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On China: Get Rich Before Your Job Is Automated

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ERIC SCHMIDT GREAT HALL
Eric Schmidt texting in the Great Hall of the People, Beijing | The World Post

Eric Schmidt, Executive Chairman of Google Inc. .

We should give the leadership in China the benefit of the doubt that they will be able to continue growth for much of the next decade. We have to assume, in this version of the future, that they can rein in the state-owned enterprises, stop the rampant corruption, especially from the "princelings," fix the water and pollution issues in a manner similar to what the U.S. did, and adopt new tax systems that are more redistributive -- as they say "socialist."

We must also assume they are sincere when they say that they are focused on their own internal issues, and will refrain from seeking hegemony.

The Internet in China is expanding so rapidly it will be determinative in a wide range of issues. There are more than 600 million mobile phone users and about 400 million smartphones to be sold next year (97 percent of them Android!).

The news in China is really now about Weibo (their combination of Twitter and Facebook) and Wechat (their version of Whatsapp/BBM/Instagram). Each is having phenomenal growth and, even with censorship, will shape the government from the standpoint of local feedback, complaints, environmental demonstrations and future political crises.

Since the Internet and its new companies have the habit of showing up in the middle of the carefully planned five year cycles of China, how will the leadership react as, for example, a broad new idea sweeps the population on the Internet and they can't delete or suppress a new impulse for change or justice?

Looking forward beyond 10 years, the picture gets much much worse. The forces of demographics, globalization and automation, which have so favored China up to now, will probably turn against its current plans.

The demographics of China will begin to look like those of Korea and Japan. Globalization means that higher wages in China wil cause the next shift of industry to other lower wage countries like Indonesia and the Philippines. Automation, in particular robotics, will make the high volume low cost manufacturing systems much more efficient and result in fewer employees, just as has happened in the West (It's called the "hollowing out of the middle class.")

Japan now has an energetic, nationalist leader who may be capable of sorely needed reforms after two lost decades and serious deflation. To see the future of China, look at Japan, where the political system is hard to change and the aging population is just happy enough to continue the policies from the past, and economic growth is limited by their terrible demographic issues. Another future for China might be Korea, where growth suddenly stopped and long-seated internal frustrations are now on the public agenda. Both Japan and Korea avoided the middle-income trap, but China may not have enough growth years ahead, or may have to change its approach radically again.

So perhaps the urgency you feel in China is right. The old saying that in China the race is to get rich before the country gets old can be extended: In China, the race is to get rich before your job is automated.

When China hits the wall (which is growth of three percent or less), many of the deep-seated issues suppressed in this leadership's view of the world will come to the fore. All of her leaders emphasize the logic of growth and the need to avoid the middle-income trap. When that growth stops, the strength and toughness so appealing now internally will come into question.

Freedom of expression, an open Internet, and inclusiveness are probably the only way to address these future problems. Technology, free speech, and the Internet can really build a modern country of ideas, research, innovation and prosperity. As they set their goals to avoid the middle income trap, I'm sure China's leaders will have to adopt more modern rules for currency, for their legal system and especially for learning, the Internet and free speech.

Let's hope they figure this out in time.