intrust

At the time of this writing China is the world powerhouse in manufacturing. China, according to an Economist global survey, is currently producing two-thirds of the worlds photocopiers, microwave ovens, DVD players and shoes, over half of all digital cameras and around two-fifths of personal computers. It seems almost irrelevant to speak of the importance of social capital and transaction costs in the face of this massive profusion of exported goods, fuelled by an abundance of cheap labour, and in the opinion of some economists, an artificially low exchange rate.

By some estimates, there are almost 200m underemployed workers in rural areas that could move into industry. This surplus labour may take at least two decades to absorb, helping to hold down wages for low-skilled workers (who currently earn less than 50 cents an hour)Economist

It would seem as if cheap labour is the ultimate competitive weapon in trade between regions that still maintain labour market disequilibrium. Yet this is a misleading simplification. Cheap labour is abundant in many parts of the world which come nowhere near to matching China’s performance since the current period of economic and political reform that was begun in 1978. Though the makeup of social capital in China may differ extensively with that of the western world, it nevertheless exists and plays an important part in that country’s double-digit GDP growth. And though guanxi¹ may not be the equivalent of Parent Teachers Associations and Rotary Clubs it nevertheless seems to work just as well as an epiphenomenon of social capital .

The Chinese system of network capitalism works through the implicit and fluid dynamic of relationships. On the one hand, this is a process that consumes much time and energy. On the other hand, it is suited to handling complexity and uncertainty. Networks offer greater capacities for generating and transmitting new information, and when they are sustained by trust-based relationships they offer a cushion against the possibility of failure that is a concomitant of uncertainty. We have argued that, in this last respect, the networks of the emergent Chinese capitalism are qualitatively different from those within the Western market system, for the latter continue to be based on legal contract and ownership rights rather than on long-term trust relationships.²

Another factor affecting China’s current successes, could perhaps be called world or planetary social capital, the hedging, hesitating yet visible willingness of sovereign nations and firms to join in global organizations such as the United Nations, the WTO, ISO, and the ITU. They are of course all formal bodies – institutions, but nevertheless manifestations of social capital – the evolutionary extensions of Berger and Luckmann´s two Robinson Crusoes meeting up on a dessert island . They promote trust and reduce the costs of interaction

// posted by Greg FitzPatrick @ 11:55