How Globalization affects Equity

J o s h u a K o n o v 2 0 1 0

In t imes o f G loba l i za t ion some economies and

markets bu i ld equ i t y , however some not on l y cannot

use the i r equ i t y to improve the i r s tandard o f l i v ing

but l o se the i r equ i t y to l ack o f bus iness tha t

p rovokes de ter io ra t ion o f equ i t y o r a t l eas t

d i scount o f equ i t y .

Equ i t y i s in the foundat ion o f   the economy and the

marke t : in the pas t mos t o f the equ i t y cons i s ted to

phys i ca l p roper t y but g radua l l y more in te l l ec tua l

p roper t y and sub jec t i ve marke t secur i t i e s have

become equ i t y . Thus when ind i v idua l   o r corpora te

equ i t y i s eva lua ted  p lus the phys i ca l equ i t y i f any

the in te l l ec tua l p roper t y , the ho ld secur i t i e s and

the pro jec ted economic growth a re

cons idered  equ i t y . The t rend toward in te l l ec tua l

p roper t y and market va lued secur i t i e s ins tead o f

phys i ca l equ i t y i s more than obv ious fo r p r i va te and

corpora te equ i t y equa l l y . However , p r i va te equ i t y

f o r the ma jor i t y   in the wor ld cons i s t s o f phys i ca l

p roper t y equ i t y when in te l l ec tua l and market

secur i t i e s equ i t y i s more possessed by ve ry wea l thy

ind i v idua l s   and ind i v idua l s l i v ing in the mos t

deve loped economies .

There i s d i rec t cor re la t i on be tween market

ind i v idua l   income and equ i t y va lue , because equ i t y

va lue re f l ec t s genera l marke t va lue o f a p roper t y

wh ich re la tes income f inanc ia l s ta tement . A

proper t y va lue suppor ted by h igher income

s ta tement i s h igher than a proper t y va lue suppor ted

by l ower income   f inanc ia l s ta tement . In some cases

- a s i t happened be fore the l a s t Grea t Recess ion -

marke t p roper t y va lue became uncont ro l l ab le

p rompted by pure specu la t ions and compromised

l end ing prac t i ces . Consequent l y the exaspera t ion

o f  p roper t y va lue burs t b r ing ing f inanc ia l l o s ses

and l os t o f p roper t i e s to many . Seeming l y equ i t y o f

p roper t y va lues shou ld we l l r e f l ec t   the rea l marke t

p roper t y va lues wh ich re f l ec t  genera l income l eve l

in th i s marke t . Ta lk ing about equ i t y no t re la ted to

phys i ca l p roper t y but cou ld be in te l l ec tua l

p roper t y , marke t secur i t y , o r p ro jec ted economic

growth w i th very h igh sub jec t i v i t y in the rea l

economy the marke t va lue o f such equ i t y i s more

re la ted to secur i t y o f in te l l ec tua l p roper t y , marke t

secur i t i e s and cer ta in ty o f p ro jec ted economic

growth . Fac tors tha t d i rec t l y a f f ec t these equ i t y a re

sc ru t in i zed  h i s to r i ca l deve lopment o f the marke t ,

mos t recent economic ind ica tors showing the

d i rec t ion o f   th i s marke t and cons i s tent ind ica tors

o f the d i rec t ion o f  p rox ima l deve lopment , f ac tors

tha t ind i rec t l y a f f ec t these equ i t y a re the l eve l o f

r ea l ac t ing ru le o f l aw and cont rac t ing l aws o f such

market , the c l a r i t y and accountab i l i t y o f the

marke tp lace and t rad ing exchanges , the c l a r i t y and

accountab i l i t y o f in te l l ec tua l p roper t y l aws , and the

l eve l o f persona l l i ab i l i t y o f the r i sk management o f

corpora te s t ruc tures , the f i s ca l s tab i l i t y and the

respec t i ve in f ras t ruc tura l ma in tenance and

improvement , and soc ia l and med ica l secur i t y in

th i s marke t .

G loba l i za t ion has invoked the need fo r ind i v idua l

marke ts   o f us ing Soc ia l and In f ras t ruc tura l

expanses fo r ba lanc ing “demand- to - supp l y” when in

the pas t these expenses were func t ion ing as

s toppers toward economic growth because the

overa l l p roduc t i v i t y was l ower and there were many

c losed fo r g loba l i za t ion markets , now the

cond i t i ons a re chang ing the produc t i v i t y i s r i s ing

cons tant l y and the a lmos t a l l marke ts a re eager to

g loba l i ze . O ther ma jor changes a t the moment a re

the Ch ina ’ s en ter ing WTO  and the g loba l

compet i t i on and the cons i s tent economic growth fo r

the l a s t 20 years Ch ina has succeeded . By

a t t rac t ing the ma jor i t y o f   g loba l inves tment and by

becoming economy to wh ich outsourc ing and new

s ta r tup manufac tur ing Ch ina become the indus t r i a l

power tha t might we l l t i p -o f f “ supp l y - to -demand”

in to “demand- to - supp l y” marke t con f igura t ion ; such

processes shor ten a l ready shor ten ing employment

in manufac tur ing to the res t o f the wor ld .

Manufac tur ing , indus t r i a l p roduc t ion cou ld we l l be

cons idered in the foundat ion o f   the modern

Cap i ta l i sm tha t adds the mos t to f i s ca l r eserves o f

mos t o f g loba l economies by h igh l y pa id

employment ; the mos t advantageous   re turn o f

inves tment and the mos t secure bu i ldup o f equ i t y :

the h igher growth o f indus t r i a l p roduc t ion the

h igher l eve l o f equ i t y va lue .

The Mos t Deve loped Economies a re cons idered the

Mos t Indus t r i a l i zed Economies .

In such market env i ronment o f G loba l i za t ion

(outsourc ing and mov ing indus t r i a l p roduc t ion to

l e s s expens i ve economies ) and r i s ing Produc t i v i t y

( improvements in h igh techno log ies and shr ink ing

employment marke tp lace cause th i s r i s ing

produc t i v i t y ) indus t r i a l employment i s shr ink ing

fas t a t US . Very f ew a re the economies o f Mos t

Deve loped ones tha t have succeeded under cur rent

f o rces o f indus t r i a l compet i t i on to sus ta in

indus t r i a l p roduc t ion and keep up the i r indus t r i a l

l eadersh ip : Germany and Japan a re the f ew . The

va lue o f equ i t y a s s ta ted c lose l y re la tes indus t r i a l

p roduc t ion o f the modern day   economics there fore

overa l l such va lue w i l l de te r io ra te in marke ts w i th

de ter io ra t ing indus t r i a l p roduc t ion .

Modern economics does no t t ake in cons idera t ion

the va lue o f a l ready succeeded equ i t y i f economic

indus t r i a l economic growth i s no t ma in ta ined and

on l y shor t t e rm  se l f - ad jus tments a re pro jec t -ab le .

Such pos i t i ons o f equ i t y d i rec t l y re la te the

f inanc ia l s y s tem o f ind i v idua l marke ts   and the

g loba l f inanc ia l s y s tem wh ich l ends on re la t i ve l y

h igh in te res t ra tes and shor t t e rm, and in wh ich

corpora te s t ruc tures a re run  on shor t

t e rm pro f i t ab i l i t y . Indeed equ i t y re la ted

in te l l ec tua l p roper t y and equ i t y re la ted marke t

secur i t y a re l ong te rm  corpora te equ i t y however the

f luc tua t ions o f overa l l marke t equ i t y va lue o f ten

f luc tua te and re f l ec t s corpora te equ i t y va lues

v io l en t l y .

In the pas t when supp l y was l ead ing and mos t

deve loped count r i es were f i rmly ho ld ing onto   the

g loba l indus t r i a l p roduc t ion such f luc tua t ions o f

i nd i v idua l and corpora te equ i t y va lues were

produc t i ve because o f p rompt ing concent ra t ion o f

cap i ta l th an prompt ing consecut i ve economic

growth , th en a l so l e s s deve loped economies were

more l i ke sa te l l i t e s to the mos t deve loped ones

be ing ab le to suppor t f i s ca l r eserves fo r soc ia l and

in f ras t ruc tura l expenses . Even some par t s o f such

indus t r i a l p roduc t ion was deve loped  here and there

in d i f f e rent count r i es the ma jor i t y  was s t i l l kep t by

the mos t indus t r i a l i zed economies . The equ i t y

va lues in mos t indus t r i a l i zed marke ts were

there fore h igher than these o f in l e s s deve loped

markets and these s t i l l a re , except tha t under the

new arous ing cond i t i ons o f g loba l i za t ion and r i s ing

produc t i v i t y indus t r i a l p roduc t ion has been

gradua l l y moved and outsourced to Ch ina , and now

Ind ia , Braz i l and V ie tnam which a re vas t l y

popu la ted count r i es w i th inexpens i ve l abor fo rce

and some good indus t r i a l s t ruc tures , there fore in

t e rms o f va lue o f equ i t y re la ted indus t r i a l

p roduc t ion the mos t de f in i t i ve becomes the i s sue o f

l ack o f such indus t r i a l p roduc t ion to many

economies and i f such i s r educed  or l o s t what

consequent l y  wou ld be the i r va lue o f equ i t y .

In te l l ec tua l p roper t y and market secur i t y va lues

are much more f l ex ib le and adapt i ve th an the rea l

e s ta te equ i t y va lue because in te l l ec tua l p roper t y

and market secur i t y equ i t y re f l ec t s an economy ,

count ry , marke tp lace ach ievements in educa t ion ,

soc ia l and in f ras t ruc tura l deve lopment tha t

requ i res l ong te rm  deve lopment thus count r i es a s

US tha t ve ry we l l r epresent s such succeeded

deve lopment w i l l be hard to be   shut away as ho lders

o f such equ i t i e s . However such super io r i t y i s a

shor t t e rm  prospec t i ve even to the mighty US

because o f the In terne t and the cons tant exchange

o f in format ion and techno log ies , because o f the

outsourc ing and mov ing indus t r i a l p roduc t ion the

new emerg ing economies wou ld pop -up i f these

themse l ves deve lop requ i red in f ras t ruc ture , soc ia l

s t ruc tures , and educa t ion to respond to the

chang ing rea l i t i e s . In case o f Ch ina when in the

pas t i t s communis t soc ia l po l i c i e s were counter

p roduc t i ve to i t s indus t r i a l g rowth and deve lopment

under the mos t recent g loba l i za t ion and r i s ing

produc t i v i t y Ch ina ’ s Soc ia l and In f ras t ruc tura l

expenses proved to be   very p roduc t i ve in ba lanc ing

i t s “demand- to - supp l y” and thus succeed ing

cons i s tent economic growth even when the res t o f

the wor ld went through the Grea t Recess ion , thus

China ’ s equ i t y has r i sen much because o f i t s

economic growth .

Equ i t y va lues a re ve ry sens i t i ve economic

ind ica tors more l i ke cur renc ies ; the d i f f e rence

be tween them i s tha t cur renc ies ’ va lues a re more

re la ted to shor t t e rm  g loba l ad jus tments and

f luc tua t ions when equ i t y works in l onger t e rms .

Equ i t y va lues a re harder to bu i l t : r ea l e s ta te ,

in f ras t ruc ture , in te l l ec tua l p roper t y , marke t

secur i t y equ i t y va lues a re to be  used in the fu ture

as economic ind ica tors fo r a count ry , economy ,

marke t eva lua t ion and underwr i t ing . To use equ i t y

va lues , economics must change the ways these

va lues a re preserved  and enhanced even when

indus t r i a l p roduc t ion i s no t go ing to be   the ma in

economic ind ica tor a s i t has been fo r some t ime .

Economic “ too l s ” a re to be  used to sus ta in equ i t y

va lues in a “as i t comes : a s i t goes” bas i s and

approach , tha t approach d i f f e r s f rom country ,

economy , marke t to count ry , economy , marke t

because o f the i r l e ve l o f deve lopment , menta l i t y

and t rad i t i on . In some Soc ia l and In f ras t ruc tura l

expanses shou ld be   reduced in shor t t e rm   to prompt

economic deve lopment in some the Soc ia l and

In f ras t ruc tura l expenses shou ld be we l l enhanced

to p rompt such economic deve lopment . There a re

some economic “ too l s ” tha t a re fo r a l l and these

a re the expanses fo r p revent ing po l lu t ion and

imp lement ing renewab le energ ies , these a re

economic “ too l s ” f o r ba lanc ing “demand- to - supp l y”

on a g loba l s ca le and a re to be   f inanced by the

g loba l f inanc ia l s t ruc tures o f the Wor ld Bank , IMF

and WTO  through Commerc ia l Banks on a

marg ina l   in te res t ra te o r subs id ies . For such

l end ing paramount shou ld be   the enhancement

o f   bus inesses secur i t y : o f bus iness and cont rac t ing

l aws , o f persona l l i ab i l i t y to corpora te s t ruc tures ,

o f corpora te bond ing . The g loba l f inanc ia l

s t ruc tures shou ld be  g i ven the cont ro l l ing

func t ions over g loba l ba lance o f “demand- to -

supp l y” to p revent f rom in f l a t i on , the i s su ing o f

monetary quant i t i e s power to keep in te res t ra tes

l ow , the ta rge t ing count r i es , economies , marke ts

weak po in t s f o r bu i ld ing equ i t y , the cont ro l l ing

over count r i es , economies , marke ts compl iance w i th

the gu ide l ines and underwr i t ing , the cont ro l l ing

over commerc ia l banks ’ execut ion o f these

gu ide l ines and underwr i t ing matr i x .

The ex i s t ing equ i t y o f count r i es , economies ,

marke ts shou ld be   the foundat ions fo r l ow

i n te res t   l end ing there fore overa l l s ecur i t y shou ld

be   enhanced thus count r i es , economies , marke ts

cou ld become e l ig ib le fo r f inanc ing .

In the new century o f marke t economics indus t r i a l

p roduc t ion shou ld no t be   the on l y way fo r f i s ca l

r eserves but ones equ i t y tha t cou ld be bu i l t by

p roper l y ba lanc ing i t s “poss ib le demand- to - supp l y”

and proper l y and pragmat i ca l l y us ing a l l economic

“ too l s ” to ra i se i t s “ secur i t y ” .

Ch ina ’ s Barb ie Do l l Economics O f t - q u o t e d , D o n g

T a o , a h e a v y w e i g h t e c o n o m i s t a t U B S   i n H o n g K o n g ,

o n c e s a i d : “ A B a r b i e d o l l c o s t s $ 2 0 , b u t C h i n a o n l y

g e t s a b o u t 3 5 c e n t s o f t h a t . ” H e w a s t a l k i n g a b o u t

g l o b a l t r a d e s t a t i s t i c s a t t h e t i m e , b u t t h a t

p r o c l a m a t i o n m i g h t h e l p e x p l a i n w h y C h i n e s e

c o m p a n i e s a r e i n c r e a s i n g l y s h o p p i n g f o r a n d

s u c c e s s f u l l y a c q u i r i n g s t o r i e d b r a n d s , m o s t r e c e n t l y ,

F o r d ’ s V o l v o . T h e l e s s o n : t h e b i g m o n e y i s i n o w n i n g

t h e b r a n d , n o t j u s t m a k i n g i t f o r f o r e i g n c o m p a n i e s ,

w r i t e s t h e A P ’ s W i l l i a m F o r e m a n .

Capac i t y (Equ i t y ) bu i ld ing as a Ch ina ’ s Nat iona l

Po l i c i e s i s a ba lance be tween Free Enterpr i ses

r i s ing Produc t i v i t y and Soc ia l and F i sca l Po l i c i e s

and In f ras t ruc ture

Equi t y , capac i t y and sus ta inab i l i t y   “ T h e c o n c e p t o f

e q u i t y i n t h e c o n t e x t o f c a p a c i t y b u i l d i n g i s n o t s h e e r

e t h i c a l . I t ” s   m i x e d w i t h c e r t a i n p r a c t i c a l s o c i a l a n d

e c o n o m i c m e a n i n g , t h e r e f o r e i n s e p a r a b l e f r o m

s u s t a i n a b i l i t y . E q u i t y h e r e c o n t a i n s   t h r e e f o l d s o f

m e a n i n g s : 1 ) e q u i t y b e t w e e n e x i s t i n g g e n e r a t i o n a n d

f u t u r e g e n e r a t i o n s ; 2 ) E q u i t y b e t w e e n d i f f e r e n t s o c i a l

m e m b e r s u n d e r t h e s a m e g e n e r a t i o n ; a n d 3 ) E q u i t y i n

r e s p o n s i b i l i t y a n d o b l i g a t i o n t h a t d i f f e r e n t s o c i a l

m e m b e r s o r g r o u p s h a v e t o a c h i e v e s u s t a i n a b l e

d e v e l o p m e n t . E q u i t y b e t w e e n g e n e r a t i o n s , t o

m u c h   e x t e n t , i s s u b j e c t t o e t h i c a l a r e a . T h e c u r r e n t

g e n e r a t i o n , i n m o r a l s e n s e , s h o u l d a v o i d “ e a t r i c e f r o m

a n c e s t o r s w h i l e b r e a k f u t u r e g e n e r a t i o n s ” p o t ” . T h e y

h a v e n o r i g h t t o o v e r c o n s u m e   a n d d a m a g e n a t u r a l

e n v i r o n m e n t a n d r e s o u r c e s t h a t t h e f u t u r e g e n e r a t i o n s

w i l l l i v e i n . T h i s p o i n t w a s m a d e   v e r y c l e a r i n t h e W o r l d

C o m m i t t e e o n E n v i r o n m e n t a n d D e v e l o p m e n t R e p o r t . I n

i t s d e f i n i t i o n o f s u s t a i n a b l e d e v e l o p m e n t , t h a t n o t t o

h a r m t h e f u t u r e g e n e r a t i o n s t o m e e t t h e n e e d o f t h e i r

o w n w a s e s t a b l i s h e d   a s a c o n d i t i o n . A l t h o u g h c a p a c i t y

b u i l d i n g o f t h e c u r r e n t g e n e r a t i o n i s h e l p f u l t o e q u i t y

b e t w e e n g e n e r a t i o n s , t h i s e q u i t y h o w e v e r i s n o t t h e

m o s t i m p o r t a n t p r o b l e m t o s o l v e i n t h e a r e a o f c a p a c i t y

b u i l d i n g . T h e e q u i t y b e t w e e n d i f f e r e n t s o c i a l m e m b e r s

u n d e r t h e s a m e g e n e r a t i o n i s c l o s e r r e l a t e d t o

s u s t a i n a b i l i t y . O n t h e o n e h a n d , f r o m t h e p e r s p e c t i v e o f

s o c i a l j u s t i c e , i t ” s   n e c e s s a r y t h a t t h e s o c i e t y t a k e s i n t o

c o n s i d e r a t i o n t h e p o o r ’ s i n t e r e s t s s o a s t o   r e d u c e   t h e

g a p b e t w e e n t h e r i c h a n d t h e p o o r . T h i s w a s

e m p h a s i z e d   i n t h e B r u n d l a n d   R e p o r t . T h a t i s , T h e b a s i c

n e e d s o f t h e p o o r i n t h e w o r l d s h o u l d b e   p u t a t t h e t o p

p r i o r i t y . O n t h e o t h e r h a n d , e q u i t y b e t w e e n d i f f e r e n t

s o c i a l m e m b e r s u n d e r t h e s a m e g e n e r a t i o n i s a l s o a

c o n d i t i o n t o s u s t a i n a b l e d e v e l o p m e n t . I t s e e m s t h a t

t h e r e i s n o t m u c h c o n n e c t i o n b e t w e e n e q u i t y a n d

s u s t a i n a b i l i t y , o r n o t s o d i r e c t . H o w e v e r b y s o m e

a n a l y s i s , c a n y o u f i n d t h a t d i f f e r e n t s o c i a l

m e m b e r s ” u n e q u a l l y   p o s s e s s i o n o f t h e r e s o u r c e s i s a n

i m p o r t a n t r e a s o n f o r d i f f i c u l t s u s t a i n a b l e

d e v e l o p m e n t . T h i s i s b e c a u s e t h a t e v e n t h o u g h t h e

s o c i e t y i n g e n e r a l i s r i c h i n r e s o u r c e s

a v e r a g e l y   s p e a k i n g , y e t t h e g a p i n t e r m o f r e s o u r c e s

p o s s e s s i o n w i l l f o r c e t h e s o c i a l m e m b e r s s h o r t o f

r e s o u r c e s t o o v e r u s e o r a b u s e t h e i r l i m i t e d r e s o u r c e s t o

m a k e a l i v i n g . S i n c e t h e e n v i r o n m e n t a l p r o b l e m s a r e

i n t e r r e l a t e d   a n d i n t e r e f f e c t e d , s o m e p a r t o f

u n s u s t a i n a b i l i t y   i n t h e s o c i e t y w i l l l i k e l y l e a d t o a n

o v e r a l l s u s t a i n a b i l i t y . T h e r e f o r e , e q u i t y i s a l s o a

c o n d i t i o n t o t h e s u s t a i n a b l e d e v e l o p m e n t p r o c e s s .

S u s t a i n a b l e e n v i r o n m e n t a n d e q u i t y o f s o c i a l

r e s p o n s i b i l i t y a n d o b l i g a t i o n h a v e b e e n a n i s s u e t h a t

d e v e l o p e d c o u n t r i e s a n d d e v e l o p i n g c o u n t r i e s k e e p

d e b a t i n g o n . W h o h a s p o l l u t e d t h e e n v i r o n m e n t ? W h o i s

m a k i n g t h e e n v i r o n m e n t   w o r s e a n d w o r s e ? T h i s i s a n

i s s u e o f r e s p o n s i b i l i t y a n d o b l i g a t i o n . E v e n t h o u g h

i t ” s   a n i s s u e o f e q u i t y b e t w e e n d i f f e r e n t s o c i a l m e m b e r s

o r g r o u p s u n d e r t h e s a m e g e n e r a t i o n , i n e s s e n c e , i t ” s   a

p r a c t i c a l i s s u e i n i n t e r n a t i o n a l p o l i t i c s a n d e c o n o m i c s .

H o w e v e r , e v e n i f e v e r y s o c i a l m e m b e r o r g r o u p i s

w i l l i n g t o a s s u m e t h e o b l i g a t i o n , d o e s h e h a v e t h e

c a p a c i t y t o r e a l i z e t h e c o m m i t m e n t ? T h e r e y o u f i n d t h a t

e q u i t y , c a p a c i t y a n d s u s t a i n a b i l i t y a r e c l o s e l y r e l a t e d

w i t h o n e a n d a n o t h e r . ”

Sta te Employment i s used  as a ba lance fo r h igher

wages in Non S ta te Employment ins tead o f used by

the Economics o f Cap i ta l i sm (mos t l y and on l y )

Employment Market Forces .

Ⅲ . T h e I n s t i t u t i o n a l T r a n s i t i o n U n d e r t h e D u a l L a b o r

M a r k e t F r o m o u r a n a l y s i s o f t h e f e a t u r e s o f e m p l o y m e n t

a b s o r p t i o n a n d w a g e d e t e r m i n a t i o n i n t h e t w o p a r a l l e l

u r b a n l a b o r m a r k e t s w e c a n m a k e t h e j u d g m e n t   t h a t t h e

l a b o r m a r k e t i n t h e n e w l y e s t a b l i s h e d s e c t o r

d e t e r m i n e d b y m a r k e t f o r c e s r e p r e s e n t t h e f u t u r e

d i r e c t i o n o f d e v e l o p m e n t . I n o t h e r w o r d s , t h e p r o c e s s o f

t r a n s f o r m a t i o n f r o m t h e S O E ” s   e m p l o y m e n t s y s t e m t o

N E S ” s i s t h e p r o c e s s o f t h e f o r m a t i o n o f   t h e l a b o r a n d

w a g e s y s t e m o f t h e m a r k e t e c o n o m y . H o w w i l l t h i s

s y s t e m t r a n s i t i o n t a k e p l a c e ? S i n c e t h e t w o s y s t e m s o f

l a b o r a n d w a g e i n t h e t w o k i n d s o f s e c t o r s d o m i n a t e

t h e i r r e s p e c t i v e l a b o r m a r k e t , t h e c o m p e t i t i o n f o r

l a b o r e r s b e t w e e n t h e s e t w o k i n d s o f e n t e r p r i s e s a n d

t h e r e f o r e   t h e e x p a n s i o n o f   o n e l a b o r m a r k e t a n d t h e

r e d u c e m e n t   o f a n o t h e r w i l l r e a l i z e t h e t r a n s i t i o n f r o m

o n e s y s t e m t o a n o t h e r . T h i s i s t h e f i r s t f o r m t h a t t h e

t r a n s i t i o n o f   e m p l o y m e n t s y s t e m w i l l t a k e . I n t h e

p r o c e s s o f e x p a n s i o n a n d r e d u c e m e n t s   o f t h e t w o l a b o r

m a r k e t s , c a u s e d b y t h e c o m p e t i t i o n b e t w e e n t h e t w o

k i n d s o f e n t e r p r i s e s , t h e t r a d i t i o n a l s y s t e m o f t h e s t a t e

s e c t o r w i l l r e s p o n d a c c o r d i n g l y , n a m e l y b y i n t r o d u c i n g

r e f o r m i n o r d e r t o   s u r v i v e i n t h e c o m p e t i t i o n a n d s h i f t

t o a m a r k e t e c o n o m y . I n t h i s w a y t h e s e c o n d f o r m o f

s y s t e m t r a n s i t i o n t a k e s p l a c e . F i r s t , w e w i l l l o o k i n t o

h o w t h e f i r s t s y s t e m t r a n s i t i o n t h a t i s c h a r a c t e r i z e d   b y

e m p l o y m e n t t r a n s f e r s b e t w e e n t h e t w o k i n d s o f

e n t e r p r i s e s o c c u r s a n d t h e f e a t u r e s o f i t s

t r a n s f o r m a t i o n . I f w e s u p p o s e t h e u r b a n l a b o r m a r k e t i s

c l o s e d   o f f f o r o u t s i d e r s , l a b o r e r s a r e d i s t r i b u t e d   m e r e l y

b e t w e e n t h e S O E s   a n d N E S s . C h a r t 1 i n d i c a t e s t h e

c o m p e t i t i v e r e l a t i o n s b e t w e e n t h e s e t w o s e c t o r s a s w e l l

a s t h e p r o c e s s o f e x p a n s i o n a n d r e d u c e m e n t   o f t h e t w o

l a b o r m a r k e t s . T h e h o r i z o n t a l a x i s s t a n d s f o r t h e l a b o r

v o l u m e . F r o m O 1   t o t h e r i g h t , t h e l a b o r v o l u m e o f t h e

S O E s   c a n b e   m e a s u r e d ; f r o m O 2 t o t h e l e f t t h a t o f t h e

N E S s c a n b e   m e a s u r e d . T h e d o m a i n b e t w e e n O 1   a n d

O 2 s t a n d s   f o r t o t a l s u p p l y o f l a b o r . T h e v e r t i c a l a x i s

s t a n d s f o r t h e m a r g i n a l p r o d u c t i v i t y o f l a b o r s o r t h e

w a g e l e v e l . T h e c u r v e t i l t i n g d o w n w a r d s f r o m t h e r i g h t

t o t h e l e f t i s t h e c u r v e o f m a r g i n a l p r o d u c t i v i t y o f

l a b o r s i n t h e N E S s . I t t i l t s b e c a u s e t h e i r m a r g i n a l

p r o d u c t i v i t y o f l a b o r s d e c r e a s e s w i t h t h e i n c r e a s e o f

t h e e m p l o y e d l a b o r ” s   s i z e . A t t h e s a m e t i m e , t h e

m a r g i n a l p r o d u c t i v i t y o f l a b o r s i n t h e S O E s   i n c r e a s e s

w i t h t h e n u m b e r o f w o r k e r s l e a v i n g t h e i r

e n t e r p r i s e s . T h u s , t h e c u r v e t i l t i n g d o w n w a r d s f r o m t h e

l e f t t o t h e r i g h t i s t h e c u r v e o f m a r g i n a l p r o d u c t i v i t y o f

l a b o r s i n t h e S O E s . T h e c u r v e t h a t i s s t e e p e r , i s t h e

c u r v e o f m a r g i n a l p r o d u c t i v i t y o f l a b o r s i n t h e

S O E s   u n d e r t h e a s s u m p t i o n t h a t t h e i r w a g e l e v e l i s

d e t e r m i n e d b y t h e   m a r k e t ( s e e n a m e i n q u o t a t i o n

m a r k s ) . I n t h i s s i t u a t i o n , t h i s c u r v e i n t e r s e c t s a t t h e

p o i n t A w i t h t h e c u r v e o f t h e m a r g i n a l p r o d u c t i v i t y o f

l a b o r s o f N E S s d u r i n g t h e i r e m p l o y e d l a b o r v o l u m e

e x p a n s i o n . T h i s m e a n s t h e w a g e l e v e l o f t h e t w o k i n d s

o f e n t e r p r i s e s a r e e q u a l t o t h e p o i n t W a , a n d t h e

e x p a n s i o n o f   l a b o r s ” v o l u m e   i n N E S s n o l o n g e r

c o n t i n u e s . T h e n t h e l a b o r ” s   v o l u m e i n t h e S O E s   i s

O 1 A   w h i l e t h a t o f N E S s i s A O 2 . S i n c e t h e S O E s   a r e

o v e r s t a f f e d   a n d w a g e i s n o t d e t e r m i n e d b y t h e m a r g i n a l

p r o d u c t i v i t y o f l a b o r s , h o w e v e r , t h e i r c u r v e o f m a r g i n a l

p r o d u c t i v i t y s h o u l d b e   m o r e f l a t ( m i g h t b e a h o r i z o n t a l

b e e l i n e w i t h o u t e l a s t i c i t y ) , i . e . t h e c u r v e w h o s e n a m e

i s w i t h o u t q u o t a t i o n m a r k s t h a t i n t e r s e c t s a t t h e p o i n t

B w i t h t h e c u r v e o f t h e m a r g i n a l p r o d u c t i v i t y o f l a b o r s

i n t h e N E S s . I t i s a t t h i s p o i n t t h a t N E S s s t o p

e x p a n d i n g t h e i r l a b o r v o l u m e , h e r e t h e w a g e r a t e i s W b .

A s t h e w a g e i s d e t e r m i n e d i n s t i t u t i o n a l l y N E S s n e e d t o

p a y h i g h e r w a g e t o a t t r a c t l a b o r e r s ; a n d t h e

t r a n s f o r m a t i o n o f   t h e l a b o r e r s f r o m t h e S O E s   t o N E S s

b e c o m e s s m a l l e r . I n t h e r e a l l a b o r e r ” s   d i s t r i b u t i o n , t h e

l a b o r e r ” s   v o l u m e e m p l o y e d b y t h e S O E s   i s O 1 B   i n s t e a d

o f O 1 A , t h a t f o r n e w l y e s t a b l i s h e d e n t e r p r i s e s i s

B O 2   i n s t e a d o f A O 2 . S o t h e N E S s a r e l i m i t e d   b y t h e i r

a b i l i t y t o p a y h i g h e r w a g e , t h e d i f f e r e n c e b e t w e e n l a b o r

v o l u m e t h e y r e a l l y e m p l o y   a n d t h a t t h e y s h o u l d

e m p l o y   i s i n d i c a t e d b y t h e   d i s t a n c e b e t w e e n A a n d B i n

t h e c h a r t . C h a r t 1 L a b o r T r a n s f e r s b e t w e e n T w o S e c t o r s

O u r t h e o r e t i c a l a n a l y s i s r e f l e c t   t h e r e a l i t y

o f   t r a n s f o r m a t i o n o f l a b o r e r s b e t w e e n t h e t w o s e c t o r s .

O n e c h a r a c t e r i s t i c o f N E S s i s v e r y l a b o r i n t e n s e . I t i s

n o t f e a s i b l e   f o r N E S s t o p a y v e r y h i g h w a g e t o a t t r a c t

e m p l o y e e s f r o m S O E s   i f N E S s a r e t o k e e p t h e i r

a d v a n t a g e i n l a b o r e r ” s   r e s o u r c e . S o c o m p e t i t i o n o f

e m p l o y m e n t i s l i m i t e d b y t h e   s c o p e o f t h e i r a b i l i t y t o

p a y h i g h w a g e s . W i t h i n t h i s s c o p e , h o w e v e r , N E S s c a n

c e r t a i n l y a t t r a c t r e l a t i v e l y h i g h q u a l i f i e d w o r k e r s t o

f o r m t h e b a c k b o n e o f t h e i r e n t e r p r i s e s w i t h o u t t a k i n g

c o s t i n t o a c c o u n t . A s i t i s n o t p o s s i b l e f o r t h e N E S s t o

o b t a i n   a l l t h e l a b o r e r s t h e y n e e d f r o m t h e s t a t e s e c t o r

i t i s n e c e s s a r y t o h a v e o t h e r c h a n n e l s t o f i n d l a b o r . I f

N E S s h a d n o t h a v e o t h e r s u c h c h a n n e l s , t h i s s e c t o r

w o u l d n o t h a v e b e e n a b l e t o d e v e l o p t o t h e p r e s e n t

s t a g e . O u r a n a l y s i s a b o v e w a s m a d e   u n d e r t h e

a s s u m p t i o n t h a t t h e u r b a n l a b o r m a r k e t w a s c l o s e d   o f f

f o r o u t s i d e r s , i n o u r f u r t h e r a n a l y s i s w e w i l l g i v e u p

t h i s a s s u m p t i o n . N E S s o b t a i n h i g h l y q u a l i f i e d w o r k e r s

f r o m t h e S O E s b y p a y i n g h i g h e r w a g e i n o r d e r t o   s a t i s f y

t h e i r n e e d s f o r t e c h n o l o g y . T h e o t h e r s o u r c e i s l a b o r e r s

w i t h c o m m o n s k i l l s f r o m t h e r u r a l a r e a s .

China has d i scovered tha t g loba l i za t ion and

in te rna t iona l compet i t i on work in i t s f avour .

Grea t expor ta t ions “Ch ina over takes Germany

t o become the b igges t expor te r o f a l l ”   “ C H I N A ’ S

r i s e h a s l o n g a p p e a r e d i n e x o r a b l e . D e s p i t e a d e c l i n e

i n t o t a l w o r l d t r a d e , C h i n a h a s s e e n i t s e x p o r t s f a l l

l e s s t h a n t h o s e o f o t h e r b i g p o w e r s . A n e w r e p o r t b y

t h e W o r l d T r a d e O r g a n i s a t i o n c a l c u l a t e s t h a t t h e t o t a l

v a l u e o f m e r c h a n d i s e e x p o r t s f e l l b y a s t a g g e r i n g 2 3 %

i n 2 0 0 9 . A m o n g t h e t o p t e n e x p o r t e r s , J a p a n ’ s

s h i p m e n t s w e r e w o r s t a f f e c t e d ( f a l l i n g b y 2 6 % ) .

A l t h o u g h C h i n a ’ s e x p o r t s a l s o f e l l ( b y 1 6 % ) , t h e

c o n t r a c t i o n w a s l e s s p a i n f u l t h a n i n G e r m a n y ( d o w n

b y 2 2 % ) . A s a r e s u l t C h i n a i s n o w t h e s i n g l e l a r g e s t

e x p o r t e r . T h e g l o b a l d o w n t u r n h a s h e l p e d t o r e d u c e

g l o b a l i m b a l a n c e s ; t h e l e a d i n g t h r e e e x p o r t e r s

a c c o u n t e d f o r 2 6 . 7 % o f t o t a l w o r l d e x p o r t s i n 2 0 0 9

d o w n f r o m a t h i r d o f t h e t o t a l i n 2 0 0 8 . T h e

W T O   e x p e c t s t r a d e t o r e b o u n d b y n e a r l y 1 0 % t h i s

y e a r . ”

The Rea l Reason Ch ina Res i s t s on the RMB “ A s I

s e e i t , C h i n a i s a s k i n g a q u e s t i o n t o w h i c h t h e r e i s n o

e a s y a n s w e r ; w h a t r i g h t d o e s t h e U S h a v e t o l e c t u r e

a n y o n e o n e c o n o m i c m a t t e r s n o w , h a v i n g p l a y e d s o

l a r g e a p a r t i n c a u s i n g t h e c u r r e n t g l o b a l r e c e s s i o n

t h r o u g h l o o s e m o n e t a r y p o l i c y , p o o r r i s k m a n a g e m e n t

b y s o m e o f o u r m o s t p r e s t i g i o u s c o m p a n i e s a n d

m o n u m e n t a l r e g u l a t o r y f a i l u r e s ? T h e y a r e r e s p o n d i n g

t o t h e c o n t i n u e d U S b e l i e f i n A m e r i c a n

e x c e p t i o n a l i s m , t h a t w e c a n d o w h a t e v e r w e d o , r i g h t

o r w r o n g , a n d i g n o r e t h e c r i t i c i s m s a n d d e m a n d s o f

o t h e r c o u n t r i e s w h o o f t e n b e a r t h e c o n s e q u e n c e s o f

o u r a c t i o n s , w h i l e w e c o n t i n u e t o i n s i s t o n o u r r i g h t

t o c r i t i c i z e a n d m a k e d e m a n d s o n t h e m . A s B r a d

D e l o n g a n d S t e p h e n C o h e n h a v e p o i n t e d o u t , t h e U S

s i m p l y n o l o n g e r h a s t h e e c o n o m i c c l o u t t o g e t a w a y

w i t h t h i s a n y l o n g e r , a n d w h o b e t t e r t h a n C h i n a t o

s t a n d u p t o i t ?

The prob lem o f the Res t o f the Wor ld i s the

ideo log ica l a lmos t b l ind fo l l ow ing o f Marx ’ s ’ “Das

Kap i ta l ” f inanc ia l s y s tem cont ro l l ed by the ru les o f

“ t r i ck le -down” Cap i ta l i sm tha t happen to be  qu i te

imprac t i ca l even when th i s s y s tem bu i l t Nor th

Amer icas , Grea t Br i ta in , F rance and Germany : Grea t

Powers env ied by anyone in the Wor ld , however

l ook ing in H i s tory th ings somet ime have to change ;

i t happened to Rome , Pers ia , V i c tor ian Empi res ,

and e tc . , thus change cou ld be cons idered as

ongo ing now a f fec t ing d i f f e rent count r i es and

markets in d i f f e rent ways , bu t the t rend i s qu i te

s imi la r ( In the Wor ld shor t t e rm  h i s tory : once

mos t l y agr i cu l tura l l y d r i ven GDP changed in to

mos t l y indus t r i a l p roduc t ion dr i ven GDP , now i t i s

about to change in to mos t l y “a r t i f i c i a l l y ” ba lanced

“Demand- to -Supp ly” Market Economics GDP not the

ideo log ica l one fo l l owed as a mantra by the wes t ,

however i f g loba l economy does no t adapt to the

new upcoming w i th the g loba l i za t ion cha l l enges

very hur t fu l consequences may occur ) .

Joshua Konov 2010