The Giant of The 21st Century Begins To Awake

Walter Russell Mead

The Asian unrest, a much bigger deal long term than the over hyped Arab Spring or even the crisis of the euro, is spreading from China to Indonesia, as strikes pop up across the fourth most populous country in the world.

The Asian industrial revolution is the single most transformative social event on our planet today. Hundreds of millions of people are moving from agricultural jobs to urban life, and from farming to manufacturing. They are doing it faster than Europeans and North Americans did during the western industrial revolution, and they are doing it in much larger numbers.

In the first stages of this movement, labor has been relatively docile. As the peasants come out of the rice paddies, they are bewildered by urban life and are struggling to gain a toehold. They still have the deferential social habits and strong moral values of the villages from which they come. They are used to hard work and low pay and they are often grateful for poorly paid, dangerous and hard labor. But this changes over time. They learn more about how the city works. They lose the social habits and discipline of the countryside. Seeing how the rich live in their urban environment, and living in the media saturated environment of the modern world, they begin to grasp the immense distance between their lives and those of the rich and the middle class. Their ambitions — for themselves and for their children — rise and their expectations grow.

They also become aware that as industrial workers they have more group power than they did as peasants. They can organize into trade unions. They can strike. They can demonstrate. They start to build that power and try it out: this is happening today all over China and it is happening in Indonesia too.

There will be much, much more of this: in India, Vietnam, Thailand and in many other places across Asia. Corporations and governments are going to have a very hard time figuring out how to respond. For one thing, the market is not going to be particularly forgiving. Wages in manufacturing are going to be squeezed. There are still many countries ready to welcome textile and other factories where workers are ready to work hard for less. The industrial revolution is still spreading through the world and there is lots more virgin territory where the peasants will gladly take factory jobs, asking very little in return.

At the high end, technological progress makes automation a real option for more and more industries as wages rise. Robots don’t go on strike, and it is very easy for companies to switch from labor intensive to capital and technology intensive manufacturing processes as wages rise.

On the demand side, the vast expansion of manufacturing capacity in the last twenty years is putting pressure on profits. With slow growth in the rich countries, manufacturers cannot easily pass higher labor costs to consumers by jacking up prices.

Japan, Korea and Taiwan were lucky; those places adopted the export-driven manufacturing growth strategy at a time when they had few competitors; they grew so quickly for so long that they were able to boost the workers into something like middle class status without too much stress. The countries coming later to the game like China, India and Vietnam, won’t have such an easy time. The competition is much tougher today.

The mix of rising expectations and limited means for satisfying them is a recipe for social explosions and social explosions we are likely to have. Europe and North America were tumultuous places during their industrial revolutions; Asia is unlikely to have a much smoother path. Geopoliticians, corporate risk managers and investors and financial strategists are going to have to wrap their heads around a large and growing set of risks. Politicians in Asian countries have their work cut out for them; maintaining stability in the face of this kind of change requires strong and responsive institutions and, frankly, a touch of political genius. The diplomatic system America is trying to build in Asia is also going to be affected by the consequences of this social revolution; the Pentagon and the State Department will have to learn to cope with consequences of Asian unrest.