So I was reading a short article by Steve Forbes in which he mentions the Soviet economy, and one of the reasons why its GDP numbers, despite seeming impressive, were actually greatly overblown: basically, because the GDP figures published for/by the Soviet Union included all of the extremely low-quality things the Soviet Union produced. As far as the Soviet economists were concerned, for example, cars from private companies versus cars from a government facility are both equal as far as GDP numbers went (so comparing say fifty cars produced by the Soviets and fifty cars produced by GM was pretty equal).
As a result, the Soviet economy appeared inflated and much more productive than what it actually was.
So I was thinking, China we know just recently surpassed Japan in terms of the size of their economy. However, China's economy also produces a lot of subpar junk at the moment. China manufactures things for Western companies, but in terms of designing and producing their own stuff, "Made in China" doesn't have a great reputation at the moment.
No one in the West buys Chinese-made, Chinese-brand automobiles yet, or Chinese-designed and made computers or electronics or appliances at the moment, and so forth. So what I was thinking is, could China's GDP numbers actually be inflated? Could their economy be appearing larger than what it actually is right now?
For example, I would imagine that in calculating their GDP, Chinese economists probably don't really much rate the difference between a cheaply-made low-quality Chinese vehicle and a much higher-quality Western-made vehicle. Or we could compare real-estate. Chinese buildings are not built to the same standards as in other countries (some have collapsed, one building rolled over because the foundation was so lax), yet I would bet their buildings are counted in the GDP with the same equivalence of buildings put up in the Western nations.
Thus, even though on paper, China may appear to have a GDP larger than Japan's, in reality, Japan may still have the technically larger economy if we could really measure the individual value of all the goods/services China produces.
Interesting thought...
ReplyDeleteJust one thing that immediately comes to mind; under traditional financial theory, the final selling price always accounts for the utility of the product--so a product of lower quality would have a lower final selling price, meaning a smaller GDP. Thus, China's GDP on paper may be accurate after all. Of course, this assumes we can rationally account for every possible cost including ancillary costs of repairing, maintaining, and replacing low-quality products.
Another reason China's GDP may be so large is that they are the world's #1 exporter (nominally) with a $362B trade surplus.
I'd give China the benefit of the doubt though--as it was this cynicism (among many other things) toward products sold in Japan after WWII that Japanese auto manufacturers eventually surpassed their U.S. counterparts in the 1980's.
Still, this is an interesting idea, and I'm glad you shared.
Cheers.
I agree very much that China could be like Japan in that sense, however this cynicism, from my understanding, was because initially things made in Japan were of very low-quality until they brought in a well-known quality-control expert from America who helped revolutionize Japanese business.
ReplyDeleteMeanwhile, American companies, not being used to foreign competition, had gotten slack in their performance, and thus when foreign competitors came over starting in the late 1970s to America, they proceeded to begin crushing the American companies. I think Japanese consumer electronics began to dominate even earlier.
I would say China is, or may be, at the stage of Japan in its early days. Right now, Chinese cars for example are not reknowned for being high-quality, but if the Chinese begin to incorporate very good quality control methods, this could change big-time.
Thanks for the information, I appreciate it; what are the "many other things" that were exhibited toward Japanese products?
Yes, that is precisely what I am mean. I believe the "well-known quality-control expert" you are referring to is Edwards Deming?
ReplyDeleteThe "many other things" include the arrogance of American manufacturers as you have pointed out, as well as a combination of factors like the keiretsu, government intervention (both in increased spending and borrowing), foreign investment, and changes in labour structure as the country became more capitalistic.
While I'm not currently aware of any evidence that China will have a turnaround in quality like Japan did, again like I said, I'd give them the benefit of the doubt.
I think Edwards Deming is the guy.
ReplyDelete