…not as I do

…not as I do

US Treasury Secretary Timothy Geithner is due in China this weekend.  Certainly there are plenty of topics, and differences, to keep him, Hu Jintao and Wen Jiabao occupied for a while. But on top of the issues of currency, trade barriers and Treasury purchases, the Wall Street Journal says Geithner also plans to tell Beijing it needs to take ”drastic measures” to reform it’s economy.

“That means encouraging Beijing to offer more generous health care, retirement, welfare,  educational and other benefits …”

I’m sure the prescription will provoke a wry smile or two in Beijing, and maybe even a polite enquiry along the lines of  “and do you plan to introduce these benefits at home, Mr Geithner?”

In the US, the onus for things like healthcare and retirement provision falls squarely on corporations and individuals, and any suggestion that Government should provide is guaranteed to generate howls of scorn and indignation from some very powerful quarters.  So should Beijing listen to what Geithner says, or go with what the US does?  I wouldn’t be surprised if Beijing is examining the General Motors meltdown for clues.

Decades ago, with the full encouragement of the Government and idealogues, General Motors entered into contracts with its workers that included retirement and health benefits.  But as the Japanese watched in glee, GM management pursued policies and products that could not compete, or generate enough cash to keep those promises to workers.  Now those workers, along with the company itself, are high and dry and relying on Government.

But since the mainstream consensus in America is that GM was sunk not by poor management but by the so-called “legacy costs” of honouring those contracts with employees, any future entity emerging from GM’s re-structuring is very likely to be extremely frugal in providing benefits for future workers.  So will the state take up the slack?  

Beijing will certainly be entitled to ask.