The name of Bertelsmann AG, the German publishing company that owns Random House, was misspelled in a Sunday Outlook article. (Published 11/23/99)
Last year I woke up to discover that I'm now working part-time for a German company named Bartelsmann AG. You see, when I wasn't looking, Bartelsmann scooped up Random House, which has published several of my books and still occasionally sends me exceedingly small royalty checks. Bartelsmann is now the largest publisher of English-language books in the world, and for all I know it may become the largest publisher of Chinese books as well. Do I care whether an American-owned publisher (which may print its books in Singapore, bind them in New Zealand and market them through Hong Kong) gains better access to China than my own Bartelsmann? Not at all, as long as the royalty checks keep coming.
Don't think me either unpatriotic or selfish. It's just my way of suggesting that there's something missing in all the talk about how America will soon have its goods on Beijing's streets and will own bits of Chinese industry. I'm part of a global company, and if you aren't already, you may well be soon. Yet, as the debate about trade with China shifts to Congress, you will hear a lot of outdated notions about "American" industries and "American" products. When companies lose their national identities in a blur of mergers and acquisitions, would anyone say that what's good for DaimlerChrysler is good for America?
This issue won't be discussed in Congress, which has to decide whether to grant China permanent normal trading privileges. Instead, you'll be seeing two cartoon images of what's at stake. Proponents will argue, as Treasury Secretary Lawrence Summers did last week, that China's admittance to the World Trade Organization would mean "more jobs for Americans" and "larger export markets for American producers to provide high-wage jobs." Opponents will claim with equal vehemence that the deal will mean fewer jobs and lower wages for Americans, as hundreds of millions of Chinese--earning a tiny fraction of our incomes and subjected to repressive working conditions--crash the American market.
Neither image is correct. First, the deal won't affect the number of American jobs one way or the other. The global economy doesn't contain a fixed number of jobs, divided up among countries. Trade-opening agreements don't add to the nation's stock of new jobs, as the White House has been arguing since the NAFTA battle. Nor do they cause jobs to succumb to giant sucking sounds elsewhere. We will continue to have as many jobs here as the economy (and Alan Greenspan and company) allows, without inflation. It may be hard for partisans to extol the advantages of trade or to conjure up its horrors without resorting to hype about job gains or losses, but this kind of talk clouds what's really at stake.
Second, the deal isn't really about "American producers" gaining access to China. The old image of American companies making things here and then exporting them to eager Chinese consumers ignores the new reality of global commerce: American companies are making things everywhere and selling them everywhere. And Americans are working for global companies headquartered all over the place. General Motors makes cars in Germany for export to Japan. Companies such as Compaq get their hard-disk drives from Taiwan. Dell and Hewlett-Packard get their computer modems there. IBM and Motorola make all sorts of gadgets in South Korea, Taiwan and the Philippines. Boeing's aircraft parts come from 17 different nations.
So what does it mean for China to open its market to American companies? Just this: American-owned, American-operated or American-sourced goods and services--produced by Japanese, Taiwanese, Australians, Filipinos, Malaysians, Indonesians, South Koreans and others around the world--will now have a better shot at reaching Chinese consumers. The deal gives the Big Three car makers better access to China, but don't think for a minute that this will mean more cars coming out of Detroit bound for Shanghai or Wuhan. Why would Ford want to ship cars all the way from here to there? Ford will more likely assemble cars in China from parts made all over the Far East.
Rep. Bob Matsui, an otherwise thoughtful Democratic congressman from California, warned last week that "if we don't give China permanent trade status, all other countries will get tariff reductions and we won't."
But who's "we"? The pronoun is as likely to refer to an American-owned personal-computer plant in Singapore, run by a former Hong Kong national, as to a plant in Nagoya run and staffed by Japanese but partially owned by Americans. Does DaimlerChrysler count as "we" or "they"? Who knows? More and more of its big decisions seem to be coming out of Stuttgart.
Foreign companies have been buying controlling interests in American companies as fast as they can grab them. During the first nine months of this year, foreign purchases of U.S. companies totaled $256 billion--more than double the value of American buyouts of foreign firms, and already higher than the previous record set last year, which was four times the volume in 1997, according to J.P. Morgan. Meanwhile, American shareholders are also buying up pieces of foreign companies, and foreign shareholders pieces of American companies.
When British Airways scrubbed the Union Jack off the tails of its aircraft not long ago, its chief executive explained that the airline was no longer a British company with global operations but a global company that happened to be headquartered in Britain. Sixty percent of its business comes from non-British customers, and that's growing. An increasing portion of its employees come from around the world. If you'd like, you can buy shares in British Airways. Alternatively, you can stick with American Airlines (although American also has a lot of non-American shareholders). Do you care which company gets into China first?
Some of the China trade deal is about intellectual property, like software. But intellectual property is even harder to pin down, in terms of where it's from and who benefits by selling it. Consider a small software startup called Planet-Intra.com, whose mailing address is in Mountain View, Calif. Its major software product was written by a team in Croatia, its 37-year-old-founder and chief executive is a Canadian who's been working in Hong Kong, its vice president for technology is Russian, and its vice president for international sales is a German living in Tokyo. Personally, I have no objection to Planet-Intra.com getting its software into the hands of Chinese consumers, but I'm not going to call my congressman to try to make that happen.
The real deal here isn't even about who will be selling what to China. It's about who will be hiring Chinese to make things or do things there. Not only will "American" auto companies be assembling cars there, but every major "American" service business able to enter China will be hiring Chinese to provide the services to other Chinese. Under the terms of the deal, U.S. life-insurance companies will have the right to market their products in China, but don't expect hordes of American agents to descend on Beijing. The sales will be made by Chinese. Most of the profits will probably be plowed back into the Chinese division. Even the insurance products are likely to be designed by Chinese because they will have a better idea of what will sell. So, in the end, the benefit to American shareholders will come from the narrow stream of profits remitted back home. Global banks will have the right to open branches in China, but don't expect bank tellers or branch managers flying in from San Francisco. They'll be Chinese, too.
So what's at stake here for the average American? In the short term, not much, unless you're heavily into the stock market. Individual Chinese consumers won't buy much because they're very poor, but more than a billion of them add up to a significant market, and potentially a nice return on investments--whether you own a piece of DaimlerChrysler, IBM or Bartelsmann.
Global companies also will be making a lot of stuff in China for sale around the world. But this will affect workers in Thailand, Malaysia, Vietnam, Indonesia and the Philippines far more than Americans, because low-wage Chinese workers will be in direct competition with other low-wage workers in Asia, none of whom approach the levels of productivity of workers in advanced nations. That may mean further instability in a region that has already been hammered by the currency crises of the past two years.
In the longer term, the wages of Chinese workers will probably rise along with their productivity. That's good for us, and good for them. Twenty-five years ago, the median South Korean wage was about 5 percent of the median American wage; now it's nearly 45 percent. But there's no telling how China will cope with the giant displacements from its state-owned enterprises, where 60 percent of urban workers are now employed. Massive unemployment will dampen wage gains over the next few years, and may also cause social strains. China will also have an inequality problem. The compensation of the small elite of graduates of Chinese universities--and China's American-trained engineers and MBAs--already is rising precipitously and will rise even faster when global companies bid more actively for their services.
In the meantime, you're probably wise not to pay too much attention to Americans who issue wondrous predictions or dire forecasts about what this deal will mean for you. Trade is always a volatile political issue, inviting demagoguery on all sides. Trade with China surely will invite even more.
Robert Reich, secretary of labor from 1993 to 1997, is University Professor of social and economic policy at Brandeis University, and national editor of the American Prospect.