Following Nixon

Wal-Mart enters China

By David McIntosh
From the December 2005 Print Edition

The doomsday scenarios probably sound familiar. One billion people strong, China forges an unstoppable economy, and continues to grow at 9 percent a year, overtaking the United States. Once at the economic helm of the world, China buys out U.S. companies and flexes its muscles, threatening Taiwan and global freedom. Such a despondent view has become almost commonplace, with many counting the seconds until American global leadership ends.

Enter Wal-Mart, and the millions it has invested to construct several super malls in China. Far from idling wastefully, Americans have formulated ways to build on Chinese strengths, and leverage those strengths for mutual benefit. Wal-Mart brings billions of dollars worth of experience to a fledgling market, delivering business-related management jobs in the United States, entry-level jobs in China, and low-cost goods to the Chinese people. On November 4, Global Insight, one of the world’s most respected economic-analysis firms, released a report detailing the positive effects of Wal-Mart in the United States. According to the report, Wal-Mart lowered consumer prices, increased real wage rates, and saved the average household $2,329. In the long run, Wal-Mart will have a similar impact on China. Both China and the United States benefit from Wal-Mart’s expansion.

Economics is not a zero-sum game. The wealth of the world is not a pie, to be divided among the strongest at the expense of the weakest. Globalization enables countries to “bake their own pies” — by specializing in the production of goods, resulting in lower costs, higher wages, and hence a higher global standard of living. And that’s not theory, that’s fact. Average global wages and standard of living have risen universally in the past 30 years. Americans can expand into the Chinese market, and leverage, rather than fight China’s economy.

Americans must devise ways to use Chinese expansion to their advantage. Understandably, China’s growing influence in technology sectors once dominated by Americans has some worried. But adaptation has always been a hallmark of the United States’ economy. Only 50 years ago, the United States relied greatly on heavy industry. Yet industry is no longer the main pillar of U.S. economic strength. Americans work in higher-pay, more knowledge-demanding jobs. The United States still remains a beacon for innovation. Software positions may be outsourced, but only for projects not requiring new skill sets or innovation. Innovation-intensive projects reside in the United States.

Cheap Chinese labor and the sheer size of the Chinese economy will certainly bring challenges. But as long as American businessmen use Chinese labor to their advantage, the United States will compete. The United States will take on a new role, a more leadership-intensive role. Just as Wal-Mart identified an open market, U.S. companies must expand into Chinese markets, and fund the startups. As a result, the United States will own a significant share of the Chinese economy. Dependent on investment to continue its extraordinary rate of growth, China will become the United States’ partner and market for new products and services.

What’s more, the United States’ role in fostering Chinese growth has political benefits. Political freedom tends to follow economic freedom. After Chinese leadership ushered in an era of loosened economic restrictions, Chinese enjoyed more social freedoms than ever before. Citizens don’t enjoy the same amount of freedom as Americans, but their freedoms have indisputably increased since the introduction of the market economy. As the adage goes, once citizens get their choice of breakfast cereal, they also want their choice of political candidates. Thanks to the free-enterprise system, partially funded by U.S. investors, it will only be a matter of time before Chinese citizens wrest themselves from their shackles.

So we’ve covered economics, we’ve covered politics. What about that sword of Damocles, the specter of war? Well, freedom covers that as well. As two economies become integrated, mutual dependence increases, making wars more costly. If the U.S. manufactures one-half of a weapon, and China manufactures the other half, the weapon will not be complete without cooperation. While admittedly a simplification, mutual economic dependence provides enormous disincentive for countries to wage war. Economic dependence promotes global stability because it exponentially increases the cost of waging war.

China’s dictators aren’t peace-loving men, and it would be foolish to assume economic liberalization means acceptance of liberal social morays. Their aggression toward Taiwan has not ceased, and they have failed to restrain North Korea’s lust for nuclear weapons. But how can we fix the problem? China is a behemoth and cannot be untwined through the clang of shields. We have to use what we’re best at, freedom and capitalism. The United States must not be complacent — staying at the world’s economic helm will require innovation and hard work. But through the free market, companies such as Wal-Mart can set up shop in China, benefiting U.S. and Chinese citizens alike. The resulting economic freedom and interdependence will set the stage for a more free and peaceful China.

The free market is beautiful. We know it from experience. We see it every day. Let’s help them see it, too.

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