2 Huge Economic Developments under the Radar

There have been two huge economic developments in the past few weeks that are still under the radar. By under the radar, one means that it is possible to Digg or Stumble posts about the stories and still be “the first discoverer”. Second, though some aspects of the stories are covered – there has not been the big view or analysis. Yet these developments will have decades long and world repercussions:

1)The spate of 12 suicides at the huge 1/2 million employees Foxconn complex in Shenzen China has already a)caused wages to rise by 30% or more; b) caused major changes in how production is done at the complex; and c)may cause China to switch from lowest-labor cost model to an out-automate and out-innovate economic model [sounds like what every advanced economic country is trying to do – a crowded field]. John Dvorak writing at Marketwatch picks up the implications of this change.

Immediately all the major consumer electronics producers from Apple and Cisco to Dell and Nokia plus a whole lot of others technology giants who have outsourced almost all of their manufacturing to China are going to see their margins squeezed immediately. And probably a second time when China allows its currency to rise within the next 6-9 months.This has big implications for Tech stocks since increased competition is already putting downward pressure on prices in many tech markets.
But the long term implications are even greater. China’s leaders may be willing to bet now that China  can out innovate and develop in the biggest industries while retaining a South Korean-like high productivity advantage. Watch for this strategy to be tried in key  sectors  like non-oil energy production. This is  the green market where China has wrested the lead from technology pioneers in Europe and North America.  These governments and economies are beset with debilitating problems such  as divisive party partisanship  that means the countries can’t respond to the Chinese challenges  with any business-government co-operation set aside any agility. As well most advanced economies   are running huge budget and/or trade deficits  as  the populace’s unwillingness to fully pay for government  services at any better than 80 cenets ion the dollar. As well Southeast Asian countries have the highest maths, science and engineering scores and numbers of graduates. And US and Europe are willing to sell their pioneering patents and technology for a song. So China may speed up their conversion away from an exclusive low labor cost model.

2)Afghanistan is sitting on $1Triilion in mineral wealth. The story in the NYTimes has the sense of manufactured fiction on some of the key events and players but the essence is likely true. So $1trillion in mineral resources could change the narcotics based $12B Afghan economy very dramatically. The problem is that Afghanistan is like Yugoslavia – the different ethnic and linguistic groups are only loosely tied to the central government in Kabul. Also the level of corruption within both the provincial and national governments is not conducive to the massive capital investments required for large-scale mineral development. But nothing spurs nation building so much as the prospect of 50-100 years of huge mining profits.

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