China running low on Factory Workers and Farmers as an Aging Population threatens Future Growth

Posted by PITHOCRATES - February 3rd, 2013

Week in Review

During the Eighties those in America who favored large government incursions into the private market liked to point to Japan.  Whose economy was booming during the Eighties.  Thanks to a lot of government partnering with business.  And low interest rates.  The Japanese were buying up landmark American properties.  Some feared that they would take a controlling interest in the United States.  And those on the Left said that we were fools for not doing what the Japanese were doing.  They still believe this.  Despite what happened in the Nineties in Japan.  It turned out that a lot of that economic growth wasn’t real.  It was a bubble.  And they blew that bubble up so much that it took a decade and more to deflate it.  Japan’s Lost Decade.  Which is closer to two decades.  And counting.

Now China is the new Japan.  Where government partners with business.  And keeps interest rates low.  Once again those on the Left point to this model.  Urging that the U.S. adopt it, too.  So the U.S. can have a strong manufacturing sector.  And a booming export market.  But there’s more to the economy than exports (see UPDATE 3-China to speed up rural land reform, ensure food supply by David Stanway and Kevin Yao posted 1/31/2013 on Reuters).

The central government said in its “number one document” for 2013, focusing on modernising agriculture, it would grant more subsidies to large-scale landholders, family farms and rural cooperatives as it tries to provide more incentives to bring economies of scale to the fragmented countryside…

It listed grain security and farm product supply as top priorities, with China seeking to boost production as it urbanises and industrialises. The relocation to the cities of more than 200 million migrant workers has slashed the rural workforce and boosted food demand, leading to a growing dependence on imports.

So the Chinese traded food for exports.  To get cheap workers to fill their export factories they just pulled people from agriculture.  Leading to food shortages that they have to make up with food imports.  A country no stranger to food shortages.  Or trying to bring economies of scale to agriculture.  The last time they tried it was during the Great Leap Forward.  With forced collectivization of their farms.  Which was such a failure that tens of millions starved to death in the famine this forced collectivization caused.  But famine is not the only way to cause a population decline (see China’s looming worker shortage threatens economy by AFP posted 1/30/2013 on France 24).

China’s demographic timebomb is ticking much louder with the first fall in its labour pool for decades, analysts say, highlighting the risk that the country grows old before it grows rich.

The abundant supply of cheap workers in the world’s most populous nation has created unprecedented cost efficiencies that underpinned its blistering economic expansion over the past 35 years, propelling the global economy forward.

But now the inexorable consequences of the one-child policy imposed in the late 1970s are beginning to appear, and threaten to impact its future growth.

China’s working-age population, defined as 15-59, fell 3.45 million last year, official data showed earlier this month — the first decline since 1963, after tens of millions died in a famine caused by the Great Leap Forward…

“The population is aging so fast that we are running short of time to deal with it,” said Li Jun, also of CASS, adding the family planning policy had exacerbated the problem…

An ageing population not only means fewer people available to employ and higher labour costs, but investment — a key driver of China’s growth — will be harder to maintain as families spend their savings on health care, she said…

At the same time…the country was woefully underprepared to meet the burden of caring for the elderly…

By around 2060, every three Chinese workers will have to support two people above 60, compared with a ratio of five to one now…

Analysts said the medical services are increasingly expensive and hard to access, while the country’s flagship public pension plans are crippled by problems including insolvency risks, difficulties in expanding coverage and mismanagement.

Over a billion people in China and it’s not enough.  They’re short of both factory workers and farmers.  Because of an aging population.  The problem all advanced economies have.  Only China is having it before they are even an advanced economy.  And their problems of trying to take care of their aging population are going to make the problem of saving Social Security and Medicare seem like child’s play.  Because of that one-child policy.

In the advanced economies parents are having barely enough children to replace them.  While China’s one-child policy guarantees a shrinking population.  Which means fewer mouths to feed.  But it will also mean fewer people to farm their land and to work in their factories.  Just as more people leave the workforce.  Which means the future isn’t looking very good for China.  Who may soon experience their own Lost Decade.  A lesson for the U.S.  That having government partner with business and low interest rates does not make a sound economy.  It only creates bubbles.  Not real sustained economic activity.  Which all can come crashing down when overwhelmed by the crushing weight of an aging population.


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LESSONS LEARNED #71: “For socialism to be successful no one can be allowed to escape it.” -Old Pithy

Posted by PITHOCRATES - June 23rd, 2011

Socialism Oppresses and Kills tens of millions of People

It’s easy to point at Cuba as an example of socialism’s failure.  You don’t even have to go to the island.  You don’t have to study their institutions.  All you have to do is to look at the risks people will take to escape Cuba.  And they take some crazy risks to escape.  They will board some barely-seaworthy water crafts and paddle out into the ocean.  Away from Cuba.  And towards Florida.  Away from socialism.  And towards capitalism.  Away from a wretched life of despair and deprivation.  And towards a life of plenty and opportunity.  As they paddle their way to America, how many people do you think they pass who are paddling their way to Cuba?  How about zero?  Because when it comes to refugees, the direction is always towards America.  It’s never the other way.

And it’s easy to point to Mao in China.  His Great Leap Forward killed a lot of his own people.  And by ‘a lot’ I mean in the tens of millions.  Depending on the numbers you use.  It could have been anywhere between 15 and 50 million people.  The Chinese communists were not the record keepers the Nazis were.  Though the actual number may be in doubt the magnitude isn’t.  In the spirit of brotherly love that is the hallmark of socialism, millions were beaten, tortured and killed to ‘encourage’ acceptance of the forced collectivization of farming.  And the funny thing is (not ha ha funny but funny as in sad and ironic) that after beating, torturing and killing so many people to collectivize farming, the agriculture output plummeted.  Partly because of bad planning.  And partly due to nature.  But local party officials reported record harvests to avoid beatings, torture and killings by party superiors.  So China exported much of these record harvests.  Leaving nothing for the peasants to eat.  Resulting in famine.  Again, the record keeping is sparse.  As they often are when your policies end up killing your own people.  But deaths were in the tens of millions.  The Great Leap Forward was a big push to modernize China.  To industrialize it.  For there was little infrastructure in China.  Most of it was rural.  Dotted with peasant farms.  Stretching across vast lands.  With little ways to move around.  Where you probably died less than a day’s walk from where you were born.  Which made it difficult to escape the Great Leap Forward.  Or Mao’s ruthless communist rule.

And it’s easy to point to the former Soviet Union.  Where it all started.  CommunismJoseph Stalin gave Mao Tse-tung a run for his money in the greatest mass murderer of all time contest.  Again, the record keeping was a little sparse.  But the Soviets took socialism to a grand scale.  The government controlled the economy.  And your life.  If you grew up in the Soviet Union, you learned how much better it was there than in the decadent West.  Especially the USA.  Of course, when some Soviets were lucky enough to travel outside the country, they learned that their Soviet teachers were liars.  The West was awesome.  Never before did they see such a wonderful world of plenty.  And some Soviets defected to that better life.  Which was a crime.  And a huge embarrassment for the Soviet Union.  Even Joseph Stalin’s daughter (Svetlana Alliluyeva) defected.  Others included Rudolph Nureyev, Mikhail Baryshnikov, Alexander Godunov, Sergei Fedorov, Martina Navratilova, Ivan Lendl and Nadia Comăneci, to name a few (both from the Soviet Union and the Eastern Bloc).  Some got preferential treatment to keep them from defecting like Katarina Witt.  Or they held family members as ‘hostages’ when some traveled out of the country.  It was a real problem for the KGB.  Who had agents living undercover in the West.  And a lot of them didn’t want to come home.  Of course, there was no such problem with people defecting from the West into the Soviet Union.  There were a few.  Like Lee Harvey Oswald.  But he wasn’t playing with a full deck.  And he did return to the United States.  Because even he found it was better in America.  And he hated America.

It’s easy to point at the big socialist failures.  But just about every story of socialism is a story of failure.  And as different as some of the stories are, they all have much in common.  In particular, the exploitation of the people to serve the state.

In Socialism, Slavery is Freedom

In George Orwell‘s Nineteen Eighty-Four, we see a frightening look at totalitarian socialism.  Big Brother is the leader of an oppressive regime.  Where the government plays with language to control the people.  War is peace.  Ignorance is strength.  And freedom is slavery.  War unites a people against a common enemy.  Who then beg for the government to protect them from this enemy.  And they will suffer through any hardship required to defeat this enemy.  Which makes continued war a handy way to control the people.  And to keep the peace among an unhappy and suffering citizenry that might otherwise rise up and complain.  Or riot.  Or attempt to overthrow the government.

Ignorance is strength.  If you don’t know how rotten your existence is you have no reason to be unhappy.  If you don’t know about that better life on the other side of your border, you have no reason to cross that border.  You’ll stay where you are.  And be a good citizen.  You’ll toe the party line.  Work hard.  Sing party songs.  And be happy.  More importantly, you’ll be subdued.  Easier to control.  And easier to lie to.  There’s a reason revolutionaries rounded up intellectuals and people with glasses (people with glasses can read and may be intellectuals) for ‘reeducation’ during revolutions.  Thinkers are trouble makers.  So it behooves them to keep the people ignorant.  So they don’t get distracted from their patriotic duties.  So they can continue to sacrifice to build a stronger nation.

Slavery is Freedom.  Because slaves never have to make a decision.  Or provide for themselves.  What a joyous and simple life.  Someone provides everything you need.  Your job.  Your clothes.  Your food.  Your home.  Your health care.  And your funeral.  And all you have to do is give yourself to the state.  Give up all your freedoms.  Give up all hope.  All your dreams.  And all of your comforts.  You have no bills to pay.  Because you don’t have anything.  You get up, work, eat and sleep.  Simple.  Easy.  And carefree.  True freedom.  Lucky slaves.

Adolf Hitler was a Socialist

Of course, if you talk to some slaves you’ll probably hear a different story.  Real slaves.  Like 19th century American slaves.  Those working the plantations.  They didn’t all buy that ‘slavery is freedom’ line.  If any did.  Because a lot of them did try to escape.  Just like those who tried to escape from Soviet socialism.  Interestingly, there are similarities between the two.  Because if you take socialism to its logical end you do arrive at slavery.  Friedrich August von Hayek wrote a book about this.  The Road to Serfdom.  Even said that if socialism grew unchecked in a state some guy named Adolf Hitler may come along and create an oppressive state dictatorship.  He didn’t quite say it like that.  But a guy named Adolf Hitler did come along and created an oppressive state dictatorship called National Socialism.  Or Nazism.  Anyway, suffice it to say that Hayek was right.  As proven by people everywhere who have tried to escape their socialist utopias.

Despite popular belief, everyone was not equal in these socialist utopias.  The inner party people lived well.  And their apparatchik.  But little changed for the masses.  In fact, life often got worse for them.  They were hungry, living in crowded quarters, with poor sanitation, some without running water, living in fear of state punishment for breaking a rule or not making quota, days of endless labor, no say in your future, no liberty and little hope for a better tomorrow.  Very similar to a 19th century American slave.

The American plantation is a microcosm of socialism.  The few at the top did very well (the glorious leaders).  Those close to them that ran the plantation (the party apparatchik) did not do as well but did much better than most.  And then there were the slaves at the bottom.  Who were all equal.  Equally miserable.  And without any hope.  Living in fear of abuse for breaking a rule or not making quota.  And working days of endless labor.  This is socialism taken to its logical end.  Which is why people risked death to escape places like the Soviet Union.  East GermanyCzechoslovakiaRomania.  Cuba.  To escape servitude.  Because the state could do anything they wanted to you.  And often did.  Just like a plantation overseer.

Slaves of the Social Democracies Riot

Of course, the critics will say that this isn’t true socialism.  That these are just mad dictators who corrupted socialism in their quest for absolute power.  And I’ll say, well, of course.  You’re right.  But they all used socialism in their rise to power.  Not a one of them said anything about cutting taxes or reducing stifling government regulations in their climb to power.  Quite the contrary.  They used every facet of socialism (egalitarianism, redistribution of wealth, taxing the rich, nationalization of private companies, etc.) in their climb to power.  In fact, one could say that without these tenets of socialism to unwittingly rally the people behind them they could never have risen to power.  Which is why socialism is not just a Road to Serfdom.  It’s a blueprint as well.

Some will roll their eyes at this.  And say Europe is full if social democracies that treat their people pretty damn well.  Let’s call it socialism-light.  These socialist countries have large and generous social welfare programs for their people.  Generous unemployment benefits.  Generous vacations.  Generous health care benefits.  Generous pensions when they retire.  Some at the ripe old age of 50.  A large and generously paid public sector.  Clearly these people aren’t oppressed.  And I’ll agree.  The people receiving these benefits are not oppressed.  But it places an incredible tax burden on those who work.  Who must make continuous sacrifices as their taxes continuously rise.  Let’s call these people slaves-light.  Because they are not allowed to enjoy the full fruits of their labor.  So, yes, the people in these social democracies in general are free.  And happy.  When they’re not rioting, that is.  Like in Greece.  Again.  Where the nation is broke.  And had to borrow money to pay its bills.  Which they have.  But one of the conditions for getting these loans was to cut back on those generous benefits.  Which hasn’t gone over well with the people receiving those benefits.  So they rioted.

Of course they rioted because they had become slaves of the welfare state.  Politicians promised them everything they wanted for their vote.  And delivered.  Until they could deliver no more.  Having become so dependent on the state the thought of taking care of themselves frightened them so that they ran into the streets and started burning things in protest.  The state had no problem keeping these people from escaping their country.  Unable to take care of themselves they were afraid to leave.  But the people with the jobs, and those who created the jobs, that’s a different story.  They could leave.  And a lot did.  So the state made it as difficult as possible for their money to follow them.

You may be able to Escape the Socialist Welfare State, but your Money may Not

New York City is the financial capital of the world.  For now, at least.  It costs a lot to live in the city.  Cost of living is high.  And the taxes are higher.  Way higher.  Which was never a problem for rich people.  Or rich companies.  Rush Limbaugh did his radio program out of New York City for awhile.  But he left because of the excessive taxation.  Went to Florida.  Where there is no income tax.  But every time he traveled to New York City he was required to pay income tax on his earnings for those days in the city.  The New York tax authorities put him through incredible hurdles to prove when he was out of the city.  Showing in multiple ways that he was, in fact, living in Florida.   With receipts.  Phone bills.  Etc.  They put the onus on him.  Said he owed the tax unless he could prove otherwise.

Then came the subprime mortgage crisis that gave us the worst recession since the Great DepressionWall Street income fell.  As did New York City and New York state tax receipts.  People moved out of the city.  Out of the state.  Worked out of their homes.  Some did no work in the state but still kept a vacation home on Long Island.  Desperate for money and unable to keep these people from escaping the state, the taxing authority went after their income.  Said if they spent any time in the state they owed income taxes for the entire year.  Even if you only vacationed for two weeks on Long Island.  While paying the taxes in the state you actually live and work in.  This was worse than taxation without representation.  It was double taxation.  In addition to taxation without representation.

New York City is generous with their social benefits.  Call it socialism-light.  It’s not all out socialism.  But it still suffers from the same fatal flaw.  It doesn’t work well if the people can escape this socialist utopia.  Especially the ones paying the taxes.  As is happening in the social democracies in Europe.  And anywhere where there is high taxation without a secured border.  To prevent the taxpayers (i.e., best and brightest) from escaping.  Like the Soviets did to keep their best and brightest from escaping.  As did the East Germans.  The Czechoslovakians.  The Romanians.  And the Cubans.


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LESSONS LEARNED #13: “If you were to live under the socialist maxim ‘from each according to his ability to each according to his need’ you would find yourself surrounded by needy people with no ability.” -Old Pithy

Posted by PITHOCRATES - May 13th, 2010

KEY TO CIVILIZATION growth is the food supply.  Food surpluses in particular.  Before dependable food surpluses, life was short, harsh and miserable.  Especially for women.  When they weren’t working in the fields they were giving birth and raising children.  High infant mortality rates, though, inhibited population growth.  Most of the children women gave birth to didn’t survive to adulthood.  So there was a constant state of child rearing.  But few children survived to help with the business of family life.

Malnutrition and famine were common.  Feudalism provided a precarious balance between life and death.  For centuries the common people (i.e., peasants) eked out survival on their landlord’s manor.  The lord owned the land.  The peasants worked it.  Most of the bounty went to their lord.  But they kept what they grew on a small strip of land for themselves.  Just enough for subsistence.

But England changed all that.  By 1750, her agricultural output was second to none.  Private property.  Free market economy.  Capitalism.  Increased productivity.  Specialization.  These all combined to provide incentive.  Incentive produced food surpluses.  Food surpluses produced profits.  Reinvested profits improved farm yields.  This produced more profit.  And the cycle continued.  In less than a century feudalism would disappear from England.  There, you either worked land you owned or were paid wages to work land owned by others.  People began to live longer and healthier lives. 

The British Empire ruled the civilized world in the 19th century.  Representative government.  Abolition of slavery.  Free trade.  The Industrial Revolution.  These things, and others, gave them wealth, power and moral authority.  A lot of good came from this island kingdom.  Including the United States.  They weren’t perfect.  There was a learning curve.  But the modern capitalistic economy which they gave us liberated the masses.  It let us do what we wanted to do, not just what we had to do.  In particular, women, who could do more than just raise families and work in the fields.  One day, she could even become prime minister of Great Britain.

FOOD SURPLUSES BEGET industrialization.  Food surpluses beget everything, really.  Food surpluses release human capital to do everything else we do besides farming.  England was at the van of this modernization.  Others followed.  In time. 

Russia abolished serfdom (i.e., feudalism) in 1861.  Industrially backwards at the time, this liberty awakened a dormant human capital.  They followed the English model.  In time, with the advent of steamship and rail transportation, Russian grain competed with other European producers.

Joseph Stalin, looking to jump ahead in the industrialization process, implemented collective farming in the late 1920s.  He turned away from the English model.  The government became land owners.  It was feudalism on a grand scale.  Large collective farms would produce vast food surpluses that could feed industrial cities.  And there would still be surpluses left over to export to raise capital to build these industrial cities.  At least, that was the plan.

With less incentive came less productivity.  What land the former serfs had come to own was lost to the state.  The state took so much of the harvest that there was little food left for those who labored to grow it.  And the price the state paid for their crops was less than it was before collectivization.  The ‘free’ serfs were earning less and working more.  They didn’t like it.  And chose not to participate.  Collectivization became forced collectivization. 

Deportations, terror, murder and famine followed.  Perhaps more than 5 million starved to death during the famine of 1931 and 1932.  Others were to follow.

Forced collective farming produced famines elsewhere.  In China, during Mao Zedong’s Great Leap Forward, forced collectivization produced even greater famine deaths.  Historians estimate that 20-30 million, maybe more, starved to death in the famine of 1959–62.  Though hard numbers aren’t available, North Korea suffered a devastating famine in the late 1990s that claimed millions.  But in the West, in the 20th century, famine was unheard of.  When the United States suffered during the great Dust Bowl of the 1930s, there was no corresponding famine despite the loss of productive farmland.

WITH INDIVIDUAL LIBERTY comes incentive.  With incentive comes productivity.  A small island nation of free land owners could produce grain to feed themselves with surplus left over for export.  Nations with great fertile tracts farmed by forced collectivization led to famine.  Slaves have little incentive other than to subsist.  The collective good means little to them when they are starving.  They continue to sacrifice.  And continue to suffer.  Even if they do produce a few more bushels of grain.  So if the suffering is the same, what is the incentive to work harder?

As individual liberty declines, those in power tend to exploit those they rule.  In the name of the state.  Or the common good.  This is easy to see when it results in famine or revolution.  Not easy to hide those things.  But it is a little more difficult to see when the results are more benign.  Longer unemployment benefits, for example.  I mean, those are pretty nice.  Hard to see the downside in them.  As it is in other benefits these rulers give us.  So we are seduced as they whisper these sweet nothings in our ears.  And soon we willingly cede our liberty.  A little at a time.

WITH THE RISE of individual liberty, there was a corresponding decline in the ruling elite thanks to representative government.  Great Britain gave this gift to us and the United States took it to incredible heights.  The oppressed everywhere immigrated to the United States to feed a growing industrial demand.  Being new, we did not know all the affects of industrialization.  When the bad things came to light, we addressed them.  Great Britain, for example, was one of the first to protect women and children from the worse of industrial society.  Still, working conditions could be harsh.  As could life in the industrial cities.  Poverty.  Filth.  Disease.  And it was the wretched state of life in these slums that gave birth to a new school of thought on industrialization. 

In 1844 Friedrich Engels wrote The Condition of the English Working-Class to expose life in these slums.  He would collaborate 4 years later with Karl Marx on a treatise called The Communist Manifesto.  And from this Marxism, Communism, socialism, collectivism, etc., would follow.  As economic systems go, these would all prove to be failures.  But the essence of them lives on.  State planning.

You see, it was capitalism that gave us the industrial slums.  And that was good propaganda for a ruling elite looking to rule again.  So they whispered sweet nothings into our ears.  They talked about a Social Utopia.  From each according to his ability to each according to his need.  Fair taxation (i.e., only the ‘rich’ pay taxes).  Social safety nets (paid for by taxes of the rich).  Shorter workdays.  Longer paid vacations.  More government benefits.  A burgeoning welfare state.  Free stuff for everyone.  Again, paid for by taxing the rich who have exploited the working class.

What evolved was the elimination of the middle class.  You had the evil rich (and the middle class were, for all intents and purposes, rich because they didn’t need government help) whose wealth the government taxed away.  And the poor.  The poor who the government would now take care of.  If elected.  And they were.  They seduced a great many people with their utopian vision.  Even in the West. 

Great Britain and the United States would fall to this seductress, too, thanks to the Great Depression.  It was capitalism that gave us the Great Depression, after all.  The greed of the money people.  And so these great nations declined from greatness.  They became welfare states, too.  They had short respites during the 1980s.  Margaret Thatcher helped rejuvenate Great Britain.  Ronald Reagan, the United States.  But the ruling elite whispered more sweet nothings in our ears and the decline continues.

In 2010, our appetite for state benefits appears to be insatiable.  And we may have run out of wealth to tax away to pay for it.  California is on the brink of bankruptcy.  New Jersey elected a governor who proposed draconian spending cuts to stave off bankruptcy.  Other ‘blue’ states (i.e., states who vote Democrat) are also in trouble.  Underfunded pension obligations.  Demands of teacher unions.  Of government worker unions.  Everyone is there with their hand out.  None of them are willing to sacrifice for the common good.  No, they expect others to do the sacrificing.

THE OBAMA ADMINISTRATION has increased federal spending to such record levels that Communist China is concerned about our fiscal/monetary policies.  As they should be; they hold a lot of our debt.  The federal government has ‘bailed out’ private industry and taken de facto control.  They have created a healthcare entitlement that will cost more than a trillion dollars.  More spending is coming.  And it is all for the greater good.  They are vilifying those who are not poor, taxing away what wealth they can from them and giving it to the poor.  When about half the electorate doesn’t pay any income taxes, there is little opposition to raising taxes on those who do.  For if the ‘rich’ complain, the government vilifies them.

Where will it all end?  It is difficult to say.  How will it end?  Badly.  We can look at Europe who we seem to be emulating.  They’re further down The Road to Serfdom than we are.  With the excessive government spending, there will have to be greater government revenue (i.e., taxes).  Previous methods of taxation may prove insufficient.  Hello value added tax (VAT).  It’s all the rage in Europe.  It’s a multiple tax.  At every stage of production, government is there.  Taxing.  From the raw materials to the final assembly, government is there at every stage.  Taxing.  VATs will increase government revenue.  But they will also make every day life more expensive.  VATs increase the sales price of everything you buy.  And you pay it again at checkout.  It’s everywhere.  Everything will cost more.  From manicures to lattes to toilet paper to tampons.  And this is a tax everyone pays.  Even the poor.  It is a regressive tax.  The rich will pay more, but the poor will feel it more.  This hidden tax will take a larger portion of what little the poor has.

But how bad can it really get?  In 2010, I guess the answer would be to look at Greece to see what happens when a country can no longer sustain her welfare state.  And the people aren’t all that keen on losing the government benefits they’ve grown accustomed to.  It isn’t pretty.  But when you start down that road (from each according to his ability to each according to his need), the taking and giving always get bigger.  It never gets smaller.  And when you reach a critical point, government just can’t sustain it any longer.  And it crashes.  Like in Greece.


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