Have We Thrown In the Towel?

Earlier in the school year, I had the opportunity to listen to Richard Longworth. A midwesterner by birth, he has shed a great deal of light on "our" place in the global economy. This blog entry from The Midwesterner, lends some perspective that I find interesting and to a large extent troubling. I encourage you to visit Mr. Longworth's blog regularly or add to your Google pages or dashboards. He has a lot to say about how our region fits into this big old world, and I am sure that he will challenge your thinking.

Friday, April 08, 2011

America Throws in the Towel

Everybody knows that the United States, and especially the Midwest, is in a competition with China and other emerging nations to survive and thrive in this new global economy.

Everybody's wrong.

Any race requires two rivals, each running flat out, each determined to win. Anybody who spends time in China -- as I have in the past month -- knows that the Chinese are treating this race like the economic Olympics, with their eye fixed on the finish line. But anybody who travels the Midwest -- as I do constantly -- knows we've stopped competing -- indeed, have made a policy decision to give up.

Basically, American has thrown in the towel. We owned the 20th century, but we've conceded the 21st century to China.

Granted, China has a bottomless bank account, including $1 trillion of our money, while both our federal and state governments are too strapped to find the cash for investment. In other words, we can't afford to compete, even if we wanted to.

But this debt is both cause and effect of our wayward ways. While China was joining the global economy and building the foundation of its current growth, the United States was cutting taxes, fighting two unfunded wars and promoting the mother of all housing bubbles. When the global recession began, the United States -- the world's biggest economy -- landed in a slump that continues to this day. China -- the second biggest economy -- kept the stimulus funds flowing and barely slowed up.

The comparisons between the world's two largest economies are stark -- and, for Americans, distressing.

China is rising, America declining. China is investing, America disinvesting. China is looking to the future, America unable to cope with the present. China is building a middle class, which embraces 300 million people and is growing: America's middle class, supported by the industries of the past, is vanishing. China is spending on the building blocks of that future, such as education and infrastructure. America -- both Washington and the state governments -- is focusing spending cuts specifically on these keys to future economic strength.

Beyond that is the psychological difference. China is simply an ambitious country. It's hungry and raw and scrapping, with its eye on the prize. How long has it been since those words applied to the United States?

China has woken from two centuries of sleep and is hard at work. America, having dominated the world economy for the past century, seems tired, out of ideas and out of energy.

America has no real game plan for the new economy. China has lots of plans. America seems to be betting that these Chinese plans will fail. Certainly, China faces many barriers -- corruption, pollution, population pressures, a dictatorial government. Americans assume that our system -- democracy and free markets -- is so obviously superior that we're bound to win.

Maybe we will, maybe we won't. But we're betting on somebody else's failure, not on an investment in our own success. What if we lose that bet?

China's priorities are no secret and couldn't be more different from ours. The new five-year plan proposes more investment in scientific and technical education, affordable housing, water conservation, raising rural income, increasing energy efficiency by about 20 percent, building more cities, and focusing investment on key industries, such as petrochemicals, biotech, information technology, new energy vehicles, high-end equipment and environmental protection.

This isn't a wish list. Much of China's economy is privatized, but the Communist Party and the government still own the major industries -- the "commanding heights." When they want something to happen, it usually happens.

The medium-term goal is to achieve a "moderately prosperous" society. Officially, this is defined as a society "in which most people are moderately well off and live in harmony with each other as well as nature." This sounds modest enough, but the goal is to achieve this by 2020 -- a revolution in a country that, within living memory, was one of the world's poorest.

By these standards, the United States had a "moderately prosperous" society 30 or 40 years ago. We called it a "middle-class society." It's gone now, along with the industrial economy that supported it.

Individual projects are spectacular. There are too many to list, so let's pick an example or two.

China already has an experimental Maglev train from one of Shanghai's airports into the city center. It goes 266 miles per hour, and it works. A new longer-distance Maglev train is planned. In the meantime, a new "ordinary" high-speed rail line, running 800 miles from Beijing to Shanghai at speeds up to 186 miles per hour is to open in a month or two.

If most Americans have heard of the northeastern city of Qingdao, it's by its earlier name of Tsingtao and its eponymous beer. Qingdao is a city with a metro area of 8 million people -- bigger than Chicago but barely in China's top 20. It has just opened an industrial park (in cooperation with Akron, Ohio) devoted to the rubber industry, is building China's biggest seawater desalinization plant, has drawn in $592 million in foreign investment so far this year, is beefing up its port, and has long-range plans for $50 billion in other civic projects.

This is just one city, and not one of the biggest or more prominent. Similar projects are going on around the country.

The new Three Gorges Dam on the Yangtze River, the biggest hydroelectric and flood control project in world history, is now completed and in operation. It cost at least $60 billion. Both the benefits and the environmental damage, like so much else in the country, are unprecedented.

Shanghai just had its Expo, a giant world's fair, barely two years after the Beijing Olympics. Shanghai used this fair to add several new subway lines, build a new airport terminal and train stations, and repave every important street.

So it goes. This is a country building for the future. No one claims all the money is well spent. Some is wasted and more is stolen. Some lead to unintended consequences, like the environmental damage from the Three Gorges Dam.

But much of this spending, on education, industry and infrastructure, is preparing China to dominate the global economy.

In short, this is a serious country with serious ambitions. Whatever the merits of its individual projects, China is not fooling around.

Now look across the Pacific, to the country that, barely a decade ago, was the sole superpower -- the indispensible nation, the home of the Washington Consensus, numero uno, the hegemon. Now, 10 years later, check out the United States and what you see is a country that has simply stopped trying.

America is letting its infrastructure, like its highways and bridges, crumble. Compared to China's airports, its big terminals like O'Hare are dirty, overcrowded, inefficient. Cell phone and other digital coverage is years behind the swift and comprehensive service that the Chinese take for granted.

This is fixable, but we're not fixing it. Instead, we're cutting spending where it's needed most. Governors in Wisconsin, Ohio and Florida have turned down federal funding for the high-speed trains that China is using to tie its vast country together. The state of Michigan, which right now provides barely 5 percent of the funding for the University of Michigan, is proposing another 22 percent spending cut on higher education financing. Every American state is cutting back not only on health care but on early childhood education, which is key to creating an educated work force of the future.

It's a national problem, most visible in the Midwest where states like Wisconsin are cutting taxes for business and the wealthy while declaring war on their teachers.

China invests in Africa; America goes to war there.

Greater equality -- between rich and poor, between cities and the countryside -- is stated Chinese policy. Greater inequality, with virtually all the economic growth going into the pockets of the richest 10 percent, has been American policy for 40 years now.

Competing in the global economy requires not short-changing spending on necessities but raising the money -- including higher taxes -- to finance this spending. But as the economist Jeffry Sachs wrote in a recent Financial Times, we're "trying to do the impossible: run a modern, high-technology, prosperous 21st-century knowledge economy without the requisite tax base, largely to satisfy the upper classes and multinationals."

As Sachs says, we can't have both -- inadequate taxes and a modern economy. We've made our choice.

As I mentioned in a previous post, what's happening in China today echoes an America from an earlier era. In his book The Lost City, Alan Ehrenhalt wrote about post-World War II Chicago when Americans had fewer goods, lived in smaller houses, often had fewer choices in life, but had a confidence that is lacking today. Then, we assumed that life would get better: today, we assume our children will live meaner lives than we did.

Ehrenhalt quotes the optimism of a Chicago bank ad that proclaimed that "no people on earth ever had it so good as we have here and now, in Chicago. How thankful we should be." The point of this gushing prose, he says, is not its accuracy, but the fact that "nobody would dare say anything similar today."

The '50s in America were unfair in their own ways, especially for women and blacks. But the major themes, Ehrenhalt says, were "stability and confidence" which drove Americans into the good decades that followed.

"Stability and confidence." Not much of that here now. But a lot of it in China.

The Chinese try to be polite about this, but they clearly see their nation on the rise and America in decline. But as one Chinese scholar told me, America's decline "isn't because of China. It's because of America itself." Americans, he said, don't value education and aren't willing to sacrifice for the common good.

What he was saying was that China might or might not win. Either way, America is losing.

The Chinese have a phrase, "eating bitter." It means not only to work hard but to take life's worst hardships, to persevere, and to come back. China has "eaten bitter" in recent years. It wasn't fun. But it made them tough.

There's one other problem in America, the scholar said: "your democratic system is dysfunctional."

This is hard for an American to take from a citizen of a Communist dictatorship. And yet...........

If a political system is judged by its ability to deliver the goods, to encourage that "stability and confidence," to "promote the general Welfare," as the U.S. constitution says any government should do -- well, which government is doing the better job?

China still has hundreds of millions of poor people, but that pool is shrinking. America has millions of poor people, but its pool is growing, and the rate of growth is speeding up.

China's regime is a top-down leadership, promoting a guided prosperity. It decrees that something will be done, and then does it. The United States right now is trapped in a sort of bipartisanship from hell, with know-nothing Republicans and do-nothing Democrats vying to see which party can most disserve the nation and its future.

In other words, not only our economy but our political system is being judged here.

To any American, this makes no sense. To us, it's obvious that China can't free up the economic part of its life and keep the political part controlled. It can't create a middle class that will demand more say in its own life and then deny it that say. It can't open itself to global communications and then police the message. It can't draw a line in the sand of a modern society and say, "this far and no further."

OK, it doesn't make any sense. The Chinese government may be kidding itself. But so far, the Chinese are making it work. All our assumptions about the relationship between capitalism and democracy are based on experience and history that are thoroughly Western. China is different and it's big -- perhaps big enough to define its own reality.

For myself, I'm willing to go down with the good ship Democracy. But I sure hope I don't have to.

Maybe China really will win. Or maybe not. But there's no question that, in this global economy, America and the Midwest will lose. This sounds like a rash prediction. It isn't, because it's already happening.

Part of China's success may be based on pure cheating -- on trade barriers and on intellectual property theft. This hurts American companies, and we should get tough. But we haven't and we won't because China, through its massive holding of American debt, essentially owns us. So the good jobs and the best part of the economy will continue to flow eastward, leaving behind a hollowed American economy inhabited by millions of people who wonder where the good life went.

As I said, this is already happening. So is the unevenness of the impact. It's a global economy, after all, so some Americans and their institutions will do just fine. This includes the major corporations that fill China's industrial parks. Americans can rail at unpatriotic companies that ship good American jobs overseas, but patriotism has nothing to do with it. These companies stopped being American companies 20 years ago. They're global companies now, loyal to shareholders but not to the workers and communities left behind.

A minority of Americans also will do well -- those with the education, skills or contacts to plug into the global economy. Business people, some lawyers, academics and global journalists will be part of this. Knowing Chinese will help, just like knowing English was a boost for non-Americans in the post-war years. At a guess, about one quarter of Americans will belong to this global economy.

So will parts of global cities, like Chicago or New York, and some university towns, like Madison or Ann Arbor. Already, about one-third of Chicagoans live now in this global city. The rest are being left behind, like so much of the Midwest and the country. This is a social problem, rooted in the reality that the American economy, today and in the future, will not be able to support most of its people at anything near a middle-class standard of living.

Already, the blame game has started. Depending on your politics, the blame goes to corporations, Washington, Wall Street, unions, schools, immigrants, whoever. But the real reason is that this country, faced with the need to compete, decided instead to call it a day.