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.

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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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