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TechWatch: Technology Observations from China

My recent visit to China provided a stunning object lesson on the relationships between technology, jobs, and outsourcing. Of course, two weeks in Beijing and Xi’An, reading a few books, and talking with business leaders does not make me an expert on business in China. But as Yogi Berra, philosopher and former baseball player said, “You can observe a lot by watching,” and that’s what I did. Here’s what I concluded.

Observations on Technology in China

China seems to have embraced technology for convenience, discovery, and the development of business. Cell phones, for example, were everywhere. I had no trouble anywhere I went with plugging my jump drive into their computers to project presentations.

I read of the successful launch of a two satellites for scientific exploration. This was the thirty-seventh consecutive successful launch of a satellite since 1996, according to the report in the China Daily, September 10, 2004. The article went on to say, “The two satellites were made by the Shanghai Academy of Space Flight Technology and Dongfanghon Satellite Company.” The geospace probing systems aboard the satellites were mainly manufactured by the China Electronics Technology Corporation, according to the report.

A scholarly discussion of the development of information technology in China may be found in China’s Leap into the Information Age, by Qiwen Lu, Oxford Press, 2000.

Technology for Efficiency?

But China seems to be much slower in adopting technology for efficiency. Here are some examples:

1. As we pulled onto a toll road, we took a ticket to mark our starting point. In the West, the ticket would be issued from an automated machine. Here, an attendant manually handed out the tickets.

2. At the end of the toll road in the West, there would be automated lanes for people with exact change. I didn’t see any of these in China; but rather there were attendants at each station to count out the fare.

3. In Singapore, we saw automated payments everywhere based on a reader and a debit card that eliminates parking attendants, automatically pays tolls, etc. There was none of this that I could see in China.

4. I never saw any automated street sweepers in China, but saw many individuals with huge palm fronds sweeping the streets, even the sides of the highways. And the streets were very clean.

5. I saw bicycles with platforms almost the size of a small pickup truck on the back. These were used to move all sorts of goods including one I saw with a huge load of furniture on the back being pedaled by human power. Of course, there were also many powered trucks, but the number of pedaled trucks was a surprise.

6. At a construction site, I watched workers move bricks to the next level of the building by throwing them one at a time from one level to the next. And people (many of them) were working very hard to load large broken pieces of concrete into a truck by hand. The automated machines I am so used to seeing were not there.

There are many other examples, but this conveys the idea. Most of these jobs have been eliminated by technology in many parts of the world. Why not in China?

Possible Explanations

The obvious explanation, that the technology is not available, is just not true. Though they continue to import a significant amount of technology, their own industries are growing.

But a second answer seems to be part of the explanation. Chinese workers aren’t paid very much. When it comes to a business or government getting a job done, assigning many people to the task is often far less expensive than buying technology. This issue is being compounded by the increasing migration of people in China from the rural areas to the cities, providing a huge influx of new workers.

For example, the September 6 issue of the China Daily reported the introduction of compulsory insurance for millions of construction workers—mostly poor farmers who have migrated to cities—for potential accidents on the job. “Farmers turned workers make up the majority of employees at construction sites and will be the largest beneficiaries of the new regulations,” the article added.

But it is not just an efficiency argument. China is still in transition from a planned economy to a market economy. Staff and production used to be dictated centrally rather than responding to market conditions, according to Zhao Xiao, an economist with the government from the Macroeconomy Research Department. This transition requires a new way of thinking about production, employment, and efficiency, he said. For example, Sinopec (an energy company in China) had 1,000,000 employees just a few years ago, though significantly less today as it transitions toward a market-based operation.

Implications of these Observations

Where there is low cost labor with increasing skills and fewer trade barriers in a connected world, we can expect jobs to flow to the low cost labor. It is not surprising that more and more of the goods in the West are made in China, and other low cost labor markets. That means more of at least certain types of jobs will be lost in the West. Further, as the market economy takes stronger hold in China, wages will go up and technology will become more attractive for taking over certain types of jobs there as well.

The politicians in the U.S. are blaming each other for this loss of traditional jobs to overseas markets. But technology (both for replacing jobs and for connecting people with goods or services regardless of the location) and low cost labor are key factors in this loss. The other one is—you. Most of us (there are a few exceptions), when confronted with the choice of what to buy, will choose the item at lower cost, other things being equal. And as Robert Reich points out in The Future of Success, choosing the item of lowest cost is a vote for outsourcing.

This much of the picture seems self-evident to me, though I acknowledge I have friends who would not agree. The rest of the picture is murkier both for the future of jobs and what to do about them.

Conflicting Views

Prabhu Guptara, Executive Director, Organizational Development, UBS, in the IBTE Conversation (Ethix 33, January/February 2004), argued that technology “eats jobs.”

Another challenge comes from technology itself. There will likely be more and more skilled joblessness as technology provides efficiencies in work. Some jobs are capable of being expanded, involving services and new ideas. But even as these grow, technology eats up a middle range of jobs ….

Dennis Bakke, cofounder of AES Corporation, looked at the situation in a more positive light. In the IBTE Conversation (Ethix 35, May/June 2004) he said,

If some politicians had their way, we would still be making tennis shoes in New England. The people would be starving in Indonesia, and we wouldn’t have developed all the wonderful things that are happening to make the world a better place in thousands of companies in the Boston area.

Both acknowledge the transition we are in, and I believe both would join with the editorial writer in The Economist (February 19, 2004) who said,

So far as the effects on individuals are concerned, the process does have consequences that need to be examined and, in some cases softened. Adequate private and public investment in skills and lifelong education is paramount in this new world.

Back to China

As to China specifically, the situation regarding jobs will likely get more challenging. I heard the Chinese government economist Zhao Xiao state several times during the first week of September in public forums that China is going through three major transitions:

1. The transition to a law-based society (the first constitutional law in China came in the twentieth century following long rule by emperors).

2. The transition to a market-based economy from a centrally planned economy.

3. The transition to a common set of values and standards that provide the necessary boundaries in a market-based economy.

The third area may be the toughest of all, he suggested. But the successful navigation of the three transitions over time will make China a much more acceptable player on the world economic stage. This will open the doors to more technology for efficiency, and make the challenge for competitiveness in the West even greater.

Conclusion

Specific predictions of when and how these transitions will take place are certain to be wrong. But technology is playing a big role in China today, and that role will get much bigger, with significant fallout for outsourcing and jobs in the world in general, and for the West in particular. To keep the focus on these objectives, China has joined the World Trade Organization, and is monitoring its progress toward the timetable of measured steps. Chinese Vice Premier Wu Yi pointed out that his nation has actually gone much further than its WTO commitments, according to an article in the China Daily, September 9, 2004.

That it has not arrived yet, however, became evident at the airport when we were preparing to leave China. Stopping at the bank at the airport to change the rest of my Chinese currency for dollars, I found out the Chinese bank would not accept their own currency without receipts to prove each Chinese Yuan that I wanted to exchange had been purchased with dollars while in China. I am ready with cash the next time I go to China!

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Al Erisman is executive editor of Ethix, which he co-founded in 1998.
He spent 32 years at The Boeing Company, the last 11 as director of technology.
He was selected as a senior technical fellow of The Boeing Company in 1990,
and received his Ph.D. in applied mathematics from Iowa State University.

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