China's move up the value chain will benefit us all?

chinaflag.gif Not too long ago I wrote about the new face of the Chinese supply side and how the competitiveness of the Chinese manufacturing industry was declining due to a tightening supply side and how prices and wage as consequence are was going up. Dijana from Not a Green Dragon also has the story.

Yesterday's editorial (walled for non-subscribers) in the NYT (hat tip to the Development Bank Research Bulletin) see this as the inevitable move up the value chain for China and compares it with the inevitable and painful move all industrialized countries have taken.

"(...) a textbook case of how the global economy has developed. During the last 100 years of industrialization, low-paying manufacturing jobs, primarily in the textile and apparel industries, have been the first rung on the ladder to development. America, Britain and other rich countries all went through an inevitable — but painful — process as their economies grew."

The articles main point seems to be that when China slowly but surely moves up the value chain towards higher value added activities then the lower value added activities will move elsewhere benefiting societies which currently have very little or no value added activities.

"The better off China is, the better off the rest of the world is — poor countries because they will get a shot at the jobs that leave China; rich countries because many more people over in China may finally be able to afford the expensive goods that are made in America."

Let us scrutinize this last bit a little.

I have one central objection with this narrative and it is the blind faith in the positive-sum outlook for growth in the world economy. Why do we assume that the rise of huge economic prences such as India and China will occur in an automated fashion simply pushing up potential output for the global economy? What about scale and sustainability? I don't think we need to throw away the convictions of free trade but we must at least consider the possibility that there actually is a  threshold for potential output in the global economy. My point should not be seen as a wish to hinder emerging economies' growth; I want them to be all they can be and I agree with the NYT in as so far as China's gradual relinquising of manufacturing will benefit other countries. However, it is the second part of the argument I am challenging with all my talk about scale and sustainability.