It's the economic strategy, stupid!
A tale of three legislatures, in Olympia, Beijing, and D.C.: Guess which one is able to think strategically about its industries.
Springtime storms can generate high winds. It is also the season for legislative bodies to meet and legislative meetings generate warm winds. Three such bodies have all been meeting simultaneously: The People’s Republic of China’s National People’s Congress, the United States Congress, and the Washington state legislature. So let's compare the content of the discussion in the great halls of Olympia, Washington DC, and Beijing.
The National People’s Congress of the Peoples Republic of China has completed its work approving its 12th five-year plan. APCO Worldwide reports that the plan “sets out to rebalance the economy with a strong emphasis on increasing consumption, narrowing China’s growing income gap, promoting environmental protection and energy efficiency initiatives, and boosting strategic industries.” The targeted growth rate has been lowered to 7 percent, cooling the economy. I guess if you are working to contain your growth to only 7 percent you would not want to copy a system that is struggling to achieve 2 percent.
The Beijing plan includes what we call industrial policy or government initiatives to develop key industries. In some countries the focus of the programs is "import substitution," or replacing imports while encouraging exports. It is instructive to examine the seven industry areas where the Chinese government will invest billions over the next five years. The seven areas: biotechnology, new energy, high-end equipment manufacturing, energy conservation and environmental protection, clean-energy vehicles, new materials, and next generation IT.
With China’s anticipated success in these areas, Northwest exports might have to rethink their strategy. We might find ourselves back in the 19th century, exporting raw materials to China, rather than jetliners and softward. Our Prosperity Partnership strategy for Washington will need to focus on agriculture, timber, and fish. "High-end equipment" includes airplanes, by the way, and China will test the 919, a competitor to the 737, in a few years.
Would it make sense to protest against China's industrial strategy as an affront to free-market economics? Not likely. A number of years ago, I attended a business roundtable in Japan. An American businessman criticized the Japanese side on the role of government in the economy and its subsidy and incentives to assist companies and exports. He said this was unfair. A Japanese businessman asked a question: “How does the United States set international fairness standards? What is the organization and process?” He also asked where he could get a copy so he did not make a mistake in the future. Our business leader made a quick exit to the restroom.
China too has a different form of government. Their representatives are not campaigning every day and fundraising. Their companies do not worry about quarterly results. They have the luxury to be strategic and can do a five-year plan that sticks.
And what is our Congress doing on economic policy? We are currently debating the role of government. Is there a reason to tax ourselves beyond the need to have a common defense, support our farmers, and have pat downs at airports? We have had the luxury of ignoring what our competition is doing. We have ignored their policies and programs because they are from a different system of government.
What about Olympia? Is our legislature being strategic about our economy and setting priorities that would enhance our job and employment base? Are we investing in education, research, and key infrastructure? If the University of Washington’s budget is any indication, we are attempting to plug holes in the human safety net while allowing the institutions that create the economy to deteriorate.
Joe Borich, president of the Washington State China Relations Council, is leading a group to China in July. While the visit will primarily view some of China’s great wonders, it is also an opportunity to see what is happening in our region’s biggest customer and competitor. Our leadership also needs to visit India, Vietnam, and China to better understand the changed circumstances of global competition. The message: we need to invest strategically with limited resources.
An International Study Mission of Seattle leaders to Helsinki in 2007 underscored this competitive point. One of the speakers at the Microsoft dinner was the former prime minister, who was the leader when the Soviet Union collapsed. Finland was faced with the loss of 40 percent of its GNP overnight, requiring an immediate cut of 40 percent of the national budget. Finland cut the budget over 40 percent, creating more hardship in social and other programs, but increased the budget in education and research. For years, Finland has had one of the world’s most productive economies.
Seattle Pacific University President Philip W. Eaton spoke at this week's SPU annual downtown business breakfast. He had a timely quote from the opening sentences of the 1983 report to President Reagan’s Education Secretary titled A Nation at Risk: "Our Nation is at risk. Our once unchallenged preeminence in commerce, industry, science, and technological innovation is being overtaken by competitors throughout the world.”
Somehow we need to move the national, state, and local discussion to economic strategy and how we will provide the economy to generate the jobs for all levels of educational achievement and provide the income to pay for the services that the public wants. This is not rocket science but it does require leadership.
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Comments:
Posted Wed, Apr 13, 9:50 a.m. Inappropriate
China censors and squelches dissent. We...?
Posted Wed, Apr 13, 2:16 p.m. Inappropriate
...have Fox News Channel. We've turned our schools into state-subsidized daycare. We have a political class, and nobody seems bothered by the idea that how much you donate determines how much access you have to elected officials. The results are the same, the only difference is how you get there.
Posted Wed, Apr 13, 2:23 p.m. Inappropriate
The author points out a key weakness in our system - the absence of strategic planning. Here is the key sentence: "Their representatives are not campaigning every day and fundraising. Their companies do not worry about quarterly results." Why is this?
1. In most systems, including capitalist Europe, corporations think more long-term about shareholder value. Although the banking/finance community internationally is an exception, long-term viability in the face of competitive threats is addressed more seriously abroad than here. Also, the synergy between government policy and corporate business planning is understood and accepted much better. Germany, France, the Scandinavian countries are examples - you need not go to a centrally-planned economy like China to see this in action.
2. Corporate thinking in America is schizophrenic - on the one hand, large businesses want, and routinely receive, handouts, in the form of tax credits or tax loopholes. But the idea of the government intervening in any policy sense that would benefit business as a whole is viewed as some weird socialist ideology - "Let the market decide!" - though that market is largely made up of short-term speculators that couldn't care less whether a corporation thrives or not.
3. Politicians have had it proven to them that the key to incumbency, let alone election in the first place, is money. If you're in office, a large campaign war chest dissuades most from running against you. Thus the incumbency rate of 80-85%. So planning is not an issue - staying friendly to large donors is the issue. And those donors and their lobbyists are mainly represent the status quo, who don't feel they need planning, beyond what plan for their own corporation.
Neither party has the ability currently to call these flaws out, because the people that run these parties at the top aren't paid to do anything but keep the money from donors coming in.
A new consensus can be built, between the business community, the government, and the public. But that will likely start at the local and regional level, not the national.
Posted Wed, Apr 13, 2:26 p.m. Inappropriate
"A new consensus can be built, between the business community, the government, and the public. But that will likely start at the local and regional level, not the national."
And it will be impossible without an honest press.
Posted Wed, Apr 13, 3:59 p.m. Inappropriate
China has had a number of "5 year plans" that I would not care to replicate. Google "the great leap forward" to see what a misguided plan can do to a whole population... mass starvation among them. "Re-education" camps... wooo boy. Yep the key to success is government planning for industry.
Make no mistake about it, there are things that governments do well, build airplanes isn't one of them.
Posted Wed, Apr 13, 10:33 p.m. Inappropriate
This past April 4th, Steve Koonin, the DOE’s Undersecretary for Science, spoke at Town Hall. The presentation was mostly informative in terms of where the United States uses energy and projections for future supply.
In Koonin's presentation though, he highlighted that the United States in the 1980s was the world leader in technology development and application of both wind power and solar power. In the intervening years though, we've seen the US leadership in wind technology diminish as targeted government policies in Denmark, Spain, India, and China have have resulted in the market being dominated by foreign companies. US market share is currently 12.4%.
Similarly in solar photovoltaic US mark share has declined from 45% of the market in 1995 to less than 10% in 2008.
Upon seeing this statistics, I asked Koonin to comment on the situation where the US professes to let market forces decide and where the remainder of the world doesn't play by those rules and instead nurtures and provides incentives for emerging technologies. I asked whether it was appropriate for the US to implement an industrial policy. Koonin responded that this was a lot like Groucho Marx's secret word with the duck descending with a $100 bill in its beak. In other words, a topic that was off limits.
As one thinks of the situation, I'm reminded of the lyrics from the Rush's song Freewill which state "If you choose not to decide
You still have made a choice". In the same vein, a decision to not pursue an "industrial policy" to develop emerging technology is in effect also an "industrial policy" in that is cedes the advantage to those countries which choose to bring the technology to economies of scale.
Posted Thu, Apr 14, 8:37 a.m. Inappropriate
Not having an industrial policy and supporting an existing business model are two very different things.
The USA supports the Oil/Coal industry by fighting wars to keep the shipping lanes open for oil, and leasing mining rights for a fraction of the value of the minerals recovered. If oil was taxed at the value it costs to maintain the military might behind those open sea lanes and coal was profit shared by the mining company, ie maybe the tax payers get 10% of the value of the gross sales of the minerals recovered. Then solar and wind would look more profitable and worth the investment by business.
As it stands now we appear to be generating more wind power than we can use in the spring. If I read the Seattle Times article correctly we gave away this excess power to other states....free? What that means to me is that we need more high power transmission lines so that we can move power from where it's generated to where it's needed. (for a small fee of course!)
http://seattletimes.nwsource.com/html/localnews/2014756586_windpower13m.html
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