold in the US. Its close partnership with US retailers is part of a power shift in global manufacturing. As retailers strive to cut costs and keep pace with consumer tastes, they are coming to depend more on suppliers that respond swiftly to changing needs. This opens opportunities for savvy manufacturers, and TAL has rushed in, even starting to take over such critical areas as sales forecasting and inventory management.

"On the week-end Mrs. Thurmond made her purchase, the same Atlanta store sold two sage-colored shirts of similar size but of another Penney house brand, Crazy Horse. That left none of this size and color in stock at the store. Based on past sales data, TAL’s computers determined that the ideal inventory level for that brand, style, color and size at that particular store was two. Without consulting Penney, a TAL factory in Taiwan made two new shirts. It sent one by ship, but to get one to the store quickly, it dispatched one by air. TAL paid the shipping, but sent a bill for the shirts to Penney."

The Chinese Tell the Americans What They have Just Bought

"‘Instead of asking Penney what it would like to buy, I tell them how many shirts they have just bought,’ says Harry Lee, TAL’s managing director.

"TAL was born in 1947 after Chinese border guards blocked Mr. Lee’s uncle, C.C. Lee, from importing state-of-the art weaving machines to Shanghai for fear they would hurt the local industry. So he set up shop in Hong Kong, then under British rule. With low-cost Asian manufacturing, TAL thrived. It supplies labels such as J. Crew, Calvin Klein, Banana Republic, Tommy Hilfiger, Liz Clairborne, Ralph Lauren and Brooks Brothers. Mr. Lee, 60 years old, joined the family business 30 years ago after earning a Ph.D. in electrical engineering in the US and serving a stint in Bell Labs.

"Now TAL is negotiating a deal to manage Brooks Brothers’ shirt inventory the same way it does Penney’s. For Lands’ End TAL stitches made-to-measure pants in Malaysia and flies them straight to US customers, with a shipping invoice that carries the Land’s End logo.

"These retailers have been willing to cede some functions once seen as central because TAL can do them better and more cheaply. Before it started working with TAL a decade ago, Penney would hold up to six months of inventory in its warehouses, and three months in its stores. Now, for the Stafford and Crazy Horse shirt lines that TAL handles, ‘it’s zero.’"

US-inspired High Interest Policy Made US Business Vulnerable

Let us note that it was the high interest rates at the core of "leaving all to the market" that gave the Japanese their missionary edge in introducing "delivery as needed" to the West. Now on a larger scale the same enthronement of interest rates is leading to the surrender of core strategy control, with unlimited possibilities of the US relinquishing its technological lead. There is nothing basically wrong or bad about that. At every stage of history whether in Greece, the Renaissance or in recent centuries, states have succeeded one another in leading roles. It is just that with its fixation on imposing its blind dogma on the rest of the world and backing it up with military adventures, Washington risks doing more and more damage to its own people.

The Chinese have reached the stage of not begging for technology but of producing it themselves. In the process they are taking over command of a vital part of the planning and management of sectors of the US economy. Washington’s lint-witted involvement in preemptive military intervention can only accelerate this process.

William Krehm