7/29/2019 Gardening+and+Stimulus

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Monday 11 March 2013 Shanghai DailyA6 OPINION

Why stimulus wont make gardeners work fasterShawn Mesaros

WE would like to consider what US$6trillion in stimulus has gotten the USAover the past five years.

Same static joblessness of around 14percent unemployment and a higherstock market despite a record (48million) Americans on food stamps.

How can this be?Service sector economies simply do

not respond well to stimulus.Consider the wisdom of lending moneyto a runner, expecting him to run fasteras a result of being more in debt?

Consider the wisdom of lending moneyto a shoe shine boy expecting him topersonally shine more pairs of shoes?

Consider the wisdom of lending moneyto a group of gardeners expecting themto clip rose bushes faster as a result oftheir being f urther indebted?

Rubbish? Absolutely rubbish.Marginal productivity quickly

evaporates in the service sector asemployment is added, ravaging profitmargins and increasing total costs.History is replete with examples.

Service sector economies are legendaryin their ability to reach an efficiencymaximum in very short periods of time.

They say that in the long run we a re alldead, but for a service sector economy

in search of marginal productivity as a

natural by-product of more debt theanswer may be far different.

You are already dead.The debt can never be repaid due to

falling margins and then increased per

unit cost by trying to falsely create moreemployment in the same service sector.

As the service sector takes over moreand more of economic output, displacing

industrial production, we have interest

rates less effective vis-a-vis economicstimulus. This is because theres far lesspotential leverage in low interest rates

when expanding serv ice sector economicdrivers relative to industrial drivers.

Factor performance may be easily

demonstrated in America as we witnessthe falling benefit of economic stimulus,and as the economy becomes more

services based.

Short-swing activitiesThis also means that the time to

negative economic leverage is shorteras marginal benefit may quickly fall

below zero, just as the banking sectorin America is experiencing.

And service sector jobs are, frankly,far more likely to be short-cyc le or short-

swing activities relative to industrialproduction opportunities, which employ

more tangible resources, engaging moreof the real economy.

Simply put, the work product may beimproved upon as the economy rapidlyturns itself over and over again, whereaswhen I invest in more people clippingthe same rose bushes my marginal pro-ductivity gain trends below zero quickly,because I only have so many roses.

Could it be so simple? Actual ly not it gets much, much worse.

When governments both expand toemploy more displaced rose-clippersand borrow more money (thus creatingmore debt) to employ more gardeners, weare stuck with both the incrementa l debtand the complete lack of marginal uti lityas likely permanent systemic costs,which must be politically reinforced tobe justified. That means in order to keepthe system afloat, we are effectively nowin need of more of what got us into th isfine mess in the first place.

Factories need people to produce. Theyneed equipment, they need engineers,they are mechanized, in which casetheres a depreciable life to assetsfor an industrial business. That meansthat when risks are taken within theconfines of an industrial economy, thereare known spreads, margins, risk, and a

real life cycle approach to investments.Industrialized economies take on more

efficiency by expanding output and solong as more automation and turnoveroccurs, it is quite a limitless opportuni-ty to drive margins and efficiency higherin an almost permanent upward trajec-tory. By comparison, one can simply notimprove on the process of clipping hairfor a basic haircut, shining shoes better,flipping burgers faster, or clipping rosesany better than 600 years ago.

Final strawIn one business model (industrial econ-omy) we can borrow capital and expandwith great efficiency and expected profit-ability gains. In services model we havemarket saturation quickly establishedand then negative marginal contributionalso expected as a result of borrowing.

Services sector economies thatstimulate through monetary easing anddebt creation risk the final straw thatPIMCO (Pacific Investment ManagementCo LLC) has described as a creditsupernova whereby we have a profitsdeflation plus a debt inf lation, which canonly lead to massive monetary inflationas margins will ultimately descendbelow zero, prompting money printi ngsimply to keep the system alive.

The author is managing director, PacificAsset Management.

How to bring the country tothe city and city to the countryWang Yong

LAST Monday I brought mycolleague at work a small bagof fresh veggies I had bought onSunday from the farm near myhome in suburban Shanghai.

He cooked the veggies andfound them exceptionallydelicious. His wife and daughterloved them and two vegetabledishes were devoured.

No wonder. Veggies freshlypicked from the soil are rare inmost downtown food marketsin Shanghai. There youll findmost greens sprayed with waterto look fresh. The small bag ofChinese cabbages I brought tomy colleague cost only 2 yuan(32 US cents), but they were dry

and sweet like no watered coun-terparts could possibly be.

Dress well, eat poorlyLocal fresh vegetables are a

real luxury these days, as urban-ization has driven farmland outof the view and reach of mosturban dwellers. If you look atwhat young white collars wearand eat every day, youll prob-ably find that many of themdress well but eat poorly.

LV bags and Burberry scarvesare common accessories, butseldom do these people eatsafe food, since they areoften exposed to dishes madewith swill oil or vegetablestransported to the city from

afar and tainted with chemical

pesticides and fertilizer.I am fortunate to live

near vast farm fields thatbelong to Feng bang Vil lageand Shenjingtang Village inZhaoxiang Town, QingpuDistrict, western Shanghai.

But theres a risk to my new-found fortune of fresh food.Construction on a new subwayline may begin late this yearand the section passing Zha-oxiang Town is designed to runabove ground. While that willdefinitely improve our trans-portation, the elevated rail maywell eat into nearby farmland.

I wonder whether I will stillbe able to buy f resh vegetables naturally raised chicken

and ducks for that matter at my doorstep in three yearstime, when the subway line isexpected to be completed.

Uncle Shi, the 70-year-oldfarmer who owns the small plotwhere I buy my fresh vegetables,told me last week that he maylose his home and land to makeway for the subway. But heexpected to be relocated, sincefarming cannot make him rich,while compensation for hishome and land can.

Uncle Shi loves working inthe fields. I am poor, but Ihave fresh air and fresh food,he told me two weeks ago. Butlast week he entertained theidea of being relocated and

compensated once and for all,

even if it means he will leave

the land forever.

After all, the one and a half

mu (0.1 hectares) of farmland he

owns brings his family a mere

20,000 yuan (US$3,226) in an-

nual income. In most seasons

he uses human fertilizer only,

which guarantees safer food than

chemical fertilizer, although the

latter helps crops grow faster.

As I chatted with him last

week, I saw another small piece

of land adjacent to Shis. It was

uncultivated. Uncle Shi and a

garbage collector near that plot

told me the owner had aban-

doned farming and found a city

job. The wasted land will prob-

ably be used for consruction.

Its not in the blood of all

peasants to rebel against

the land. In many cases of

urbanization across China,

farmers migrate to cities not

because they love city li fe

expensive, noisy and polluted

but because working the land

alone cannot feed a family.

Shanghai point the way to a

new path of economic growththat stops the one-way hemor-rhage of peasants. Take UncleShi and h is likes for example.

When the new subway lineis completed, possibly by theend of 2016, it will take atmost 15 minutes to travel fromthe Hongqiao Airport Stationto Zhaoxiang Station, whichmeans much easier access ofurban dwellers to the farmlandof farmers like Shi.

Win-win growth modelIt could be a win-win growth

model: Urbanites get more freshfood more easily and peasantsget more income more quickly.

You dont have to shovel

peasants off the land to enrichthem. Getting more peoplefrom the city to the farmlandwill be in the best interests offarmers long separated fromurban customers.

Imagine traveling on anelevated rail flanked by rollingfields of grass and crops. Fewsurface routes can offer such aview. What meets the eye insteadare high-rises after high-rises,planted between factories andeven next to trash dumps.

If Shanghai finally buildsthat subway line (with above-ground sections) flanked byvast stretches of farmland, wewil l all have a better city, betterlife that comes from fresh food,

fresh air and fresh mood.

If Shanghai finally builds that subwayline (with above-ground sections)flanked by vast stretches of farmland,we will all have a better city, better life.

Illustration by Zhou Tao/Shanghai Daily

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