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How Much Longer for the "Royals"?

If you listen closely, you can hear a subtle creaking under the hood of the global economic system, like a car on the road that is slowly breaking down. Every day there's a new funny noise, something that says it's just not working right.
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It is the best of times, it is the worst of times.

Tomorrow we will see a wedding between a Prince and a soon-to-be Princess. Polling in the US and UK shows that the public itself is largely apathetic, but we in the media can't seem to get enough of the event. The wedding will cost over $100 million in security and ceremonial costs, and the British government is giving everyone the day off. Ordinary people will use this day ostensibly to celebrate the ceremonies of those born to privilege. But what they will probably do instead is ignore the wedding and spend time with their families.

In America, we're seeing our own version of this. According to the Business Roundtable, the confidence of American CEOs has never been higher. But 70% of the American public thinks that the country is on the wrong track.

If you listen closely, you can hear a subtle creaking under the hood of the global economic system, like a car on the road that is slowly breaking down. Every day there's a new funny noise, something that says it's just not working right. The basic dynamic is inequality all over the world, in staggering proportions. But the interesting nugget is not the unfairness, but the increasing inability of elites to manage the increasing anger coming from the global losers.

Last week, it was in China, a country with even worse inequality than our own. The largest container port in the world -- Shanghai -- saw a serious strike by Chinese truckers. The strike was muzzled by a combination of a media blackout, police power, and select concessions by the Chinese government to the strikers. So what does that have to do with us?


China makes what America consumes. Take, for instance, Walmart. Walmart is increasingly a Chinese company these days, orchestrating the shipping of goods made by incredibly poor Chinese workers to increasingly poor American consumers. Apple is another hybrid Chinese company, a middle-man. Steve Jobs makes billions running a design, retail, marketing, and R&D shop in the US known as Apple. His business partner Foxconn CEO Terry Guo makes his billions making iPads, iPods, and iPhones with 800,000 "iSlaves" in China.

This is a system, and the strategy behind it is quite explicit. Economists have designed it, and they call it fighting inflation. Since wage gains contribute to inflation, stopping wage gains is the goal of the international trading regime. The natural end result is low wage workers in China selling to high debt consumers in America. You get an unstable system with a deeply immoral core, but hey, at least there's no inflation.

How do I know this is done on purpose? Well, the people in charge of the system say it when they think no one's paying attention. I'm going to return to this Federal Open Market Committee transcript from 2005, which has received too little attention. Here's Fed Dallas President Richard Fisher describing his conversations with area CEOs.

Everyone I've talked to continues to try to figure out ways to exploit globalization. Each of them, from the IT [information technology] guys to the big box retailers to the specialty chemical firms to the service firms, wants to have offshore supply. One of the CEOs said, "We have a long way to go in exploiting China." We've heard that forever.

If you read the New York Times article two days ago about Shanghai's new deep water port, you have to realize that those facilities are being built to ship goods out of China, not so much to ship goods into China...

Now, this is good news on the disinflationary front. The bad news is stateside. We don't have the capacity to absorb it. Long Beach and the Northwest harbors are constrained. Work rules, according to our interlocutors, are very slow to adjust. But there are ways to beat the bottlenecks... Wal- Mart just built a four million square foot warehouse in the Houston port, in order to shift part of the burden from Long Beach. But it is evident that the enemy is us as far as exploiting globalization, and I think that's a long-term problem that we might want to take note of over time.

Get that? Shanghai is increasingly an export-only port. Fisher's statements were in 2005, when our country couldn't accept enough goods because of bottlenecks at our ports. But beat the bottleneck we did, by widening the Panama Canal a few years later so China could ship to east coast ports as well. So now the American factory floor is being transferred to China at a faster and faster rate.

Which brings me back to the strikes. American CEOs have exported not just our job base, but all the labor unrest that can come with it. China is running out of capacity to make our products, and commodity prices are going up for them as well. So inflation is hitting Chinese workers very hard right now -- one of the causes of the trucker strike was a significant hike in fuel prices. The Chinese government quickly made concessions to the strikers, and is broadly attempting to deal with an incredible gap between the rich and the poor. But as Reuters noted, they aren't doing this because of goodwill.

Their worry is political:

The Party leadership is especially jumpy about threats to its control following online calls for "Jasmine Revolution" protests inspired by anti-authoritarian uprisings across the Arab world, and has detained dozens of dissidents.

Food price hikes sparked strikes in Egypt, which eventually turned into a political revolution. The Chinese government isn't stupid, but it is trapped. Their strategy is to take American know-how by undercutting us on price, using protectionist measures that we stupidly allow. Our own corporate oligarchs are well-aware of this dynamic as well. They have been preparing for this moment for some time. Walmart (along with GE and even more surprisingly, Google) led the fight in April, 2007 to gut a new labor law proposed for Chinese workers on issues like collective bargaining, severance, etc. The American Chamber of Commerce in Shanghai is using aggressive tactics to ensure that Chinese wages would remain low.

Perhaps there is something ironic about aggressive lobbying tactics by multinationals being used effectively in both communist and capitalist legislatures to suppress worker rights. Or perhaps not. But you cannot suppress reality forever, and the strikes in Shanghai show that top-heavy gains eventually have consequences, even for those who make the rules. It's not always as dramatic as Mubarak's fall, but then again, Mubarak's fall wasn't the point when those first Egyptians began striking in 2007. It was the rising prices.

It's a very good time to be rich. The global trading system is benefiting those who manage huge capital flows. But unstable systems have a way of collapsing. And you can hear the creaking, even above the media circus of the royal wedding.

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