When the Communists Took Over


On this day in economic and financial history...

President Richard Nixon became the first president to visit China on Feb. 21, 1972. This was doubly notable in light of the administration's official refusal to recognize the Communist government that had taken power in 1949.

Politicians on both sides of the aisle voiced their support for the diplomatic effort. Senate Majority Leader Mike Mansfield, a Democrat from Montana, told the Associated Press that the meetings were off to a good start toward improved relations. Senate Minority Leader Hugh Scott, a Republican from Pennsylvania, added, "Whatever we can do in furthering understanding and communications, the better." Even Hubert Humphrey, one of the contenders in a Democratic presidential primary eventually won by George McGovern, voiced positive sentiment -- for Chinese Premier Zhou Enlai, who "made a speech that was quite constructive," in Humphrey's words. As for Nixon, Humphrey sniffed that "[Nixon's] automobile went along the streets, but there were no people gathered on the sidewalk [to greet him]."

This historic visit opened the way for freer trade between China and the United States, and for much of the 1970's, the U.S. balance of trade was positive. In real terms, the U.S. exported $3 billion more to China than it imported. This was a tiny sliver of America's trade pie, but it quickly grew through the 1980s and turned in favor of the Chinese. A nearly $3 billion trade surplus in 1980 became a $6 billion deficit by 1989. By 1999 this became a nearly $70 billion trade deficit. By 2009, the U.S. trade deficit with China was well more than $200 billion, and China accounted for 14% of all U.S. trade volume, up from mere fractions of a percent in the 1970s.

Nixon's bargain has benefited U.S. businesses, but it seems clear that it has benefited China far more. That's been reflected in the 20-year performance of each country's major market index: The Shanghai Stock Exchange Composite grew nearly 2,800% in the first 20 years after its creation at the end of 1990, compared to a paltry 300% gain for the Dow Jones Industrial Average over the same time frame. If you compared each from its modern low to its absolute peak, it looks even starker: The SSEC peaked at a 6,000% gain in late 2007, while the Dow only managed a 1,700% gain from 1982 to 2007. How much wilder would the SSEC's growth have been if China had begun modernizing earlier?

Triumph of the proletariat
Nixon might not have visited Communist China in 1972 -- and Communist China might not have existed at all -- if not for the publication of The Communist Manifesto on Feb. 21, 1848. The socialist rebuttal to Adam Smith's 1776 masterwork The Wealth of Nations, Karl Marx and Friedrich Engels' tome set forth the precepts of class struggle and communal ownership that would become hallmarks of the major Communist governments that arose during the 20th century. No matter your opinion of it as a political philosophy, communism has had an enormous influence on the modern world. Roughly 1.7 billion people alive today have lived under, or are still living under, a Communist regime.

All aboard!
The first operational railroad locomotive made its maiden journey in south Wales on Feb. 21, 1804. Built by Richard Trevithick, the locomotive attracted enough interest in England to inspire a robust culture of experimentation and development. This entrepreneurial tinkering advanced railroad technology far enough and fast enough for commercial railways to rise within a decade. By the end of the 1820s, the United States was also developing locomotives, and in 1835 a railway opened in Belgium, bringing locomotives to Continental Europe. The Industrial Revolution was underway.

By 1850, England had 6,600 miles of track laid for its growing railroad industry. Within another decade the U.S. had raced forward and built 30,000 miles of track. The first transcontinental railroad was built in 1869, by which time railroads had become a fixture in both the New York and London stock markets. Despite speculative booms and busts, railroads continued to drive the world forward. A million miles of track were laid around the world by the 115th anniversary of Trevithick's first locomotive run.

Say "cheese"
Edwin Land first demonstrated his revolutionary instant camera on Feb. 21, 1947. Land, the founder of Polaroid, had just begun a new era in photography -- and a new era in corporate showmanship. The first Land Camera would go on sale during the 1948 holiday season, and despite its high price -- at $89.75 then, it was worth the equivalent of $850 today -- it was an immediate success, generating more than $5 million in sales in its first year on the market.

Land went on to become an expert at "scientific demonstration," which in the words of The New York Times' Christopher Bonanos, made him an inspirational figure for Apple's Steve Jobs:

Both built multibillion-dollar corporations on inventions that were guarded by relentless patent enforcement. (That also kept the competition at bay, and the profit margins up.) Both were autodidacts, college dropouts (Land from Harvard, Jobs from Reed) who more than made up for their lapsed educations by cultivating extremely refined taste. At Polaroid, Land used to hire Smith College's smartest art-history majors and send them off for a few science classes, in order to create chemists who could keep up when his conversation turned from Maxwell's equations to Renoir's brush strokes.

Most of all, Land believed in the power of the scientific demonstration. Starting in the 60s, he began to turn Polaroid's shareholders' meetings into dramatic showcases for whatever line the company was about to introduce. In a perfectly art-directed setting, sometimes with live music between segments, he would take the stage, slides projected behind him, the new product in hand, and instead of deploying snake-oil salesmanship would draw you into Land's World. By the end of the afternoon, you probably wanted to stay there.

In a unique twist of fate, it was Apple's iPhone that both greatly extended the reach of instant photography and greatly accelerated the demise of instant film -- and has undoubtedly slowed the buying interest in digital cameras, as well. In the five years following the iPhone's release, sales of digital cameras increased by a total of 14%. Smartphones, on the other hand, have grown by leaps and bounds, reaching sales of nearly 500 million units worldwide five years after the iPhone's release.

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The article When the Communists Took Over originally appeared on Fool.com.

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