Posted on July 20, 2010
In the middle of a very hot summer, I have hockey on my mind. It’s on my mind, not only because the team of my boyhood dreams – The Chicago Blackhawks – finally won the Stanley Cup after an almost 50 year drought.
It’s on my mind because hockey in many ways is like the world economy.
For much of a hockey game, the two teams play at even strength. Teams of five skate back and forth against each other trying to score goals against the other team’s goal tender. But every once in a while, one player is removed from the ice because he commits a penalty, and he goes to the penalty box for anywhere from one minute to five minutes.
When a player is forced to leave the ice, a new dynamic is created called the power play. A power play gives an advantage to the team that didn’t create the penalty. And that is when the majority of goals are scored. When a team is able to score when they are short-handed -- when they are at a disadvantage because of the penalty -- that can be a turning point in the game.
I was thinking about power plays when it comes to the world’s economies, because my theory is that wealth is created when there is an unnatural advantage in the marketplace.
The Spanish Empire had advantages when they used their superior strength to plunder the New World of gold and a variety of other treasure. When the British beat the Spanish Armada, they proved that they could beat them at their own game, and soon they ruled the world.
The Americans exploited their advantages, including splendid isolation that shielded them from the wars of the European continent, bountiful natural resources and a system of government that protected private property rights and innovation.
And now China has had a power play for the last decade. They are exploiting plenty of advantages that they are now using to score plenty of economic goals. They pay their workers a pittance in wages. They have a motivated and extremely hard-toiling workforce. They have an undervalued currency. They have favorable American trade laws, which actually give American companies an incentive to move to China, hire Chinese workers and then export the products created there back to the U.S.
At some point in time, this power play is going to come to an end. Wages are going up in China. Pressure to properly value the renminbi is increasing and the Chinese are buckling as a result. Demand for energy is busting at the seams, causing prices to increase. And at some point in time, American trade laws are going to have to create more incentives to keep manufacturers here at home.
The American workforce has done a decent job of playing short-handed because the spirit of innovation still runs deep in America’s bones. But we still penalize ourselves with the high costs of taxation, regulation and litigation.
There is already evidence that the power play is shifting from China to other places, like India, Bangladesh and Brazil. That is probably a good thing. Pretty soon, the Chinese are going to lose their power play advantage, and then our manufacturers will be better able to compete against them.
That day can’t come soon enough. American manufacturers can compete, but they can’t keep playing against a Chinese power play.