Two decades ago, a cashmere sweater was a soft symbol of wealth and status warn by pipe smoking duffers at the club. Eventually women also wanted to wear the wool from the shaggy goat. The boosted demand beyond the capability of shepherds filled in the production shortfall.
But the sharp folk in Bentonville Arkansas who run Wal-Mart believed that cashmere was not the exclusive wool for the rich, and decided cashmere sweaters should be brought to the masses. It was the perfect Christmas present. They asked the disintermediating question, “Why not sell a $49 cashmere women’s sweater, or a $39 or even a $29 one?”
And the Shepherds in China and Mongolia heard them. A herder with 30 goats living in a tent soon had 300 grazing goats. He did what capitalists everywhere do – expand to meet the demand. And shepherds reaped the reward of Wal-Mart’s audacious bet on the desires of its customers to have buttery sweaters for $30 to $40. And soon the Asian shepherds had small homes and televisions and toilets and life was good.
Except 10 times more goats ate all the green grass, and the bigger herds needed to move to greener pastures. The old land turned to dust and the wind blew. Huge clouds of dirt miles long and wide lifted off the ground, browning the local air and ultimately circling the earth. The shepherds had to leave their newly built homes to search for new grass, and China and the world was a dirtier grittier place. But Wal-Mart got their cheaper wool, and you and I got our comfy cardigans.
The net gain for the Chinese economy was real in this case. New sweater factories were built. Girls got jobs at the sewing machines after fleeing the poverty of rural China. The sewing machine firms sold product and the machine guys sold them components for bobbins and stitches. The shepherds tasted prosperity and the goats found more company. But the gains were diminished by the communal degradation of the air pollution. That is not in the Chinese growth statistics, but the people on the ground know it’s real. This is the yin and yang of “Wild East” growth. Eventually the Chinese people will not take it anymore.
By the numbers, growth will slow and the markets will no longer fawn over the Chinese stocks. The Olympics will come and go. Wal-Mart will still sell cashmere sweaters. I don’t know if they’ll cost more or less than they do today