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The Great Boom

July 3, 2007, 8:10 am

Let me try something out on readers.  It strikes me that we are in the midst of what we may look back on as one of the great global economic booms of all time.  Here's my logic:  In the US, let's say that on average our labor is operating with a management and technology factor of "10." As management practices advance, and manufacturing and support technologies are developed, we might move this up to "11" [insert Spinal Tap joke].  We then enjoy the productivity upgrade of going from 10 to 11.  However, as the world invests in places like China and India, we see labor that has plugged along at "1" get brought up quickly towards "10."  What a huge change!  Two billion people with exponentially rising labor productivity -- what an enormous increase in wealth!

I think too many people look at the growth of China through the lens of low labor costs, and assume that as the wages in China begin to rise, the boom will be over.  But the source of wealth creation in China is not taking advantage of low wages, it is raising productivity.  The boom will continue as long as productivity increases by leaps and bounds; rising wages are just a sign that Chinese workers are getting a share of this productivity increase.

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Category: Economics
  • http://that-xmas.livejournal.com Xmas

    To bring this around to the another topic, pollution, the West really needs to take advantage of China's booming productivity by giving them (or selling on the cheap) cleaner technology. The switch from physical labor to energy using machinery to enhance productivity is greatly increasing China's pollution output.

    The great productivity boom is going to be a horrific pollution problem if we don't address this the right way. (and India too for all this.)

  • CRC

    Productivity improvement is always the source of wealth creation. In the end it all boils down to that. Whether at an individual, corporate, national or global level.

  • Mesa EconoGuy

    Mmmmmm..pooolutionnnnn…………..

    http://finance.yahoo.com/q/bc?s=%5eIXIC&t=1d&c

  • rufus

    Brilliant!

    You could stretch this thought out into a best seller.

    I'm serious; the thought of a couple of billion (China, And India) jumping from one to just three or four just leaves me speechless, and supine on the floor.

  • TS

    perhaps rising wage in China and India is a sign that their economies are adding more service jobs. If so, then this would be positive as they should buy more goods from us. It seems that our trade deficit with China, although a meaningless statistic, will none-the-less start to shrink. And, the dollar may have bottomed...