Request for Information about NeoColonialism

March 31, 2007 – 11:32 am

Reader NTUNGWA KHUMALO  sent in this question and I thought I would reply in public as it may be of general interest.

Can you send me more information about neo-colonialism?

from NTUNGWA KHUMALO at mosimane@webmail.co.za

Reply Added by Keith Rutledge
I don’t have any specific set of information about neo-colonialism. In general, the term as used in the media seems to refer to a new form of colonialism (neo is an affected form of new). There’s, of course, a subtext that colonialism is bad and any new form of a bad thing is still a bad thing. Whether a set of foreign policy actions constitutes colonialism and indeed whether colonialism is a bad thing are both subjects that can be endlessly debated.

Here are a couple of links that have generally accepted definitions.

Neocolonialism
Informal dominance of some nations over others by means of unequal conditions of economic exchange.
www.elissetche.org/dico/N.htm

Keith Rutledge’s humble opinion on this one; Freely entered economic exchanges are never unequal. Unequal economic exchanges require coercion.

Neocolonialism is a term used by Marxist as well as non-Marxist groups and individuals to describe operations at the international level during the era when colonial empires, created by the European powers from the 16th to the 19th century, are no longer in existence. …
en.wikipedia.org/wiki/Neo-colonialism

Keith Rutledge’s humble opinion on this one; Wikipedia gets it mostly right, but misses the journalistic intent.  Neocolonialism is a bombastic term of journalistic warfare used by supposedly non-colonial powers (and media in their thrall) to perjoratively describe economic exchanges as somehow harmful to the smaller participant. It’s neo-colonialism for African countries to sell raw materials to other, larger countries. In the circles of the chattering class that promulgate anti-neocolonialist rhetoric, alternatives to starvation and comparative advantage are “inconvenient truth’s” and are therefore never discussed.

Etymology and definition of Neo

Greek, from neos, new; see newo- in Indo-European roots.

http://www.yourdictionary.com/ahd/n/n0056100.html

Neo- \Ne”o-\ [Gr. ? youthful, new. See New.]
A prefix meaning new, recent, late;

Source: Webster’s Revised Unabridged Dictionary (1913)

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Economics, Resources, Frontier, Business | Comments (0)


Filing Income Tax in China: History in the Making

March 21, 2007 – 11:20 am

I just did my tax filing here in China.  This is the first year that anyone can say that, since this is the first ever income tax filing in modern China.  It’s a big deal, obviously, but it doesn’t seem to be raising much stir here.

Certainly, from the historical record, it seems to have been different in the US.  The US was coming at it from a different point of view.  First, it took an amendment (the 16th) to the constitution to do it in the US *.  Second, that was the first time that the US government had a legal right to know what a citizen’s income was. When the US congress passed an income tax law in 1913 based on the amendment, initially less than one percent of the US population paid income tax.  The top tax rate was 7% on incomes over five hundred thousand US dollars (in 1913).  By 1936, the top tax rate was 79%, but that’s another story.

Here in China, the government has been collecting income tax from payrolls for quite some time (at least a few years), but there’s been no annual “filing” or reconciliation.  It didn’t take a constitutional amendment here, obviously.  Instead, the State Administration of Taxation issued Circular 162 on November 6, 2006 and presto; everyone has to make their declaration by March 31, 2007.  Google this term (Guo Shui Fa [2006] 162 China) for more information.

No one seems to know what percentage of the population will have to file (or what percentage pays income tax), but it’s probably a little higher than one percent.   Everyone with a gross income exceeding 120,000 RMB annually has to file a tax declaration.  Many people making less than that are paying income tax through payroll collections, but are not required to make this first annual declaration.  120,000 RMB is basically about fifteen thousand US dollars per year, so the declaration requirement is for the top income bracket. 

For a foreigner living here, the interesting thing is to be present and see the machinery start up.  Collecting its taxes has always been one of the fundamental tasks of government.  The ability to administer a fair and open tax system has historically been an indicator of a government’s overall strength. 

Starting an annual tax reconciliation here in China was always going to be eventually required.  Up to now, if you could avoid the payroll collections, ostensibly you avoided paying the tax.  Filings should lead to increased compliance, more transparency, and to increased governmental revenues.  It should also eventually, if it is extended fairly, bring more of the economy into the open.  One hates — somehow at the core of one’s economic being —  to say that taxes are a good thing, but they have to be collected.  If they have to be collected, an open and transparent system is good. 

One more small step to an open economy means one more step to an open China.  It’s a good thing, even if it is accursed taxes.

* For a history of US Taxes see http://www.treas.gov/education/fact-sheets/taxes/ustax.shtml

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Economics, Trust, China, Business, Uncategorized | Comments (0)


Neo-Colonialism and Defensiveness

March 19, 2007 – 8:55 am

The morning fishwrapper here (Shanghai Daily; http://www.shanghaidaily.com) has an opinion piece (page A6) headlined “China’s Africa interests clearly not neo-colonial”.   Of course, like many places, the opinion page here is a sort of conduit for the government to tell people what it wants them to think.  This piece was written by a writer at Xinhua.

In it, the writer goes to great length to explain that any accusation of China being a neo-colonialist can’t be true since China’s plundering of Africa is so much less than the plundering committed by the western countries.  Ignoring the writers ridiculous premise that less means no offense rather than a smaller offense, I think the writer, China, and to some extent the west is pretty much off the mark and obscuring the real  point. 

Energy commodities flow from countries that can’t use them to countries that can.  Investment (to fund the extraction and the transportation of the energy commodities) flows from countries that have money and need energy to countries that have energy and need money.  Both countries are economically improved by this exchange.  Calling it colonialism attempts to tar it with the brush of occupation and forcible extraction.  It most certainly is neither of those.  It’s a relatively free exchange that benefits both parties. 

Colonialism is well and truly dead, as it probably should be.  What we have today are economic exchanges which are (at least) mostly voluntary.  These voluntary economic interchanges carry ideas, people, and money around the globe dispersing opportunity and hope.  The most hopeful thing that can happen to a person in a poverty-stricken area is to realize that life can change for the better. The second most hopeful thing that can happen is to see a way to make that change happen.  More trade means that more of that happens. 

It will be interesting to see what history says about energy companies.  I suspect their effect will be seen to be at least somewhat similar to that of the great european trading companies.  Whether or not you see that as positive depends on whether you are a poor man in Sudan who finds work on a pipeline or an intellectual in Beijing (or New York) who writes about colonialism. 

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Resources, Frontier, China | Comments (0)

Labor Shock in China

March 16, 2007 – 4:28 pm

I just spent a couple of days with some folks from a large US retailer.  They’ve made an acquisition here in China and are figuring out what’s what and what’s not.

One very interesting thing to see was their reaction to the labor — meaning the large amount of labor in place in their acquisition.  For an illustrative example, think of the last Starbucks you visited here vs. a Starbucks in the US (they weren’t from Starbucks).  The first reaction was a typical US reaction; “Hey; there’s an immediate  efficiency that we can gain.”  But, these are smart guys and during the few days they were here, they came to a different conclusion. 

Basically, they decided that US automation isn’t appropriate here and the things they have done back home are really good for back home.  The IT automation they’ll employ here will be quite different and quite appropriate.  Ya gotta love Americans.  No group anywhere is more adaptable and more willing to deal with reality than Americans. 

And, not using US levels of automation at first is a very good thing for China.  These huge labor forces now present in businesses mean that, in effect, cadres are being trained.  As the economy grows labor will become relatively more scarce.  As labor gets relatively more scarce (jobs more plentiful by corollary), wages will rise and then automation for efficiency will become appropriate.  Then, the huge cadres now being trained will fan out to fill the increased number of jobs, they will make more money, and they will support a boisterous economy.  And, they will also demand automation because automation does work that no one really wants to do (i.e. the lowest cost pair of hands is a job nobody wants and a machine is well suited).  The automation itself will drive growth in higher paying jobs as well as a caste of technicians rises to meet that demand.

What a beautiful virtuous cycle.  Ya gotta love economics.  And, the cool thing is, economics works no matter how you feel about it. 

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Economics, China, Business | Comments (0)

What is the right price for outsourcing?

January 19, 2007 – 6:15 pm

I’ve been musing on this lately … it’s part of my job and it’s interesting.    What is the “right” price for outsourcing?  That is, what is the price where it’s clearly in a company’s best interest to outsource a business function and it’s in a supplier’s best interest to provide the outsourcing?

In principle, it’s simple.  If it’s less expensive — all things totted up — for a company to outsource it, then the company should outsource it.  If a supplier makes more than their target return (however they calculate their return), then they should supply the outsourcing.  This means that the company can put its capital to better use and the supplier is putting its capital to the best use.  Such is the kernel of Coates prize winning theory (transaction costs, Ronald Coase).  “All things totted up” and “however they calculate their return” is meant to take into account all the very pragmatic considerations a company must consider when investing.

In practice … don’t you sometimes hate the “in practice” sentence opening … it can be damn difficult on both sides to determine if you should do it.  It being outsourcing, of course.

There are critical factors that eventually reveal themselves as cost, but masquerade or hide in the beginning.  Often, you’ll see contingency reserves on both sides to hedge against these wraiths.

On both sides, there is risk to account for.  On both sides, true cost turns out to be more complex and more difficult than those exercises you did in B-school.  If you could hold all variables constant but the ones that you want to manipulate, true cost would be easy  Usually, you can’t and it isn’t.  Both sides end up (in any situation large enough to be interesting) using all sorts of proxies for the truth.  Standard costs, plan labor rates, planning figures for time … all turn out in the end to be approximations of the truth.  Good approximations mean you make money on the deal.  Bad approximations mean … that you may not get to make another deal.  On both sides, scope is difficult and critical.  What’s in scope, what’s out of scope.  What happens if the scope needs to change — like it always does.  On both sides, the duration of the contract is important.  Too short and it’s not worth it; too long and you’re locked into something that needs to change.

What is the right price for outsourcing?  It’s a damn good question.

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Economics, Business, Uncategorized | Comments (0)

M2 and Income Disparity

January 13, 2007 – 8:08 pm

Referring to the previous post, there is another issue buried under the money supply here in China. Who has the money is really important, to state something that is “intuitively obvious to even a casual observer.”

In China, the rural poor clearly don’t have the money, so even a cursory per capita money supply analysis by group will show that the money supply per capita for the rural poor is pitiful … as in pitifully small. Rural poor everywhere, not just in China, have less currency, fewer deposits, and less access to every kind of on demand deposit. So, the money supply here is concentrated and the per capita money supply here in the progressing cities (think Shanghai, Beijing, Dalian, Shenzhen, Xiamen, and the like) is many times larger than in the rural countryside.

The danger of that is having inflation in these modern urban areas push an inflationary cycle that drives an already huge disparity even further. Let me illustrate.

In New York, you can find a restaurant meal for a family of four that costs a months wages for a minimum wage worker, but it’s not common … not common at all. A minimum wage worker will have a monthly take-home income in the neighborhood of a thousand dollars per month (or more).  A  family meal for four that cost a thousand dollars, even in New York, would probably qualify as wretched excess. 

Here, you can find nice restaurant meals for a family of four that cost eighty or one hundred US dollars quite easily (I once attended a meal here, in a nice but not extravagant restaurant, where pizza and beers cost forty US dollars per head … so we had a couple or more beers … who’s counting).  The point is; these meals are nice meals, but only nice meals.  There’s no wretched excess in evidence anywhere at one of these meals (we didn’t have that many beers).  And, don’t think this is limited to expatriate restaurants.  One of the status gauges for Chinese celebratory dinners is cost and the more the better for the status.

But, one hundred dollars is just about eight hundred Yuan (RMB) which is the monthly wage (or more than) of many urban workers here in China.  So, there’s already an ability-to-spend gap that’s huge between ordinary workers and the fortunate few.   If you extend that to other necessities of life (clothing, shelter), you can find many similar examples.  Put in even simpler terms, there are hundreds of places here in Shanghai where you can pay seventy RMB for a Guiness (I know … it’s worth it).  But when eleven Guinii (I think that’s the plural of Guiness) cost a months pay … of anyone’s pay … the abiliity-to-spend gap is huge.

Inflation, due to the aforementioned liquidity, could really exacerbate this.  It’s especially important, since real wages among low wage urban workers and rural workers are unlikely to rise anytime soon.  So, the action by the government is a necessary one and let’s all hope it works … on more than the real estate market.  And, let’s hope they understand the geo-demographic distribution of the money supply per capita.

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Economics, Business | Comments (0)

Reserves, Totals, and Critical Thinking

January 8, 2007 – 11:16 am

China Public Radio (sort of like National Public Radio in the US, but less leftward leaning) announced this morning that the Chinese government will tighten bank deposit reserve requirements by half a percentage point.  They also announced that the action will take twenty billion dollars out of circulation — which seemed to mean, in the context of the story, the money supply.  According to the commentator, the action is being taken to cool a hot economy. 

It set me to thinking.  If half a percentage point takes twenty billion US dollars out of the money supply (as they put it) means that the money supply must be four trillion US dollars.  (In fact, the accompanying print article in Shanghai Daily listed M2 in China as 33.75T Yuan or just over 4T USD  http://www.shanghaidaily.com/article/?id=301929&type=Business).   With a population of one point three billion people, that puts the per capita money supply at just over three thousand US dollars. 

Oh yeah, there’s an accompanying print article.  It’s a phenomenon very similar to NPR in the US and USA today.  A cynic might think they get their news from the same source; I mean NPR and USA Today.

Anyway, that’s a lot of money in a country where the poverty line is well under one thousand US dollars per year.  For comparison, the US  per capita money supply is slightly more than twenty one thousand US dollars per person.  It’s interesting that the US per capita money supply is fairly close to the family of four poverty line, while the China per capita money supply is more than three times the poverty line.

And, at that size,  it’s easy to understand why it’s necessary to reduce it to cool inflation.  Inflation is basically excess money chasing scarce goods.  Since the rural money supply per capita is so demonstrably low, the urban liquidity is quite a cause for concern.    And, the poor country cousins can be quite envious of the city folk.  This is a cause for concern as well.

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Uncategorized | Comments (0)

Business and Ethical Implications of Outsourcing to China

November 13, 2006 – 8:19 pm

I was recently asked to speak at a conference in Europe on outsourcing.  They wanted me to speak on the “business and ethical” implications of outsourcing to China.  I couldn’t go because of calendar issues, but it set me to thinking.

It seems to me to be a peculiar point of view.  The point of view that I refer to is that there are “business and ethical” implications of outsourcing.  The title implied somehow to me that there are implications that are not business-like and that are not ethical – as in ethically acceptable.

Outsourcing, at it’s core, is driven by transaction costs.  Transaction costs are the set of costs that determine whether your company should do something internally or pay to have it done externally.  It’s the “make vs. buy” decision.  Coase’s classic theory has to extended only slightly to explain outsourcing. 

Transaction costs (especially labor transaction costs) are decreasing in the globalized market much faster than they are inside most firms.  This difference in the rate of change of labor costs (in the globalized market vs. inside the firm) is what drives outsourcing.  If firms could respond as quickly as the market, then outsourcing would not occur.  But, they can’t and so it does.  The emergence of the ultra-large and ultra underpaid work force in China onto the world labor market has created a big singularity in labor cost change rates.  It will take a couple of decades, at least, for the global labor market to adjust.

The reason, I suppose, for attaching the ethical tag to this issue is that labor is inherently about people.  Nothing brings out the self-righteousness in people like a people issue.

But, is it more ethical to keep jobs in one country than another.  Is it ethical to ensure that English workers (or American workers or Dutch or German… pick a country) have a job at the expense of jobs in another country?  Does that policy create the most jobs or the most prosperity?  Does it even benefit the English workers?

I think not.  If you believe in a free market – most westerners do – then let the market allocate resources across national boundaries.  The market will do a better job than governments.  And, the market won’t have any angst about the “business and ethical” implications.  You shouldn’t either.

 

For more on transaction costs, read Coase – it takes a millisecond or two in Google to assemble a good primer on Transaction Costs. 

 

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Economics, China, Business | Comments (0)

Assistance for Companies Wanting to Export to China

October 30, 2006 – 6:26 pm

If you are a US company and you want to export your goods or services to China, you can get some help from the US government.

I visited with the US Commercial Service today here in Shanghai.  You can find out more about what they do at http://www.buyusa.gov/china/en and it’s worth a look.  They can help you get started with exporting, they have market research on the China market, they run events and conferences here in China, and they can help you find business partners here.

It’s, frankly, more helpful than I expected.  It’s worth a look.

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Uncategorized | Comments (0)

Statistics on China

October 26, 2006 – 2:48 pm

It can be difficult to find reliable statistics on China. 

One source you should know about is the National Bureau of Statistics of China.  This site has the official data. You’ll find it at http://www.stats.gov.cn/english/index.htm

There is news, monthly updates, comprehensive statistics on most every topic, and more.  It’s a useful site.  Get the data yourself and impress your friends; well, the statistically minded ones anyway.

I work for IBM. The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

By Thierry | Posted in Economics, China, Business | Comments (0)