In a column in today's Observer (UK newspaper) Will Hutton addresses the economic pressures on the leaders of China. It's interesting in general, and the anchor of the article is the recent outbreak of "Bra Wars" over Chinese textile output, but it is the base assumption that seems to me to be our biggest challenge for the future:

Hutton goes on to ponder if the US will remain consumer of "last resort." For myself, these paragraphs ring a different set of alarm bells.

Basically, the grand unified theory of international trade </snark> suggests that trade results in an equilibrium where each area of the economy is located in the best position. One analogy is that certain areas of the world have the weather to get more harvests a year than others, so those farmers have an inherent advantage and over time that area specialises in food production, whilst the area they trade with specialises in light engineering for example.

Anyway, from this comes the concept that if the Chinese have become the best at cheap textiles, we (or mostly Italy, in Europe) move into higher end textiles. The Taiwanese dominated memory chips, so the US concentrated on CPUs, etc. etc.

However, we begin to see that China has a productive capacity that is going to extend to the high end in a lot of industries. As Hutton says (quoted above) in the end there will be no textile industry anywhere else.

(Of course, this is not wholly accurate, the cheap end is under competition from Vietnam and other areas, but it's fair to generalise that at this rate, textiles are gone from the West.)

The key here is the "conventional wisdom" is that our future is sustained by moving ever forward to new and more knowledge intensive industries. My concern is twofold:

• The pace of change is overwhelming our ability to "stay ahead." The idea of our "staying ahead" was always predicated on competition with disadvantaged nations. Of course, in the long run, should China become rich off it's trade then wages will equalise and they will no longer have a wage advantage over us. But as Jerome's sig always notes, in the long run, we are all dead.

• There is a fundamental question about the industries of the future. Not "will they exist" (although on my darker days I wonder) but will they ever require that many people? People talk about all sorts of industries as "the future" but they are not the heavy industries of the past and it's not clear that they will ever soak up as many workers.

• The reality of the shift to "service industries" in the Anglo-Saxon model seems to be that a certain number of people are very rich, some are very poor and serve hamburgers to the rich and the rest sell each other insurance, credit cards and mortgage refinancing in enormous numbers. I can't see how it can continue.