Notes from the 2005 Pop!Tech Conference, Camden, Maine

Oded Shenkar

Professor, global business management, Ohio State University

Author, The Chinese Century

Subtitle of talk: Are we toast?

A millennium ago, China was largest economic power in the world. This is where they came from, this is where they were going. To the Chinese, textiles and cheap labor is a transition period. It is one that will last for a while, but it is a transition period.

As it goes up the technological ladder, it will not relinquish manufacturing.

Chinese exports are very rapidly becoming higher tech. Computer components, for example. Not just t-shirts anymore.

The U.S. has a huge, unsustainable trade deficit with the world. 6 percent GDP. Historically, this is where other economies started to get into trouble. We are in unchartered territory. If we cannot make the labor-intensive stuff, what can we make? Why do we have this deficit when rest of Asia has surplus, when Europe just now developing deficit. Many reasons. We are more open, more flexible economy. Easier to shut down plants here and move them there.

Automotive components-Delphi just went bankrupt. Ford just announced huge loss. GM might go bankrupt. Where is this going? Sure, Japanese, but also Korean and German. What's next? Chinese parts in cars (say, 50 percent Chinese, 35 percent Mexico, 15 percent U.S. for pickup in 2012, available for $119 a month lease. The math works). Sold under brand name Rover. It-the brand name-was acquired by Chinese companies recently. Irony is that it was last of U.K. manufacturing.

Declared aspiration of Shanghai Automotive is to be, in 5 or 6 years, one of 5 largest car companies in the world. They bought Rover. It is coming, it is only a matter of time. What does it imply? We don't know.

It was folly to believe ours were advantages we could enjoy forever. The U.S. is going the way of the U.K. towards the end of the 19th Century. We took mantle of world's largest economy from Britain then. Will we relinquish the title to China in, say, 2025? Parallel: Britain let us take care of cheap manufacturing in mid-1800s, without too much worry. They had better technology. Look how that worked out.

What follows is many examples of parallels between England-U.S. 140 years ago and U.S.-China today.

But the counterexample is whether or not China will break out of its ways of the last millennia, embracing new technology and innovation and science and new ways of doing engineering, business, and technological development.

Chinese who come to the U.S. to get their PhDs make up about 7 percent of our student force. Before, only about 10 percent were going back to China. Recently, that number has grown to 25 percent. How high will it go? South Korea is at 90 percent.

We can run a deficit for only as long as china keeps buying our money-our T-Bonds and the like. One day, they'll stop, or they'll charge higher interest rates. Then we feel china's influence everywhere we buy everything.

There is no precedent of any major economy based solely on services.

Final thought: Challenge and question comforting analogies and precedents that you might hear.