I would like to write a short essay concerning the following idea. I would
appreciate if I can get a few tips and
suggestions on the subject.
Thank You in advance.
So here is the short idea:
What have Henry Ford and the Chinese in common?
The year was 1914, Henry Ford raised the wage of his workers
from 2 to 5 dollars a day and shorten the working hours from 9 to 8 hours a day. The
reason for this was simple, Henry Ford goal was to mass produce cars, and while
it is one thing to mass produce cars, it is quite another thing to sale all
that. Some markets are more developed some are less, it is harder to sell a sophisticated
product on a primitive market then to sell it on a developed one. So Henry Ford
has two options, to produce as much the undeveloped market can consume and wait
for a more developed market for many years or to produce as much as he can and
to help the market to grow faster. He does the later. He raised the wages of
his workers and let them have more spare time. The result was that some of his
workers was able to afford his products so he was able to sell more cars. Of
course he was the one who financed a large part of that market, but this was an
investment for him, he couldn't employ those resources better for a number of
reasons. First he was already able to build manufacturing ahead of the needs of
the market with much less capital, but what would be the use of that if he
simply couldn't sell all those products even at a low price? Well nothing.
This is of course nothing more than history, so what the
Chinese has to do with it? The Chinese are also able to build manufacturing
well ahead of the Chinese market time (which is much less developed then the Western
markets) simply because they are able to buy or use technologies developed for
a much more developed market, but what would be the use of that mass production
if the undeveloped Chinese market can't consume it? There is only one solution,
to export. But to export you need someone willing to import. And that someone
need to have also large export because without an export it is impossible to pay for
import. So there was a problem, the Chinese has this huge and developed Western
market out there which wasn't able to import as much as the Chinese needed to export.
So the Chinese does the Henry Ford "trick", they lend money to their
target market, actually they give that money away (nobody can reasonably expect
that the US and others will ever pay that back to the Chinese, nor the Chinese
ever does this because they wanted to collect interest or to get back the principal
for that matter - of course they won't refuse to do that either as long as it make sense).
And now we have a situation that the Western market has a much larger import
then export and the Chinese are able to sell all their products in a much
larger amount then they would be able to do without this. But why would the
Chinese do this? What is their gain in this business? The same as it was for
Henry Ford, they buy speed, they give away all those products for speed. They
develop their industry, their economy and also their own market much faster
this way than they would be able to do without this little "trick".
They are now probably at the level of development they would be in 2020-2030 or
even later without this. Now what would be a better use of capital than to
shorten your time on the way to your goals? To save today so that you can have
a much better life tomorrow? That is what the Chinese are doing. And day by day the
Chinese market are more and more developed so as their industry and economy
are, every day they are less and less dependent on the huge Western market so
one day when their market become huge and "rich" enough to consume
the output of their industry they won't need to give away their products for speed
anymore (or for worthless fiat currencies if you wish). The question here is
what will then fill the enormous gap between consumption and production of
Western nations, who do quite in opposition to the way the Chinese do, they
are spending today so that they have a much worse life tomorrow?
One question remain unanswered: how they started this
"trick" where they get the capital to start to build the industry
which are too big for the domestic undeveloped market? Well in the beginning
they borrow it from the Western capital markets,
and they was able to do that because they had much less mostly government made obstacles
to efficiently employ this capital then entrepreneurs in the West does, so the
Western capital owners has a greater deal from this business than from the
business of lending their capital to Western entrepreneurs, this is the key
here, Henry Ford was able to do what he did mostly because other people wasn't
able to employ capital better than he did so he was able to raise capital from
them and to invest it in a way to increase the consumption of his products. Why was
this capital owners unable to employ capital better then Henry Ford was? Well
Henry Ford was a genius of business, but that wasn't the reason he was able to raise
capital for this, that was the reason that he was able to discover how to utilize
the capital he can raise, the reason why he was able to raise capital for
consumption is because even then, government obstacles was all over in the way
of productive employment of capital goods.