Monday, November 16, 2009

Time: 5 Things America Can Learn from China

Let me preface this post with the normal caveats.  The world is not perfect in China.  There are many challenges in China.  There are many differences between China and the US.

That said, an interesting piece in Time magazine titled: "5 Things America Can Learn from China" - most of these I'd have to agree with.   I also am glad to see in the opening paragraphs the writer note the issues with China so it's not just a "wow what a wonderful place" article.  It's a long article - thought provoking; and I found it to be quite balanced -  so I am going to hit on the 5 key points, follow the link above for the full read.

Feel free to comment on any of these 5 aspects - agree? disagree?  Are we too arrogant to learn from anyone?  Is there nothing to learn and the US is simply in a short "rough patch"?  Will China fall flat on its face in 5 years and this is much ado about nothing?


On the evening of Nov. 15, President Barack Obama, the youthful leader of one of the world's youngest countries, begins his first visit to China, among the world's most ancient societies. Obama and his Chinese counterpart, Hu Jintao, have much to discuss.

It's hard to imagine two societies that deal with their elderly as differently as the U.S. and China. And I can vouch for that firsthand. My wife Junling is a Shanghai native, and last month for the first time we visited my father at a nursing home in the U.S. She was shaken by the experience and later told me, "You know, in China, it's a great shame to put a parent into a nursing home."

In China the social contract has been straightforward for centuries: parents raise children; then the children care for the parents as they reach their dotage. When, for example, real estate developer Jiang Xiao Li and his wife recently bought a new, larger apartment in Shanghai, they did so in part because they know that in a few years, his parents will move in with them. Jiang's parents will help take care of Jiang's daughter, and as they age, Jiang and his wife will help take care of them. As China slowly develops a better-funded and more reliable social-security system for retirees — which it has begun — the economic necessity of generations living together will diminish a bit. But no one believes that as China gets richer, the cultural norm will shift too significantly.

To a degree, of course, three generations living under one roof has long happened in the U.S., but in the 20th century, America became a particularly mobile and rootless society. It is hard to care for one's parents when they live three time zones awayHome care for the elderly will most likely make a comeback in the U.S. out of sheer economic necessity, however. The number of elderly Americans will soar from 38.6 million in 2007 to 71.5 million in 2030. But, says Arnold Eppel, who recently retired as head of the department of aging in Baltimore County, Maryland, "There won't be enough spots for them" in the country's overwhelmed nursing-home system.

In China, senior-care costs are, for the most part, borne by families. For millions of poor Chinese, that's a burden as well as a responsibility, and it unquestionably skews both spending and saving patterns in ways that China needs to change.  For middle-class and rich Chinese, those costs are a more manageable responsibility but one that nonetheless ripples through their economic decision-making. Still, there are benefits that balance the financial hardship: grandparents tutor young children while Mom and Dad work; they acculturate the youngest generation to the values of family and nation; they provide a sense of cultural continuity that helps bind a society.

4.  Save More

You've now heard it so many times, you can probably repeat it in your sleep. President Obama will no doubt make the point publicly when he gets to Beijing: the Chinese need to spend more; they need to consume more; they need — believe it or not — to become more like Americans, for the sake of the global economy.

And it's all true. But the other side of that equation is that the U.S. needs to save more. For the moment, American households actually are doing so. After the personal-savings rate dipped to zero in 2005, the shock of the economic crisis last year prompted people to snap shut their wallets. Now that it's pouring, in other words, American households have decided to save for a rainy day. The savings rate is currently about 4% and has gone as high as 6% this year. (I would disagree with these numbers, in how the American government measures the savings rate but that's an argument for another day - savings obviously have gone up to SOME degree versus the level they were 3-4 years ago)

In China, the household-savings rate exceeds 20%. It is partly for straightforward policy reasons. As we've seen, wage earners are expected to care for not only their children but also their aging parents. And there is, to date, only the flimsiest of publicly funded health care and pension systems, which increases incentives for individuals to save while they are working. But China, like many other East Asian countries, is a society that has esteemed personal financial prudence for centuries. (this is a key difference - each passing day we see more stories of where walking away from debt is now not only not shameful, but encouraged.  It's never your fault in America - someone duped you) There is no chance that will change anytime soon, even if the government creates a better social safety net and successfully encourages greater consumer spending.

Why does the U.S. need to learn a little frugality? Because healthy savings rates, including government and business savings, are one of the surest indicators of a country's long-term financial health. High savings lead, over time, to increased investment, which in turn generates productivity gains, innovation and job growth. In short, savings are the seed corn of a good economic harvest. 

The U.S. government thus needs to get in on the act as well. By running perennial deficits, it is dis-saving, even as households save more.  To date, the U.S. has seemed unable to have what Indiana Governor Mitch Daniels has called an "adult conversation" about the consequences of spending so much more than is taken in. That needs to change.  (an adult conversation would require 2 sides wanting to have it... neither politicians nor [most] constituents seem to want to even broach the subject, after all... our heads are so much cooler down here under the sand)

5. Look Over the Horizon 

The energy that so many outsiders feel when they are in China and that President Obama may see when he is there comes not just from the frenetic activity that is visible everywhere. It comes also from a sense that it's harnessed to something bigger. The government isn't frantically building all this infrastructure just to create make-work jobs. And kids aren't studying themselves sleepless because it's a lot of fun.

A few years ago, I interviewed Zhang Xin, a young man from a deeply poor agricultural province in central China. His parents were wheat farmers and lived in a tiny one-room house next to the fields. He had graduated from Tsinghua University — China's MIT — and gotten a job as a software engineer at Huawei, the Cisco of China. His success, Zhang told me one day, had changed his family forever. None of his descendants would "ever work in the wheat fields again. Not my children. Not their children. That life is over." (And neither would his parents. They moved to prosperous Shenzhen, just north of Hong Kong, soon after he started his new job.)  Multiply that young man's story by millions, and you get a sense of what a forward-looking country this once very backward society has become.

... hard work today means a much better life decades from now for those who will inherit what he helped create. And if that sounds familiar to Americans — marooned, for the moment, in the deepest recession in 26 years — it should. (I've written quite often this is a difference many US parents are now facing - the real chance that their children will not have the standard of living they enjoyed; especially true in blue collar and I believe it is moving up higher into the food chain)


All in all, when I put together the mosaic of the 5 components above... you could have applied much of this to the U.S.  About 3 generations ago. 

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