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Aug 10, 2010
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Shanghai: A Cacophony of People

Shanghai: A Cacophony of People (Update)

Update: For another perspective on tech employment in the United States and China, see Andy Grove’s recent article in Bloomberg Businessweek.

Original Post: An experienced traveler knows that the reality on the ground often fails to match expectations based on second-hand knowledge from books and newspapers. Further, perceptions of a specific locale or event can be colored by jet lag, hunger, traveling companions, and weather, to name only a few. Consequently, even first-hand reports can disappoint or even be a source of irritation to other experienced travelers who arrived in a different frame of mind. With that said, I recently had the opportunity to see China in the up-close way that one can as a tourist. I came away with a new appreciation of what has been variously described in the press as a threatening competitor, a waking giant, a polluting behemoth, a producer of cheap and unreliable goods, and so forth.

What emerged for me was that China is a place of constant, nearly inchoate growth that is engaged in a frenzied, yet optimistic, sprint to the future. To me, China is a truly awe-inspiring reflection of what it must have been like in New York City at the beginning of the 20th Century.

Walking through Shanghai, I was struck by the crowds, nearly all people in their 20s and 30s, hurrying in a thousand different directions. Most seemed to smile, most were in a group of friends. Neighborhoods go from affluent to poor, sometimes within a very short distance. Everywhere the 80/20 rule seems to be rigorously followed. Careful attention is paid to the 80% that gives the most value; little attention is paid to the remaining 20%. So a beautiful modern hotel has a poorly functioning phone system, and a Maglev train capable of 430 km per hour has a station with a single escalator for an exit. There is always something to suggest that the person who planned the process got distracted as the project came to a close and had to move on to the next big thing. I’m not just complaining about minor annoyances. Because the problem is you can never tell what part of a project will fall into the overlooked 20%. It could be a minor annoyance if it is a malfunctioning phone, but a major problem if it’s an adulterated product.

Nonetheless, the Chinese have a lot to do and a large population waiting for their turn to work their way out of poverty. They won’t be denied and, anyway, who are we to stop them? Just meeting their own peoples’ basic needs for goods and services will result in an economy larger than our own. Who can complain if we choose to import the surplus from this engine driven by cheap, enthusiastic labor?

Many foreign companies have begun to invest in China, bringing in capital and expertise to build a skilled labor pool. The Chinese workforce is starting out from a lower base of education and experience than the workforce in Western countries. Therefore, this labor is capable of producing goods and services more cheaply than is possible in Western countries. During my visit, I heard from several business leaders about the patience that is required as the workforce comes up to speed. And therein lies the core lesson for American companies and labor that I took away from my visit. The reason labor is cheaper at present is because the core workforce is drawn primarily from a relatively unskilled population (notwithstanding the growing number of US-trained scientists returning to China). We can expect these salaries to increase rapidly over the next few years—Shanghai for the middle-class is not cheap.

Consequently, the productivity in the emerging industries is much less than in the United States. Even if Chinese productivity doubles in 3 to 5 years, it is unlikely to match Western productivity, especially for more technically sophisticated activities of scientific synthesis and innovation.

So our competitive advantage is derived from the fact that we start from a much higher level of productivity. But are we as a country prepared to do what it will take to improve our productivity year over year? If we do that and continue to do it, we could retain our preeminence in science, technology, and innovation?along with our standard of living. I came away from this trip convinced that our future as the world’s leader in science and technology innovation is in our own hands.

We cannot expect anything less from the people of other countries than a fierce desire to achieve a higher standard of living. The world may be flat, but whether we choose to compete or not lies in our desire for the future that arises within our own national or industrial boundaries.

Chemical & Engineering News recently reported that 21,000 jobs were cut by US drug companies in 2008, many of them in R&D. However, one drug company executive stated that the global pharmaceutical and biotech industry spent nearly $100 billion in R&D last year, of which, at most, $500 million went to China. The loss of R&D jobs in the US was not caused by sending jobs overseas. These jobs were lost because management believed that the required level of value was missing and that continued funding for these positions was not warranted. Expect this to happen more, but don’t blame the Chinese.

So from my perspective as a traveler and entrepreneur, the only course of action is to look in the mirror every day and ask the very hard question, “How can I become more valuable to my employer so that I keep my job and make more money?” The hardest part? Asking that question with the same intensity as Chinese laborers do—workers who know that they won’t eat if they don’t find a good answer.

If that knocked your socks off, be sure to read our next blog entry: Kinda like standing in front of a development team, huh?  If you want to peruse our previous posts, visit the Knocked My Socks Off archive. (links to another blog site)

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