Transcript Telecom regulation: An introduction

In China’s Shadow
How Americans Can
Respond to Asian
Competition
Reed Hundt
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The challenge …
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China: The world’s manufacturer
•Largest exporter of apparel
•In 2006 China will manufacture 400 million
mobile handsets (more than 60% increase
from 2005)
•China is the Number 1 producer of pork
•Global center of consumer electronics and
telecom equipment
•China is producing three times as much as
it did 10 years ago; losing manufacturing
jobs as it increases manufacturing
productivity
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China the technology innovator
•Mobile Internet (China Mobile, Tom Online,
Super Girl)
•Online gaming (Netease)
•Comprehensive messaging (Tencent)
•Clicks plus bricks (Ctrip)
•Bridging old media and new media (Hunan
Satellite TV)
•3G (TD-SCDMA) (Datang, ZTE, TD Tech, Putian)
•IPTV (UTStarcom, ZTE)
•PC monitor manufacturing (TPV)
Source: Morgan Stanley Research
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China the information society
•No. 1 in mobile users
•No. 1 in Internet users under the
age of 30 (70% of Chinese
Internet users under the age of
30)
•Urban areas have 5x more
Internet users than rural areas
•60% of them are the only
children of family
•30% of Chinese Internet users
have college degrees
Source: CNNIC; World Bank; Morgan Stanley Research
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China the consumer market
Size
•Internet users:
111 m
18%
•Broadband users:
64.3 m
50%
•Mobile users:
393 m
17%
•Mobile services:
$963 m
24%
•Online gaming:
$570 m
46%
$281 m
28%
•Online brand
advertising:
Source: CNNIC; Morgan Stanley Research
Annual
growth
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China the urban consumer market
Urban Chinese consumers will
grow from 42% of the total
population today to more than
69% by 2025
Source: McKinsey Global Institute
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China the hotbed of firm creation
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Firms out of China will compete like Japan in 80s
But China does not need:
--- to place manufacturing facilities in the United States
--or maintain security protection from the United States
--or export into the United States to obtain access to a large
market for economies of scale
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Chinese firms
--Will obtain economies of scale in China
--Compete vigorously in Chinese growth
markets to become strong
--And challenge American firms for global
leadership
--China is more important as a source of firm
rivalry than worker competition
China: 12 million firms, vs.
America: 6 million firms
but 1/10th of 1% are the big
winners in each
country…they generate a
third of national income
Employers (firms with payroll) – 5,541,918
Employment size
Firms
Employment
Employer firms
covered in Statistics of
U.S. Business
5,657,774
115,061,184
2,500 employees or
more
3,634
43,877,243
Source: U.S. Census Bureau
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World Trade: A contact sport
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Every American firm in trade will have one or
many competitors from China
The CD from Chinese carmaker Geely
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Advantages for Chinese firms
•High skills
•Low wages
•Favorable currency for export
•Access to savings
•Huge foreign investment
•Vigorous local competition
•Ineffective regulation
•Few barriers to starting firms
•Wide open markets
•No litigation
•Little taxation
•Culture of entrepreneurship
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China produces about
350,000 engineers with
a bachelor’s degree
per year, while the
United States annually
produces 135,000
Source: Duke University “Framing the Engineering Outsourcing Debate”
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Increasingly
competitive: 2.25
million more
companies in China
will buy a PC in next
two years
Source: Intel
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The cost advantage
Average hourly
compensation for the
overall Chinese
manufacturing sector in
2002 was $0.57 –
compared to U.S. hourly
pay rate of $21.40 that
same year
Source: Morgan Stanley
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China’s state-owned
enterprise sector has
reduced headcount by
over 60 million workers
since 1997, creating an
enormous pool of
unemployed workers
that are seeking gainful
re-employment in
China’s new economy
Source: Morgan Stanley
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Foreign investment produced nearly
90% of China’s high-tech exports in
2005
Source: Wall Street Journal
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Back in the USA…
While American firms investing abroad, they are
investing less in their homeland
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If firms don’t invest in America, they may invest
in job creation in other countries
“In the United States, nonresidential fixed investment as a
percentage of GDP fell to 11.56% in 2005 from 12.55% in
2000”
Source: New York Times
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For 50 years, Americans have
made 20% of the world’s goods
While numbering only 5% of the
world’s workforce
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As a result, as the world economy grew
Americans created and captured more wealth
Employees make more money only if their firms win in domestic
and global competition
You can’t earn a rising income at a falling firm
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The more you make
The more you take
The 5:20 slice of a bigger pie
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American per capita GDP has soared for nearly
200 years
1990 international dollars
30,000
United States
25,000
20,000
15,000
10,000
5,000
0
1500
Source: Maddison (2001)
China
1600
1700
1800
1900
2000
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Americans did especially well in the 90’s:
Between the beginning of 1995 and the
semi-official NBER business cycle peak in
March 2001, U.S. real GDP grew at a
pace of 4.21% per year
Source: Brad DeLong
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Those were golden
years
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At the end of the Golden 90’s American
growth peaked: from 1998 to 2003
United States provided 98% of global
economic growth
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And so what if the 21st
century belonged to
China?
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China’s growth need not be America’s loss …
•Rising tide lifts all boats
•Bigger pie means more can eat at same table
•More money in China means more sales to
Chinese
•More competition means more productivity
•More productivity means more wealth
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Yet nations can lose for centuries
China came up with many inventions
before Europe: Power-driving spinning,
wheelbarrow, stirrup, rigid horse collar,
compass, paper, printing, gunpowder
But “Chinese technology stopped
progressing”
(David Landes)
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Qianlong Emperor, 1793
"We have never valued ingenious articles, nor do we
have the slightest need of your country's manufactures."
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What to do?
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If Americans retain their 20% share of the
world’s production China’s growth makes
Americans better off
But if Americans’ share of global product
drops fast enough Americans will earn
less even if the global economy grows
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Americans should
Aim to keep
keep the 5:20 proportion going
for another 50 years
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The citizens of any country need to work at firms
that win in global markets
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Americans will be better off if the firms
they work for win in 6 or 7 out of every 10
global markets
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For American workers to earn more
Americans need American firms to win big in global markets
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Americans want existing American firms to
invest overseas, but
they also need new firms to create new
jobs and new markets at home
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The big winners have to come from
competition …
America needs existing firms to face competitive
challenge
America needs open markets in all goods and
services
Open to homegrown competition as well as
Chinese competition
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“Innovation in Schumpeter’s
famous phrase is also ‘creative
destruction’. It makes obsolete
yesterday’s capital equipment
and capital investment.”
Source: Peter Drucker
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“Long-run growth requires…creative
destruction, in which new corporate
giants continually rise up to overthrow old
leviathans.”
Source: Fogel, Morck, Yeung
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“Economies with less persistently
dominant large businesses grow faster
…This reflects faster productivity
growth…the waning of large old
private sector businesses drives the
result.”
Source: Fogel, Morck, Yeung
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Americans need to work
in global winners that are
about to be born
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In the U.S., 10% of firms
are born and 10% die
every year
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In the 90s, births > deaths by 1-2% ...
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…and not surprisingly
Before the Golden 90s and
the Distraught 00s
The death rate exceeded the birth rate
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A positive birth rate is a measure of healthy
entrepreneurship
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Where do new firms
come from?
Open markets, new markets, new
technology
Antitrust, finance, research and
development
A new economic strategy for the nation:
don’t pick winning firms, do open new
markets
To increase new firm
creation and
success, make the
architecture of law
open old markets to
new entrants
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Write a 21st century antitrust law
•We need an antitrust law for increasing returns with increasing
scale instead of a 19th century law for declining returns to scale
•Reward winners in competition, tolerating high market share,
where there is:
- Divided technical leadership,
- Epochal (10x) change,
- Adjacent market entry
•Where necessary, open closed markets by force of law
(share essential facilities among rivals)
•Deregulate retail pricing; don’t regulate quality of service
•Regulate environmental, labor and energy use much more
than economic arrangements
Source: Tim Bresnahan
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Best example: Open vertically and
horizontally consolidated markets in
energy generation and distribution
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Create many new firms
Just as Americans started a 100,000 new firms in information
technology in the 90s, we need to start a 100,000 new firms in
generation and distribution of energy
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People start firms, so help
each person be an
entrepreneur:
•Portable pension plans
•Guaranteed health care
•Free college education
•Individual savings accounts
•Wage insurance
•Power to get and send all
information and all points of
view all the time anywhere
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Make public goods…
…not a safety net, but a trampoline, so
that every American bounces as high as
they can from job to job
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Employer-to-employer mobility
rates are 40% higher in Silicon
Valley than the U.S. average
Source:The New York Times
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Education: no two are alike
Instead of teaching every child to a common test
Test every child for uncommon talents
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Make the technology choices that encourage
start-up’s and entrepreneurship
Open systems
Open software
Limited intellectual property rights
Expanded individual liberty rights
Collaborative production
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China’s growth suggests that the
whole world can live the American
Dream
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The future of the American Dream
That every generation will
Be better off than the previous
generation
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But even if China did not exist
Americans would be better off
with a culture of entrepreneurship
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But because Chinese
competition is
coming…there’s not a
moment to lose
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For Americans the future could be lived…
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Or, Americans can live the American
Dream forever
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Or let it die like a dream dies at
the opening of the day
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