January 06, 2004

A Continent of Unemployed

There are 200 million unemployed/underemployed in the PRC. They have little capital and live largely off subsistence agriculture on the farm. But the PRC's internal movement controls cannot keep them poor and hopeless on the farm and in a growing flow they are heading for the cities and looking for jobs.

Where will the PRC ever get the money to employ all these people? David Ignatius forwards an interesting answer. He says they're getting the money from the US in a repeat of the post-war Bretton Woods system. By holding the chinese yuan pegged artificially low, the PRC is amassing a huge dollar hoard and attracting capital for the construction of all those factories and service centers needed to essentially employ an entire continent of unemployed.

As long as the sea of unemployed is sweeping off of the PRC and other East Asian farms into the cities looking for jobs, social stability will take first place over profitability calculations and the US will continue to have a support under its currency in the form of east asian purchasers of its financial instruments.

The difference between the official Bretton Woods agreement and this virtual Bretton Woods II might lie in oriental customs of pride and face. Would PRC pride stomach the public knowledge that their regime depends entirely on the forbearance of the US? Perhaps it would be best not to talk too much about the idea but why else would such a huge commitment across several presidencies be maintained for so long?

Bretton Woods took two decades to bring western Europe back to its feet. The PRC is a larger entity and they have a longer road to travel. It's likely that they will take at least as long to do it.

Posted by TMLutas at January 6, 2004 04:51 PM