I'm back in 1990

Chapter 1180: No one understands it better than me

The classroom was silent for a few seconds, then a hand was raised.

It's Zhao Jiaming.

He stood up: "Professor Zhou, I actually agree with Professor Huang's point of view. Although my dad runs a small business, not in manufacturing, from our family's perspective, I also feel that relying solely on low prices won't last long. In the past few years, several similar stores have opened on the street where my dad's shop is located, engaging in price wars with each other. Eventually, no one made any profit, and three of them went out of business. Now, the remaining stores, including my family, have started to differentiate their operations. Some stores have improved their quality, while others have upgraded their services. As a result, business is much better than before."

Zhou Weiyuan nodded: "Your analogy is very good." Then he gestured for Zhao Jiaming to sit down.

Then he asked, "Where are the others?"

Lin Zhixia raised her hand and stood up: "I also agree with Professor Huang's article. We just learned about the death spiral mentioned by Professor Huang recently. It is a classic economic concept. Once deflationary expectations are formed, consumers will delay consumption because they will feel that things will become cheaper and cheaper, and enter a state of holding cash and waiting."

At that time, businesses will also reduce investment because there will be no expectations for the future, and the market will enter a self-reinforcing vicious cycle. Japan's lost two decades were largely due to falling into this trap. With this lesson in mind, if we continue down the path of extreme low-price competition, we are very likely to repeat the same mistake.

"That's right, Japan's lost two decades, they've grasped this point very well." Zhou Weiyuan looked at Lin Zhixia approvingly.

As soon as Lin Zhixia sat down, a boy in the back row raised his hand. His name was Li Haoran.

"Professor Zhou, I think both sides have valid points, but the key issue is choosing the right time and path for transformation. I agree with Professor Huang's logic that a short, sharp pain is worse than a long, drawn-out one, but the problem is, who will take care of the companies that go bankrupt during the transformation and the workers who lose their jobs as a result? So from a macroeconomic perspective, I think we need supporting policies and an effective buffer mechanism; we can't rely on companies to tough it out on their own."

Zhou Weiyuan nodded in satisfaction. This showed that these students had not only read the article, but also thought about it deeply. They did not just parrot others, but answered his questions based on their own professional knowledge and insights.

"Very good. This student has raised a very real question. The direction of transformation is correct, but how to transform, how fast to transform, and who will bear the cost of transformation are all questions that the policy level must answer in the near future."

He then scanned the classroom: "Is there anyone else who wants to speak?"

At this moment, Huang Ruiying raised her hand: "Professor Zhou, I would also like to say a few words."

Zhou Weiyuan smiled and nodded: "Please go ahead."

Huang Ruiying stood up, and dozens of eyes in the classroom turned to her. She said calmly, "I have also read Professor Huang's article and gained a lot of inspiration from it, so I would like to add some perspectives from a few angles."

After a brief pause, she continued, "First, regarding the risk of deflation, Professor Huang explained it very clearly, but I noticed that some people in the comments questioned it, saying that while moderate inflation is good, our current reality is that the PPI is experiencing continuous negative growth, and demand is already weak. If prices are raised rashly, will it suppress demand? I would like to say that this question seems reasonable, but it actually confuses cause and effect."

What is the root cause of weak demand? It's not that things are too expensive (easily access Coca-Cola Novels and enjoy reading thousands of good books like "1990, I'm Back"). Rather, it's that too many companies have too thin profit margins to raise employee salaries. I once saw a research report that showed the proportion of per capita wages in Taiwan's manufacturing sector to GDP was relatively low compared to other major economies in the world.

This means that workers' income is not commensurate with the value of their output. Companies keep product prices very low, seemingly giving back to consumers, but consumers are also workers. As a result, their income is suppressed, and they are unable to afford to consume goods that are of better quality but more expensive.

Professor Huang actually touched on this point at the end of his article: low prices ultimately harm consumers themselves. If everyone can understand this chain of logic, they will realize that low prices don't actually benefit the people; they're just transferring value.

The classroom was very quiet as everyone listened attentively to Huang Ruiying.

"Secondly, I would like to talk about the county economy issue mentioned by the objectors. They say that the economy of many counties is supported by low-profit light industry. If these enterprises all move to the mid-to-high end, where will ordinary workers with only basic labor skills find employment? It must be said that this concern is reasonable, but it ignores a dynamic change."

The reason why low-end manufacturing in those county towns has been able to survive until now is precisely because they have not yet faced fierce international competition. Data from the Boston Consulting Group has shown that our manufacturing costs are very close to those of the United States. This means that our traditional cost advantage is disappearing. When countries and regions with lower costs than us, such as Vietnam, Bangladesh, India and other Southeast Asian countries, truly achieve industrial scale, these low-end manufacturing industries in county towns will face annihilation. At that time, the situation of those workers will be a hundred times more difficult than it is now.

So Professor Huang's talk of transformation is not because he doesn't understand the difficulties of small and medium-sized enterprises, but precisely because he has a long-term vision. He sees that if we don't take the initiative to transform now, we will be forced to transform by the market in the future, but by then it will be too late!

One last point, regarding the criticism of "Why don't they eat meat porridge?", I think it's unfair. Professor Huang isn't telling every small and medium-sized enterprise to raise prices tomorrow or cut low-end production lines the day after. He's telling everyone about a direction and a trend. If the direction is right, even if you move slowly, you're still moving forward. If the direction is wrong, the faster you run, the closer you get to the abyss. Okay, that's all I have to say!

She sat down again.

The classroom was quiet for a few seconds, then scattered applause broke out. Yan Yutong clapped the most enthusiastically and even winked and gave Huang Ruiying a thumbs up.

Zhou Weiyuan stood on the podium, looking at Huang Ruiying. He admired her greatly and had a good impression of this year's students.

"Very good, excellent!" Zhou Weiyuan clapped lightly. "What's this student's name?"

Before Huang Ruiying could answer, Yan Yutong interrupted, "Her name is Huang Ruiying."

Zhou Weiyuan nodded: "Huang Ruiying not only thoroughly understood Professor Huang's article, but also was able to think about the issue from the perspective of the critic and respond with rigorous logic, which is very rare. In particular, the data she just mentioned, such as the manufacturing cost being close to that of the United States, and the comparative perspective of the proportion of per capita wages in the manufacturing industry to per capita GDP, are all very solid."

Lin Xiaotang gently nudged Huang Ruiying: "You're amazing! Did you memorize all of Professor Huang's articles?"

Huang Ruiying replied modestly, "I've read it a few times." But in her heart, she was thinking, "This isn't something I memorized. I've heard my father discuss these things with others since I was a child, so naturally I understand them more thoroughly than others."