by Gwynne Dyer

The worst-case outcome, the cartoonish extreme, is that all the manufacturing gets done in China and all the mid-level service industry jobs move to India. What would be left for the United States and other developed countries to export, in this doomsday scenario, is the products of their still considerable real estate (“hogs and logs”, as Canadians used to put it before they industrialised), plus the things that the US still does best of all: music, movies and weapons. But it’s never going to end up quite like that.

One reason why not is that China’s industrial boom, the biggest and fastest in history (at least 250 million people are moving from bare subsistence to middle-class comfort in less than 20 years), is likely to hit a speed-bump at some point. It’s easy to forget when you see the consumer frenzy along the golden mile of Nanjing Road in Shanghai, but those fortunate 250 million are more than matched in numbers by a deprived rural population that is falling farther and farther behind. At some point the growing tensions between the haves and have-nots may well explode.

The Chinese government is aware of the problem, but as an unreformed Communist dictatorship it is too vulnerable to risk radical changes that cause short-term pain, so it just patches over the widening cracks in the system and soldiers on. Unless some Gorbachev figure emerges, China will spend the next years dancing on the brink of major civil disorder and a sudden stop to the boom, which only survives on cheap credit from state banks that would be deemed insolvent by most regulatory systems and huge exports to the United States.

The credit won’t dry up, because the Chinese government won’t let it, but the exports might. China imports almost exactly as much as it exports, but the imports come from South-East Asia (consumer goods and food), from Australia (iron ore and food), from the Middle East (oil) —and the exports go mostly to the United States. The US trade deficit with China is now around $12 billion a month, which is hard to sustain over the long term. ($150 billion a year?) Beijing does its best to shore up the sinking American dollar by buying huge amounts of US Treasury securities, but the prognosis is not good.

President Bush’s recent declaration of a “bra war” with China—import restrictions on Chinese-made bras, knitted fabrics and evening gowns—may be a sign of things to come. Political pressures in an election year will incline him to move against Chinese exports, and the collapse of the direct foreign investment in the US, which has hitherto counterbalanced the huge American trade deficit, may force him to do so. If China’s exports to the US crash, the whole Chinese boom goes with them—and the boom is the only thing that preserves civil order in China.

China will still do very well in the long run, though the process may involve much turmoil and a change of regime. It will certainly be the world’s first or second biggest industrial power a generation from now, but that’s probably as far as it will go. Fifteen years ago the pundits were convinced that Japan was heading for global industrial domination; China has a better shot at it, but it probably won’t make it either.

India’s growth to global economic power began later and is still a bit slower (6 per cent growth of GDP last year versus 7.5 per cent for China), but it is less likely to suffer a major interruption in the process. For one thing, it has no daunting political transition ahead of it; India is already democratic. For another, the service-industry exports that will soon become a mainstay of the Indian economy (earning an annual US$17 billion in foreign exchange by 2008, according to consultants Nasscom and McKinsey) are less vulnerable to sudden economic panics than China’s exports of consumer goods.

There are limits, however, to how many service-industry jobs are likely to migrate. So far, almost all of the work moving to India comes from English-speaking countries, and it is likely to stay that way.

Out-sourcing of services is not an attractive option for Swedes, Italians or Japanese, since nobody else speaks their language, so employment in Europe and Japan, the two low-growth areas of the industrial world for the past decade, will be less hard hit than in the rich English-speaking countries.

And then the pattern will shift again. As India (and Pakistan and Bangladesh, which are both growing at about the same rate) climb the economic ladder, local expectations and cost structures will rise, and sooner or later much of the service-industry work will move on to other relatively poor English-speaking countries in Africa, Asia and the Caribbean. There is a global redistribution of work going on, but it is not going to end up in just one or two countries.

In the short run—out to 2015 or 2020, say—it’s safe to predict that the rich world will stay relatively rich, though probably with significantly higher rates of unemployment, and that around a billion people in formerly poor countries will join the global middle-class. After that, the nature of work itself becomes hard to predict, because the next wave of technological change is likely to bring new techniques of automation that eliminate at least half of the existing jobs in manufacturing and service industries alike.

It is not yet clear what we will all find to do instead.


(Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries)