Good to hear from you again, Shane M.
I’d say that your points 1 - 4 are spot on. There may be additional factors involved, but those 4 would certainly be among them.
IMO, China is probably playing the largest part in current world events. They seem to have become one of the major centres for ‘global manufacturing’. But to do that they’ve had to procure sources of resources. In that regard I’d say that they’re a step ahead of the west, especially the US.
And one of China’s major targets has been resource rich Africa. They appear to have adopted a policy of building/providing much needed infrastructure in exchange for medium to long term supply of resources such as oil and a variety of minerals. I guess one could regard that as a form of barter. If that was the case it may have left the commercial bankers and financial ‘middle men’ gnashing their teeth and frustrated!
Anyway, there have, IMO, been several spinoffs from this policy.
The Chinese have obtained a major influence and presence in several African regions. It has become very difficult to compete against them.
As an example, about 10 years ago I was involved in the successful negotiation of a harbour design and construction project in Luanda, Angola, which we subsequently successfully completed.
About 6 years later the same Luanda authority put out a design and construct tender for a 600m extension to the quay wall that we had previously constructed. We bid for the project and the independent Consulting Engineers, appointed by Luanda, to oversee and adjudicate the tender, recommended to their Client that we be awarded the contract. What happened next ? The recommendation of the Consultants was ignored and a Chinese contractor was awarded the contract.
But more pertinent to your ‘concerns’ is the fact that many US corporations have moved the manufacturing of their products to China. No doubt because they can obtain the required end result cheaper there than back home. From a business perspective that probably makes sense because it does reduce the “Cost of Sales” and thereby improve the bottom line.
However, I’d say that there’s also a negative spinoff in this regard. Because that has deprived US workers, in certain sectors, of those jobs they once had making the stuff that’s now made in China. And fewer people working means less tax for the government. And fewer people working also means more unemployment demands from the government who, in turn, are getting less tax to pay for such demands. So this results in one of those cases where the government has to borrow more to meet such a demand, which means they have to issue more bonds. And who is buying up most of those bonds and thereby lending the US money .... believe it or not, it’s those Chinese again.
Of course, a simple answer to the problem would be to ‘force’ the US to make more at home by imposing tariffs, restrictions, etc.. etc.. But, in the world of free enterprise I doubt that will work.
Maybe the US workers must be prepared to work longer, possibly work ‘smarter’, for slightly less than they were getting previously, in order to become more competitive with their far eastern counterparts. That may not sound very attractive, but it could mean greater job security going forward. And when one feels more secure in one’s employment it could mean a greater tendency to spend more. That, plus more people working, should increase tax revenues for the government and reduce the need to borrow.
There’s no doubt that the average Chinese worker is very industrious, hard working and is prepared to work very long hours for more days in the week than the average western worker. In fact I’d say that there are probably quite a few sectors in the Chinese economy that take advantage of the abilities of their work force and exceed what the west may regard as “fair labour practices”. I’d say that there needs to be more of a concerted effort by the west to support better working conditions and pay for those Chinese workers that may be exploited. It shouldn’t, IMO, just be about the “bottom line”.
You also mentioned “corporate balance sheets doing better than we appreciate”.
Well, I guess it depends on what part of the balance sheet one is targeting.
For me the Balance Sheet is largely reflected in the equation ...
Share Cap.+Retained Earnings + L.T.Debt + Deferred Tax = Fixed Assets +Current Assets-Current Liab.
Without changing values, we can re-arrange that to ...
Share Cap.+Retained Earnings = Fixed Assets +Current Assets-Current Liab.-L.T.Debt- Deferred Tax
So if the Share Capital remains constant then one of the major variables and influencing factors is “Retained Earnings” which, as we know, comes from the final Net Income on the Income Statement.
Therefore I’m more inclined to scrutinize the Income Statement and look for “markers” and factors within it that indicate a company’s ability to be more ‘efficient’ and profitable on an ongoing basis, seeing as that will also reflect in its Balance Sheet.
So, IMO, if we take that to another level a country also needs to increase its top line Revenue (e.g. GDP), decrease its Cost of Sales (e.g. cost of local resources), decrease its SG&A (e.g. cost of running government), increase its “Interest Income” (e.g. return on investments), decrease its “Interest Expense” (e.g. cost and size of its debt), etc.., in order to ensure the maximum amount of its Top Line reaches the Bottom Line.
That should push up its Net Income (e.g. Reserves) and make more available for improvement of infrastructure, contribution to social needs and medical care, etc.. etc...
It seems to me that, at the present time, many countries in the west are adopting policies and practices that don’t seem to encourage improvements in their “Income Statements”.
But that’s just my 10c worth ...... |
