The question which should worry all experts of world affairs is how do we reshore manufacturing, without triggering the Thucydides Trap with China? It’s a serious question, because for the last thirty years trade has done a great deal to diffuse tension between America and China. The then British Empire and America were able to sidestep this issue, partially because of friendship built up during the Second World War, partly because of historic ties and similar outlooks on liberty- but the far more convincing elements in disarming the Thucydides Trap was the emerging threat of the Soviet Union in tandem with a friendly American industrial policy which saw companies like Ford locate significant portions of their Europe orientated production base in Britain.
Unfortunately, very few of these factors exist between America and China. Culturally, the West and China are aliens, with none of the common language affinity which characterised the Anglo-American relationship. Although the Chinese understand the West very well, most lay Western onlookers are largely ignorant of Chinese cultural nuances. In particular, Westerners lack the insight to see that the Chinese Government is the same thing to most Chinese citizens as the Chinese people and any insult to their government is likely to be taken as a national slight by their people. The only schism between the Chinese people and the Chinese government relates to occasional concerns over corruption, which can usually be traced to the local level.
To understand the Chinese ethos and philosophy, particularly in relation to their perceptions of the West, we need to understand a few basic factors. First, irrespective of the issue of Hong Kong, there are two China’s one comprising of the 300 million or so living in coastal areas, largely cosmopolitan and very much an advanced economy- the other poorer and more ideologically orientated towards Communist doctrine at the party level, despite various ongoing economic development projects managed by a meritocratic class of party technocrats and very able managers.
Second, they see Western democracies as schizophrenic, and increasingly, unreliable in terms of making treaties to which they will stick. They don’t understand the West’s attitude to Islam, which they see as a backward religion and inherent threat, largely as a result of the higher population growth rates found in most religious groups, compared to secular populations. Part of this bias can be traced to Marx and differing cultural interpretations of his attitude to religion- when Marx said ‘religion is the opiate of the masses’ he meant it in terms of the far more sedate and benign apathy engendered within the middle classes through laudanum, rather than through the social destructive and destabilising influence of the opium den. But more broadly speaking, given some of the grass roots incompatibilities of Western value pluralism and Islam, with Islam also possesses more of an inherent tilt towards the religiously political than Christianity, especially through Sharia Law, the Chinese may well have a point.
Another destabilising influence in the relationship is Western media. The friction of the Culture War, with its bipolar attitudes towards China, is always going to impart offense- especially within legacy media which is increasingly forced to rely upon gotcha and clickbait journalism, because of the low levels of trust towards institutional media in many age groups and any non-Democrat affiliation. Much of Chinese etiquette is construed to minimise means of giving offense, and often goes out of its way to help others avoid embarrassment. This finds its ultimate form in the often well-paid jobs offered to foreigners of all nationalities and ethnicities in the form of the somewhat disingenuously named white monkey work- which no Chinese citizen would want to do, because of the shame it would entail, or because of the value adding that can come form having perceived White Western consumers. Regardless, to the Chinese mindset the Western attitude of outspoken criticism and causing shame, can seem needlessly rude and cruel.
Finally, there is the issue of trade and diplomacy, especially when it comes to negotiations and business relationships. Westerners operate on the principal of enlightened self-interest, which is a mistake. Chinese corporate relationships have two settings, friendly and adversarial with a temporary ceasefire in place. With the friend setting, the Chinese can be extraordinarily gracious and operate automatically towards the pursuit of mutually beneficial relationships, almost considering the partner’s position as much as their own, but in the second setting, the default is tough and always contrived to gain maximum advantage. Western negotiators and diplomats would have done better to bear this in mind, rather than to automatically expect adherence to deals and good faith. But perhaps this is overly optimistic, with the Western penchant for acting as the proverbial bull in a china shop, international relations might have been doomed from the start.
So what is the solution to the Thucydides Trap in relation to China? How do we maintain trade engagement and avoid a potentially nuclear World War Three? In a word, Keiretsu. For those unfamiliar with the term, Keiretsu, were the successors to the old pre- WWII zaibatsu in Japan. They were large scale conglomerates in which a collection of corporations could operate competitively against other keiretsu, fulfilling virtually any human need within the conglomerate. They reached their ultimate zenith in the eighties, with Japan playing a huge role in international production.
In this sense, I am talking about keiretsu in the vertically integrated manufacturing model rather than the more horizontal financial model, but with the caveat that I see a newer keiretsu model for manufacturing operating horizontally, in a few specialised spheres across multiple jurisdictions and trade zones, with even head office and design offices split across multiple locations, contributing to a decentralised hub. The model would entail scale in breadth of market and global reach, not through market domination across several sectors.
The benefits of operating separated design, engineering and science cells should be obvious. Whilst we want people communicating across cells, in terms of sharing ideas, the example of tech giants will soon illustrate how a common works culture (especially when of an ideological nature) can inhibit innovation, even if some might claim that it hasn’t done so already. In innovative terms, it often more beneficial to have lots of smaller teams operating independently, than fewer larger ones. It avoids groupthink. Such keiretsu would also be useful for tax purposes, and protect against governments which seek to impose the wrecker’s force upon companies- adding to business resilience.
So how would they work and why do we need them? Well, basically any corporation seeking to diversify or operate across trade zones, would divide the world into a series of trade zones, regions and areas, which each zone supplying its own service and goods needs, even down to parts and supply chains where possible and either outsourcing or exporting to other zones only when unavoidable or where brand reputation and differentiation matters, depending upon the market and the various regulatory hurdles they may face. From a PR perspective companies which can locate assembly in a domestic setting, with parts and supply chains locates within adjacent areas within the same area, are likely to enjoy a significant commercial advantage as large segments of consumer populations insist upon the option to buy locally. To the Left it’s green, to the Right it’s patriotic.
The reason for this new approach is simple- most advanced economies have woken up to the reality that labour is just as important to the virtuous cycle of the market as is the capital. It acts as its own self-feeding ecosystem, or as a coupled system. Otherwise, how do we explain the Chinese economic miracle, when most of their manufacturing barely scrapped a 6% profit margin- only just enough to cover tax, risk and inflation? This answer lies in the multiplier effect of the labour, acting as the seed for all manner of local consumer orientated goods and services.
Most advanced economies now wish to grow their mid to high value manufacturing as they are beginning to realise that their population aren’t blank slates for whom it is not possible to shift large segments into significantly higher band employment, whilst simultaneously realising that while service labour can provide employment it doesn’t provide as income levels anywhere near as high as tradables- with large portions of the male population in particular unsuitable for the higher educational route, retail or service (other than a few highly regarded jobs like cheffing).
There is also an extent to which blue collar workers in Western countries feel betrayed, and it’s leading to political and cultural instability. In this type of global cultural environment it becomes all but impossible to instigate mutually beneficial trade over the mid- to long-term. Ultimately, the only game theory which works is resorting to the new keiretsu acting as distributive third parties, susceptible to the pressure to locate fabrications for domestic and regional markets internally, but ultimately able to create an ecosystem which benefits all nations and peoples in terms of labour, as much as they are able.
There may be resistance from neoliberals on principle, especially with regard to vested interests like finance. But in the West at least, the emphasis on climate change will be a motivating force, because shorter, more integrated supply chains coupled with fabrications plants which are closer to market will drastically reduce the carbon footprint of container fleets and air freight. As an added bonus, less competition between zones, and more competition within them, automatically reduces the competitive disincentive to innovate our way out of bunkers fuels- a horrendously dirty and polluting, but very cheap, transport fuel employed by most elements of maritime transport.
For China, the incentives are equally clear. They are facing the 421 problem with their population. They face increasingly hostile consumer markets abroad, and many Western corporations are looking at reshoring parts of their manufacturing businesses back into the countries which originally made them, or at least to other parts of Asia. At the same time, Western societies have been made painfully aware of just how vulnerable our global transport and supply system is during the pandemic, and they are unlikely to tolerate democratically elected governments which only make a superficial show of trying to address the issue. With the coming midterms, unless Biden changes his policies on tariff exclusions, with 549 separate tariff exclusions for Chinese companies, his Republican opposition is likely to make a meal of his misfortunate positioning.
Ultimately, we need a cooperative system which can sustain and regionalise trade, without the sea of domestic turmoil creating politics and diplomacy which introduces systemic instability and potential conflict. Maslow was wrong not to include labour is his hierarchy of needs, although he probably excluded it because it is the one need which stretches all the way from basic need to self-actualising. And it’s not just individuals who need labour, it’s families, communities and even nations. In our current paradigm, a distributed model of the keiretsu system is the only thing that stands between us and World War III. As sovereign nations we all need to acknowledge that every people needs labour and a system which helps each country maximise theirs without jeopardising others is the only way to leave the Thucydides Trap unsprung.
An interesting and thoughtful essay but I think with some misconceptions. Firstly as you point out the West does not understand Chinese cultural nuances but this is reciprocal. The Chinese don't understand the West either particularly how divergence from the party line can be tolerated.
The second point which I think is relevant is that China is a budding empire aiming to seize as many resources and as much power as it can. It exhibits all the arrogance and recklessness that an expanding empire normally shows. Here in the Asia Pacific we are well aware of the expansionism, bullying and downright naked power grabs that accompany China's growth. The Japanese dispute with the Chinese over the Senkaku Islands is a case in point. There is no historical evidence for Chinese ownership but that hasn't stopped the Chinese government from claiming them.
It's interesting that you advocate a keiretsu approach. Generally this has been acknowledged as a failure leading to corruption and exploitation. It also goes against the Chinese goal which is domination. This what other countries have found with the belt and road initiative. The help and the loans don't turn out to be generous.
I think you have done some excellent work here, with the basic “Keiretsu” concept providing a skeletal frame work for solving some much larger social problems.
The Thucydides trap and re-developing manufacturing may not even be the most pressing problem it can help solve, or at least it’s a higher order problem and as the keiretsu model of both vertical and horizontal integration could scale right down to the neighborhood or street level, it could also solve pressing social problems there.
I'm “just spitballing here” but how do these ideas strike you ?
Churches, volunteer associations and schools keiretsu integrated with city services such as fire, police and city works for environmental, quality of life and law enforcement problems. Labor and local knowledge go up the chain, expertise, accreditation(legal authority) finance (or at least banking services) go down the chain to local nodes or modules that could also expand horizontally to fill gaps in adjacent areas.
I have been watching clips of “The Wire” recently and this piece got me thinking. I realize it’s not a peer reviewed academic journal but it’s pretty damned good and anyway that’s the way I get a lot of my information.
In this clip a large amount of forensic evidence in a crucial multiple homicide case has been ruined after the city cut the lab’s budget and a temp worker lacked some literacy skills. This got me thinking, how much does it really take to run a crime lab and could it be done on the local level ? Sure, a part of it would require advanced scientific training but only a part. I have difficulty in believing that the majority of their work can’t be done by technicians with the intelligence and talents of a decent plumber or HVAC worker.
The difficulty would be in the training, support, accreditation and certification. This could be provided vertically, from higher up in the chain along with part time support from experts for the particularly tricky jobs.
Nodes or modules in the network that are over worked in their area would be supported by other horizontal nodes with spare capacity. Each node could have a contract with their local political authority but not an exclusive contract so they would be at least partially independent. Office space and utilities are provided locally, specialized hardware and consumables are provided by another node in the network.
It’s just one example of course, but I think the basic model is sound and could fit a myriad of situations.
“To understand the Chinese ethos and philosophy, particularly in relation to their perceptions of the West, we need to understand a few basic factors. First, irrespective of the issue of Hong Kong, there are two China’s one comprising of the 300 million or so living in coastal areas, largely cosmopolitan and very much an advanced economy- the other poorer and more ideologically orientated towards Communist doctrine at the party level, despite various ongoing economic development projects managed by a meritocratic class of party technocrats and very able managers.”
I don’t know Ilia. There’s different ways to interpret this paragraph. The main one for me was ideology differences between the west and China. I personally get the feeling that China tries more toward understanding our ideology than we do toward understand theirs. There’s obviously a major power shift going on yet the US current administration may not be let’s say the best at recognising a need for more nuanced and diplomatic co-operations. Other than the weakest Presidency anybody can remember we have seen Kamakazi Kamala go over to Vietnam and insult them so much they’re ambassadors immediately contacted the Chinese to show allegiance to them. But the best example I can think of to outline a lack of character in understanding the shift in global dominance is Victoria Nuland’s current diplomatic trip to Russia.
Nuland is detested in Russia who hold her responsible for the Mahjong coup in Ukraine. She’s married to Robert Kagan and is a neocon high priestess. The US had to take various Russians off their sanctions list in order for Moscow to even accept her there, such is she despised. The Russian deputy foreign meeting described the meeting they had earlier today in terms of Nuland making all kinds of strong demands and not listening when they outlined reasons why they would not agree. She lectured them (she speaks Russian fluently) and made insistent demands. The talks went so bad that the Russians are talking about a degradation in relations with the US that are so bad that they may cut diplomatic ties entirely. Complete relations breakdown situation.
Anyways this is a prime example of what not to do. The US could of chosen no worse a diplomat and one must on that note ask the question why her? But my initial point was that great diplomacy at this level by great diplomats is there as a go between of statesmanlike gentlemen that are the best of representatives of ones nation and the larger the need for sensitivity the higher calibre required of such a diplomat; people that understand a lot of the nuance and complexities of another nations concerns and who can tactfully find that all important middle ground.
What the US has done has sent a neocon Royal ideologue to a peace-making opportunity. So what message does that send? With Russia and China’s romance getting cosier and militarily and financially as strong as the US which is weakening by the day, is it not of supreme importance that these people lose the attitude and recognise the importance of what the implications of their positions are and make some effort to understand what China and Russia is and are. I’m sure they understand us quite well by now.
"Most advanced economies now wish to grow their mid to high value manufacturing" this is not true. The ones in EU do not. They have succumbed to the green, red, trans and covid lunacy whereas already one of these plagues on its own could bring us down. Covid mandates just made very very apparent that the West is not what it thinks it is. The freedoms that helped us to achieve the wealth we enjoyed are gone. That makes efficient work difficult and open discussions almost impossible. Then there is the energy policy in most of EU but specifically in Germany. This has a potential to bring the whole EU crashing down and there is no sign of Germans slowing down on that. They openly want to dismantle industry - from policies known to me from recent history it is only equal to NK original sins and to Pol Pot's one. The commies from the past learned after few years and few millions deaths (in China these were few dozens millions) what they should in any case avoid. German greens are not there yet.
Plus industrial and economic policy is not the only thing to be taken into account. Biden making impression that the only coherent act he is capable of is shitting his pants is a perfect for a moment of truth. Aggressive Chinese military exercises may be a sign that US either gets its act together or will have to see if its military and economy can cope with fall of Taiwan.
I concur with most of your viewpoints, especially the intrinsic value of having a job. How do you see the impact of AI and the possible job redundancies this could entail?
Clearly you’ve given some thought to the issues involved here and have come up with a novel idea about what to do, however I have some questions and potentially some pushback.
First, I’d like to say that one factor in averting or bringing on the next world war is what happens with Taiwan.
Setting that aside, you seem to be suggesting essentially that large corporations form vertically integrated supply chains similar to Carnegie back in the day, localized and regionalized, creating their own spheres of influence. Within each sphere, a conglomeration would essentially be a monopoly, is that correct? And conglomeration would essentially agree amongst themselves to divide the world into spheres of influence and not to compete with one another? Meaning that everybody gets a piece of the pie and nobody takes a bite of someone else’s piece?
If that’s your suggestion, I can see some problems arising.
I also have to ask what role governments play? Do they create and maintain the spheres? Do they align with the conglomerations to rule each sphere with some kind of corporatism?
An interesting and thoughtful essay but I think with some misconceptions. Firstly as you point out the West does not understand Chinese cultural nuances but this is reciprocal. The Chinese don't understand the West either particularly how divergence from the party line can be tolerated.
The second point which I think is relevant is that China is a budding empire aiming to seize as many resources and as much power as it can. It exhibits all the arrogance and recklessness that an expanding empire normally shows. Here in the Asia Pacific we are well aware of the expansionism, bullying and downright naked power grabs that accompany China's growth. The Japanese dispute with the Chinese over the Senkaku Islands is a case in point. There is no historical evidence for Chinese ownership but that hasn't stopped the Chinese government from claiming them.
It's interesting that you advocate a keiretsu approach. Generally this has been acknowledged as a failure leading to corruption and exploitation. It also goes against the Chinese goal which is domination. This what other countries have found with the belt and road initiative. The help and the loans don't turn out to be generous.
I think you have done some excellent work here, with the basic “Keiretsu” concept providing a skeletal frame work for solving some much larger social problems.
The Thucydides trap and re-developing manufacturing may not even be the most pressing problem it can help solve, or at least it’s a higher order problem and as the keiretsu model of both vertical and horizontal integration could scale right down to the neighborhood or street level, it could also solve pressing social problems there.
I'm “just spitballing here” but how do these ideas strike you ?
Churches, volunteer associations and schools keiretsu integrated with city services such as fire, police and city works for environmental, quality of life and law enforcement problems. Labor and local knowledge go up the chain, expertise, accreditation(legal authority) finance (or at least banking services) go down the chain to local nodes or modules that could also expand horizontally to fill gaps in adjacent areas.
I have been watching clips of “The Wire” recently and this piece got me thinking. I realize it’s not a peer reviewed academic journal but it’s pretty damned good and anyway that’s the way I get a lot of my information.
https://www.youtube.com/watch?v=YPwxfhL06AE
In this clip a large amount of forensic evidence in a crucial multiple homicide case has been ruined after the city cut the lab’s budget and a temp worker lacked some literacy skills. This got me thinking, how much does it really take to run a crime lab and could it be done on the local level ? Sure, a part of it would require advanced scientific training but only a part. I have difficulty in believing that the majority of their work can’t be done by technicians with the intelligence and talents of a decent plumber or HVAC worker.
The difficulty would be in the training, support, accreditation and certification. This could be provided vertically, from higher up in the chain along with part time support from experts for the particularly tricky jobs.
Nodes or modules in the network that are over worked in their area would be supported by other horizontal nodes with spare capacity. Each node could have a contract with their local political authority but not an exclusive contract so they would be at least partially independent. Office space and utilities are provided locally, specialized hardware and consumables are provided by another node in the network.
It’s just one example of course, but I think the basic model is sound and could fit a myriad of situations.
So what do you think ?
“To understand the Chinese ethos and philosophy, particularly in relation to their perceptions of the West, we need to understand a few basic factors. First, irrespective of the issue of Hong Kong, there are two China’s one comprising of the 300 million or so living in coastal areas, largely cosmopolitan and very much an advanced economy- the other poorer and more ideologically orientated towards Communist doctrine at the party level, despite various ongoing economic development projects managed by a meritocratic class of party technocrats and very able managers.”
I don’t know Ilia. There’s different ways to interpret this paragraph. The main one for me was ideology differences between the west and China. I personally get the feeling that China tries more toward understanding our ideology than we do toward understand theirs. There’s obviously a major power shift going on yet the US current administration may not be let’s say the best at recognising a need for more nuanced and diplomatic co-operations. Other than the weakest Presidency anybody can remember we have seen Kamakazi Kamala go over to Vietnam and insult them so much they’re ambassadors immediately contacted the Chinese to show allegiance to them. But the best example I can think of to outline a lack of character in understanding the shift in global dominance is Victoria Nuland’s current diplomatic trip to Russia.
Nuland is detested in Russia who hold her responsible for the Mahjong coup in Ukraine. She’s married to Robert Kagan and is a neocon high priestess. The US had to take various Russians off their sanctions list in order for Moscow to even accept her there, such is she despised. The Russian deputy foreign meeting described the meeting they had earlier today in terms of Nuland making all kinds of strong demands and not listening when they outlined reasons why they would not agree. She lectured them (she speaks Russian fluently) and made insistent demands. The talks went so bad that the Russians are talking about a degradation in relations with the US that are so bad that they may cut diplomatic ties entirely. Complete relations breakdown situation.
Anyways this is a prime example of what not to do. The US could of chosen no worse a diplomat and one must on that note ask the question why her? But my initial point was that great diplomacy at this level by great diplomats is there as a go between of statesmanlike gentlemen that are the best of representatives of ones nation and the larger the need for sensitivity the higher calibre required of such a diplomat; people that understand a lot of the nuance and complexities of another nations concerns and who can tactfully find that all important middle ground.
What the US has done has sent a neocon Royal ideologue to a peace-making opportunity. So what message does that send? With Russia and China’s romance getting cosier and militarily and financially as strong as the US which is weakening by the day, is it not of supreme importance that these people lose the attitude and recognise the importance of what the implications of their positions are and make some effort to understand what China and Russia is and are. I’m sure they understand us quite well by now.
"Most advanced economies now wish to grow their mid to high value manufacturing" this is not true. The ones in EU do not. They have succumbed to the green, red, trans and covid lunacy whereas already one of these plagues on its own could bring us down. Covid mandates just made very very apparent that the West is not what it thinks it is. The freedoms that helped us to achieve the wealth we enjoyed are gone. That makes efficient work difficult and open discussions almost impossible. Then there is the energy policy in most of EU but specifically in Germany. This has a potential to bring the whole EU crashing down and there is no sign of Germans slowing down on that. They openly want to dismantle industry - from policies known to me from recent history it is only equal to NK original sins and to Pol Pot's one. The commies from the past learned after few years and few millions deaths (in China these were few dozens millions) what they should in any case avoid. German greens are not there yet.
Plus industrial and economic policy is not the only thing to be taken into account. Biden making impression that the only coherent act he is capable of is shitting his pants is a perfect for a moment of truth. Aggressive Chinese military exercises may be a sign that US either gets its act together or will have to see if its military and economy can cope with fall of Taiwan.
I concur with most of your viewpoints, especially the intrinsic value of having a job. How do you see the impact of AI and the possible job redundancies this could entail?
Clearly you’ve given some thought to the issues involved here and have come up with a novel idea about what to do, however I have some questions and potentially some pushback.
First, I’d like to say that one factor in averting or bringing on the next world war is what happens with Taiwan.
Setting that aside, you seem to be suggesting essentially that large corporations form vertically integrated supply chains similar to Carnegie back in the day, localized and regionalized, creating their own spheres of influence. Within each sphere, a conglomeration would essentially be a monopoly, is that correct? And conglomeration would essentially agree amongst themselves to divide the world into spheres of influence and not to compete with one another? Meaning that everybody gets a piece of the pie and nobody takes a bite of someone else’s piece?
If that’s your suggestion, I can see some problems arising.
I also have to ask what role governments play? Do they create and maintain the spheres? Do they align with the conglomerations to rule each sphere with some kind of corporatism?