BarbaricManchurian said:
How is stuff super cheap in China (for Chinese too, BTW, not just the currency exchange) if there's "massive inefficiencies"? If there's inefficiencies, shouldn't stuff cost more? It's because many Chinese are very entrepreneurial and there's ultra intense competition. You don't get that with big box stores, since there are less of them, and stuff costs more. One recent study said that in Shanghai, 1/3 of workers quit their jobs in 2006 and set up a shop. Most were unsuccessful, but it shows how many people think the path to prosperity is being self-employed. And also, the cities are super dense, so there's going to be stores everywhere (except for Chinese suburbs, they're almost like American suburbs, except 40x taller. Everyone has a car and they shop at Wal*Mart and eat at KFC).
Probably a good idea to move the thread. but not a bad conversation, imho.
the inefficiencies are of scale first and foremost. outside the state sector for most of the past century there was virtually no commerce at scale -- including in the agricultural sectors. remember the aircraft, auto, and railroad industries in this country in their early days (along with virtually every other new industry). we had tens of aircraft manufacturers, tens of mass market automobile manufacturers. now we have, roughly, 1 and 3, respectively. however, rents aside (economic rents), efficiencies are much greater.
the fact that so many Chinese want to dive into the private start-up economy is great. but it doesn't make for an efficient economy -- just a market that clears more easily than would otherwise be the case. i.e. the market clearing price for bicycle repair in 91 when I lived in one of China's fastest growing cities and rode a bike to work every day was very low because every intersection had as many as four repair businesses competing for my business. there was virtually no differentiation other than the geography of where I was heading -- even getting service in English (my Chinese bike vocab is near non-existent) was not a differentiator since about half of the younger repair guys had enough English to help me out. every business had a manager (the sole proprietor) and tools and materials overhead. without question it would be more efficient to centralize the business in one consolidated operation covering, say, four blocks. However, in the Chinese economies (and others) to be the boss is glorious.
we get big box stores in part because we have the sophisticated logistics to support them. but we also have them because capital is assembled and deployed very effectively -- especially against large outlays aggregated for relyable returns on billions of dollars that needs to be productively deployed. we are less well adapted to focus on small high growth opportunities because there is inefficiency to capital in managing many small investments. this is why the Mass VC economy (highest per capita in the US by far) is looking to invest 10s of millions while most entrepreneurs would be very happy to get a much smaller seed round that gets the business started.
China has a different set of circumstances. capital is still largely controlled (poorly) by the state sector (and guanxi politics) largely ineffectively. however, given the historic difficulty of obtaining credit, returns on investment, etc., among other reasons, there is a wealth of personal savings that can be aggregated and deployed at a small scale. in a country growing from an extremely low base with huge and obvious friction in the market, plentiful external capital (from Taiwan, HK, and south korea, originally, but now from all over), dirigiste market opening featuring enormous tax, land, labor and other incentives to import capital and export labor, fixed exchange rates, loose capital controls, etc. you have a domestic economy that is growing like nobody's business. and that serves the bike repairman well. but don't accuse him of being efficient.
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this is not only way off topic (though economics is always related to architecture and urban planning) but also i have to admit i'm just typing without thinking... please don't grade this paper -- it would probably get low marks...
