Don't Blame China

We're all familiar with the argument that all of the manufacturing jobs are being stolen by China, that globalization is responsible for the ever widening gap between the poor and the rich. Not so, claims Will Hutton. Don't blame China, blame the new corporate culture imposed by the super-rich:

"China has not a single brand in the world's top hundred, despite the projection that it will become the world's largest exporter in 2008. Buying Rover, and shipping some of the plant back to China, was viewed as an act of strength; in fact it was an act of economic desperation. By lending $200bn a year to finance the US trade deficit, China underpins the international dominance of the dollar. In the upper echelons of the Communist party and the state council there is anguished debate about why so many goods are made "in China" and not "by China", and why indigenous innovation is so disastrous. In 1995 China set a target of having 50 companies in the world's top 500 multinationals by 2010. It will be lucky to have any.

"Higher inequality is not caused by low-wage competition driving wages to the bottom or ever higher rewards for the skilled. What has changed is the new super-rich. Ian Dew-Becker and Robert Gordon, of Northwestern University, show that in the US, incomes of the 99.99th percentile have grown outlandishly, rising 497% between 1979 and 2002. This is the principal cause of American inequality. It is the same in Britain; 20 years ago the average CEO of a FTSE 100 company earned 25 times the average worker's wage; today the multiple is close to 120 times.

"China is not to blame. In Britain and America a business culture has developed where the share price is the be-all and end-all. Under desperately weak and unreformed corporate governance arrangements, CEOs have in effect written their own pay deals.

"To deliver higher share prices, they have embarked on the world's biggest takeover boom. In hard cash, the cumulative value of deals in the US between 1995 and 2005 was over $9 trillion. In Britain over the past three years there has been a no less astonishing £500bn worth of deals. These are the chief driver of job losses and downsizing - and typically for negligible productivity gains. The "enlightenment" obstacles to this - regulation, a sense of long-term ownership, media scrutiny, competition rules, strong trade unions and a belief in equality - have been progressively weakened. Western capitalism is losing its embedded checks and balances, its morality and, ultimately, its legitimacy."

So, before we all storm the Bastille, just who is this Will Hutton with his strange ideas? This describes him:

Formerly editor of the Observer, Will Hutton is Chief Executive of the Industrial Society. From 1990 to 1996 he was economics editor of the Guardian. A former stockbroker, he spent ten years with the BBC, and from 1983 to 1988 was economics correspondent for BBC2's 'Newsnight'. He is a member of the governing council of the Policy Studies Institute, the Institute for Political Economy and Charter 88, is on the editorial board of New Economy and is a governor of the London School of Economics.