Is War an Opportunity to Solve China’s Social Ills?

As I continue to uncover for my own understanding China’s interwoven long term strategies and implementation of those strategies, I have been truly awed by her disciplined rise once again to power. Of all the empires on earth, China has somehow uniquely adapted to the world’s changing influences and has repeatedly renewed her dominance, unlike all other nations that ultimately imploded into insignificance through flawed national strategies. However, one China policy above all others seems disjointed in her current quest for world preeminence.

In an apparent attempt to limit internal demand for resources, China implemented over the past 30 years a one baby rule that limits families to one child. The resulting social ills have ripped a malevolent thread throughout China that may only be disposed of through war.

Without safety nets such as social security and Medicare, Chinese parents rely on their children to protect them in their old age. Societal norms require a son for this purpose. Over the past three decades, in the face of China’s family planning policies, Chinese parents have aborted 40 million baby girls to ensure their old age needs are met.

The disastrous results of this deliberate centralized planning aberration are numerous. Because of the need for male children and as a result of China’s artificially imposed birth fines, a growing child trafficking trade now kidnaps 70,000 baby boys a year for sale, destroying families and villages in the process. China now has 40 million males that have no chance of marriage. Wealthier parents, attempting to secure brides for their baby boys, have increased the demand for trafficking of baby girls who are purchased and raised as future brides. Many of the boys, who are now of marriage age and without wives have increased the demand for prostitution. Once again, it has increased the trafficking of young women to serve as prostitutes.

Has China’s policy created a social ill that will continue through the life cycle of 40 million young men with only symptoms of enormous trafficking, or will these ills compel other resulting social ills until the ripples simply cannot be contained within China’s current attempt of world dominance?

China’s historic gender aberration, perhaps a previously unplanned flaw in the context of her more systematically planned hegemonic rise, will influence her transition in ways yet unknown. Whether or not a giant flaw in her otherwise planned society or an intended gender distortion created for ulterior means, this distorting social instability must now be resolved by China’s central planners if she hopes to prosper.

Within the next two decades, the demand for commodities will peak, stressing underlying conflicts between China and EurAmerica while China demands her place as the 21st century hegemonist. Every transition from one empire to another has been marred by great wars including WWI and WWII at the start of America’s rise. An opportunistic solution to this potentially devastating draconian centralized authoritarian social policy that created such a destabilizing gender gap could be to reduce this warring age male population through war.

Oil will Rise above $2,000 Dollars a Barrel?

Permit me to drift well beyond the trends of a recent article which stated that China would surpass America’s economy by 2016. America’s economy consumes a quarter of the world’s oil, Europe and Japan another quarter. By 2016, China will consume another leaving India, Latin America and the rest of the world scrambling for the remaining 25%. But China’s growth is doubling every 7 years so by 2023, her share of the world’s output will demand 50%, leaving the U.S., Europe, and Japan and India demanding the other 50%. What does that portend to the rest of the world?

Not much more than a decade away, without some miraculous energy alternative that thus far has not been revealed, there will be great conflict over oil. Much sooner, there has to be a sustained price spike. Surely, the world will attempt to suppress this price hike through alternatives by some yet unknown marvel. However, the world seems to have discounted a potential technological solution and is jockeying jitteringly amongst the oil producing states.

Is America prepared for oil at $500 dollars a barrel? How much would we pay for oil before consuming our domestic alternatives, and what realistic alternatives do we have? We could switch to natural gas for transportation, but that would use our entire reserve within a dozen years or so. We could plug our cars into coal fired electric, but at our rising demand rates, our nation’s reserves would run out within a few decades. These hydrocarbon alternatives would soon find their values rising as quickly as oil. Given the catastrophic conclusion, why aren’t we building wind power, wave power and solar power alternatives at breakneck speed while we still can? The Chinese, following their age old planning horizons, will complete 40 nuclear plants by 2020, and have current plans for 245 reactors. Why?

What if, within our lifetime, the real price of oil reaches $1,000 a barrel, or $2,000? What if gasoline reaches $100 dollars a gallon, Will we pay it? Who could? However, we will soon be forced to understand that the real value of oil is much, much greater than $100 a barrel, and we will willingly pay it.

With the marvel of oil, Americans left the farms and produced a complexity of products and services that extended the quality and length of our lives. In 1776, without oil, 90 percent of us farmed and our average life span was 33 years. Now only 1 in a hundred remain on U.S. farms, and our lives age twice as long, thanks to the benefits of societal specialization brought about by oil.

Oil is the engine of modern life. Oil is now doing the agrarian work of 150 million men in America, plowing and fertilizing the land. About a third of America’s oil consumption goes to food production. What is that worth a barrel? Well at the average American wage and 150 million men, that would put the value of oil at over $2,000 a barrel (gas at $80 a gallon).

Oil truly is Ponce De Leon’s fountain of life. Much of America’s GDP is diverted at an ever escalating rate to healthcare to maintain our 75 year lifespan in the face of epidemics of obesity, diabetes, heart ailments, cancer, and Alzheimer’s. How much more of our GDP would we divert to stave off a return to life spans of 40 years? In other parts of the world, 2 out of 3 people still plow their land and live only 60 percent of an American’s lifetime, even in 2011. Their ability to spend even $100 a barrel is limited.

America spends 5% of our GDP on oil. In Weimar Germany for much of a decade, Rapid inflation caused the Germans to dramatically change spending patterns. 70% of Germany’s wages went to food, 25% to energy and a mere 5% went to housing and all the rest. Given no alternatives to oil’s life giving benefits, America will dramatically increase our oil budget.

While America’s way of life depends on oil, the oil spikes less than a decade a way will most certainly dampen our way. At $4 for a gallon of gas, America complains, yet we still live like emperors of old because oil does the work of 500 men for each of us. At $80 per gallon of gas, most of us will lose our kingdoms. The very wealthy will afford the luxuries of oil, but most Americans will return to the Spartan life lived by much of the world. We will be thankful for the Amish that live among us for they have carried forward the way of the land in America. The Amish today benefit from modern science’s applications of oil but use it otherwise sparingly. As America drifts toward the Amish, we will have to learn how to retain the life giving attributes of oil, while remembering its wonderful king making qualities only as a distant memory.

The U.S. is the breadbasket to the world. However, our ability to keep exporting food will end in about 15 years if the trend in population growth and soil depletion continues. As America pulls back on our supply of food to the rest of the world, the rise in food prices attributable to oil and the world’s resulting unrest in 2011 will intensify. The average world citizen, who gets by on a few dollars a day with much of that going to food will rise up against the hoarders of oil. What will happen when oil prices rise beyond oil’s ability to feed the world? What will happen as the superpowers compete for this already declining resource? What will happen as oil prices above the ability of most Americans to consume it? What great conflicts are on the horizon?

Was America’s Empire but a Shooting Star?

During the early 1900s as America overtook England as the new century hegemonist, Europe was embroiled in colonization efforts to fend off the inevitable transition to America’s rise. Europe’s diminished capacity to deal with domestic consequences of the transition created the impetus for a chaotic shift of world leadership, just as every shift of empires in world history. In this case, it led to a world war.

The war left citizens in Weimar Germany impoverished and subjugated to the rest of Europe, setting the stage for Nazi atrocities. International banking policies including the Fed’s precipitated a great recession from which Japan turned militaristic. The hegemonist of the era, the United States refused to share our contracted oil and other commodities required for Japan’s military success in Manchuria, so Japan drew America into the war ending in the single greatest bombing devastation imposed on a civilization.

The end of WWII marked the end of what was clearly a severely chaotic transition to America’s hegemony. America emerged from WWII the dominant economic leader of the free world. However, just because every empire’s transition in history has been as chaotic as the transition to America’s time, does all of history prove that we will also experience a chaotic transition in the 21st century? Or will America’s fall from power be a unique exception?

We were unique in our treatment of Europe and Japan at the beginning of our reign. Throughout history there have been benevolent kings and despotic ones, and America’s king turned out to be benevolent. With a unique historical sharing of wealth through the Marshall plan, a plan that hastened America’s demise as this century’s hegemon, the United States seeded the economies of Europe and Japan so that all could prosper.

Perhaps it was America’s ecumenical roots that persuaded such global altruism. Perhaps it was our European heritage and our desire that Japan be a strong deterrent to the Soviets, or perhaps it was self interest in gaining market share of war torn countries. No matter the reason, America proved her unique qualities in that era. Could we expect a repeat of this uniquely historical benevolent treatment from China after emerging through a yet unknown chaotic transition?

A factor which may unfortunately lead the world once again through such a transition is the life curve of oil that will be decreasing during the transition period. When America rose to power, Europe and Japan could both share in the benevolence that oil bestowed on all industrialized economies. The life cycle of oil however has now peaked and is in its declining phase.

At the world’s current usage, only one barrel of oil is being found for every barrel consumed. With China’s exponential growth occurring during the quickly receding life of oil, that ratio will quickly worsen to a crisis stage as China’s usage doubles in the next five years. While America flirted with the idea of developing a comprehensive energy policy back when we had time to achieve one, nothing we can do, given our political circumstances, will prepare us for the coming world tsunami of oil demand.

With far reaching international oil and other commodity contracts, China has positioned herself to prosper as she escalates her prosperity into her interior. Unlike the United States and Europe, China has a ready market for her next phase of escalated growth, her own interior. How will EurAmerica react as our civilized defenses of international law act against us as China secures oil that has helped us sustain our current world standings?

The lack of any viable alternatives to wealth creating fuels will likely make for an equally volatile transition this empire turnover. Will the transition lead to the death of our nation? How quickly can we modify our energy footprint while keeping our lifestyle intact? How will our diminishing middle class respond? How aggressively will our military complex react to greatly diminished budgets? How comfortable will the world be in turning over hegemonic control to China?

No matter our comfort level, the law of exponential growth states that China will propel herself rapidly beyond the economies of the United States and Europe in the coming decade and will boost herself into the next higher orbit. The question for our economies is what we will do as her rockets suck up the remaining rocket fuel reserves on earth. Unlike the United States and Europe, China has an economic booster rocket that can be ignited by the mere flip of a switch. All China needs to do to proclaim readymade wealth is to dial in her currency valuation as required. While it may make her exports less competitive, she already has an impatient interior market waiting for her goods.

So now the stage has been set for the transition and we have five years to position ourselves. Five years is but a day for finessed diplomacy. With our level of political discourse, five years is but an hour for national strategic planning. Without time to create such precise tools for our western civilization, how will EurAmerica react? Will we revert to the thuggery of gunship diplomacy for which we are all too well known by the East?

Is America Prepared for Kamikaze Finance?

Brett Arends, in his April 25th Marketwatch article entitled “IMF Bombshell: Age of America Nears End”  reports that the IMF has predicted 2016 as the year when China’s economy overtakes that of the United States.

http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25

Perhaps the word bombshell is the right allusion.  What comes to mind is America’s shock and disbelief in 1941 that the Japanese could fly formations of attack aircraft for so long under the radar right above sea level to destroy Pearl Harbor.  Just as Americans were unprepared to foresee the stealth attack of Japan even after years of her militaristic advances, Americans have stood helplessly by as the armaments of American financial defense sit helplessly in Congressional harbors of polarized politics.

Two concepts of financial attack seem reasonable afterthoughts.  First is that exponential financial expansion is hidden from radar until the last few years of growth.  American appeasers failed to recognize that as China expanded it’s economy 10 percent per year for 30 years, the law of exponential growth meant China’s economy would grow 800 percent in thirty years, but that the  greatest 400% would occur in the last seven years.  

The second even more ingenious stealth move unforeseen by America but creating an even more shocking surprise attack is that by holding the exchange rate low for so many years, the Chinese were able to fly even lower to the ocean swells and build a purchase power parity empire undetected by conventional financial defenses.

In preparation for this two pronged financial assault,  China has been building the hegemonic relationships that thwarted Japan’s  military attempt to over take the United States just 6 decades ago.   China also was successful in its hegemonic strategy to preemptively gut American factories through the “treasonous”  collaboration of multinational corporations and international banks residing  in financial cells right here in America.  

Our American factories, that were so successful in mounting a war of attrition against the Japanese in WWII, now lay dormant in the rust belt as 24 percent of our capable American workers line the “soup kitchens” of the American social welfare system and charitable organization’s generosity.  This time around, without the physical and financial capabilities to defend ourselves from within, it may be Americans who are forced to display patriotism through financial kamikaze during the end stages of the American empire.

How Could America Have Squandered the Gold of Ancient Egypt and the Incas?

Gold has been the store of human endeavor since ancient times. While each ounce of gold can hold only a finite amount of labor, perhaps 1,000 hours in non-industrialized nations, some of the gold locked in Fort Knox has touched millions of hours of labor from civilizations untold. For gold’s greatest benefit, as with all money, is not its storage of value but its lasting ability to temporarily hold value in the exchange of non-coincidental barters.

For millenniums, money was the interchange commodity for simple trades as between farmers and herders. The farmer gave the herder a coin in winter for meat, and the herder returned the coin at harvest time for a bushel of vegetables. Farmers and herders relied on the value of gold because precious metals took effort to mine and purify, were tested for weight and purity, and could be stamped, coined and carried. With such a universal appeal, precious metals became synonymous with storage of value and dominated the world’s choice for money.

At one point, America held within its coffers 70% of all the gold that has ever been purified from ancient Egypt and the Incas through modern times. But it was our misjudgment as to the true value of gold that robbed our forts of ingots and brought America to the precipice of ruin. As history’s greatest superpower, why did America not learn from ancient empires that tumbled down the path to insignificance, and why did we allow our government to amass more debt than has ever been owed by every other soul that has ever lived?

1964 marked an accelerating turning point in America’s misfortunes. In 1964, President Johnson was elected to enact Great Society reforms just as America was increasing her involvement in Viet Nam. Baby boomers were entering the work force just as multinational corporations were beginning an upsurge of direct foreign investment and the transfer of jobs to overseas markets. America’s use of oil was peaking just as political undercurrents were coalescing around oil as a geopolitical force.

Six simultaneous assaults on the American dollar joined to fuel the American financial malaise; a lack of fiscal adherence to a gold standard, military excursions in support of American interests, funding of the great society, a lack of will to respond to oil cartels, multinational corporate indifference to the plight of the American worker, and a financial industry gone wild.

America did not Steward Its Gold

Even though, for 600 decades of recorded history, gold was the stable base of transactions, the world has temporarily abandoned this gold standard for the last 5 decades. Our abandonment was not because of the world’s enlightenment that gold is an unnecessary physical impediment to the electronic age of finance. It is because, with no viable alternative, the world has clung to the hollowed out American dollar that inflated beyond the discipline of the gold standard.

In the 20th century, industrialized nations twice attempted to redistribute wealth through great wars that left all of Europe bankrupt. Afterward, America held 70 percent of the world’s processed gold, and became through Bretton Woods the gold-backed, paper money guarantor of the free world. During the next 15 years, America squandered her gold to cover currency imbalances, until by 1960 the dollar lost its legitimacy. Interestingly, it took Spain over a hundred years to squander its 20,000 tons of Inca gold.

From 1971 until now, America and the rest of the world have had little choice but to allow our currencies to float, giving up the imperfect discipline imposed by a gold standard. As a result of America’s freewheeling monetary policies, it is now encumbered by a spend drunk Congress and an obliging central bank that have conspired to reduce the value of America’s 1971 fiat dollar to a mere 17 cents today.

Scholars suggest that the reason for the dollar’s fall was the inevitable Triffin dilemma which requires America to carry a current account deficit to provide the world with reserve currency. Yet debt financed trade imbalances are not required to provide reserves. Reserves could just as well have been sold to other countries as given to them through trade shortfalls. No, America’s post war monetary policies quickly gambled away the historical hegemony that was bestowed on us at the end of two world wars.

This five decade hiatus from a gold standard will prove only temporary. Gold’s appeal as the engine of financial growth has not been lost on China. At the end of World War II, U.S. gold reserve was over 18,000 tons but has since reduced to 8,000 tons. China is executing a strategy of purchasing approximately 250 tons per year and, as the world’s largest producer of gold, producing 320 tons per year, and now has surpassed all but the U.S. as the second largest holder of gold with 2,000 tons.

Military Excursions Drained America’s Coffers

Without the ability to borrow vast moneys, earlier civilizations relied on warring, exploration and conquest to quickly expand their stores of gold. This strategy was not without consequences. To fund war, Rome engaged in coin clipping and smelting with lesser metals to reduce size and value of denarius in attempts to pay soldiers with coins of veiled value. After 200 years, the Roman denarius reduced from 100 percent silver to only 5 percent just prior its army leaving Rome unprotected from invasions and fall. Interestingly, it has taken less than 100 years for America’s dollar value to plunge that amount.

As all empires have before, America found that its wars must be financed with inflation. The Fed supported an excessive expansion of the money supply (dollar clipping), creating debt to fund each of America’s wars. The Civil War added 2.8 billion. WWI added another 21 billion. WWII created another $216 billion. The Korean War was financed with taxes. Viet Nam increased the debt $146 billion. Cold war expenditures cost 1.6 trillion. The first Gulf War cost a mere $7 billion. In contrast, Iraq cost $786 billion and Afghanistan cost $397 billion. Not including the 700 foreign soil U.S. military bases that contribute greatly to America’s balance of payments deficit, her major wars added a total of $3.4 trillion dollars of carried debt.

The Great Society Became the Broke Society

President Johnson outlined The Great Society in his State of the Union Speech on January 4, 1965, saying “The great society asks not how much, but how good; not only how to create wealth but how to use it.” Notwithstanding the good that was done by these programs, they drained America’s future potential GDP growth and the money that would fuel her economic engine.

46 years later, Great Society initiatives touched education, health, urban renewal, transportation, arts and culture, Medicare and Medicaid, the Food Stamp program, Project Head Start, The National Endowment for the Arts, The Corporation for Public Broadcasting and federal aid to public education for a total expenditure of $9.5 trillion dollars.

America’s Addiction to Oil Made Us Slaves to the Oil Cartel

Oil enabled powerful nations to create a world order that flowed money from agrarian nations to those that controlled hydrocarbon powered machines. Oil was the catalyst that propelled the 20th century’s world leaders into fortune and thrust the world into war. Oil is a finite fuel, controlled by a few nations that are barely separated geopolitically and have common ancient civilizations and modern goals.

Already struggling from Viet Nam and Great Society debts, America found herself the object of a politically motivated oil embargo in 1973. Fuel prices soared and supplies tightened to cause the 70’s stagflation in America. From then until now, America has not found the political will through fluctuating fuel prices to organize an intervention away from oil dependence.

Since the embargo, America has consumed 250 billion barrels of oil at a total cost of $11 trillion dollars. This debit line in our national budget has only one trade, oil for dollars. Had America given our energy war a smidgeon of the effort of placing a man on the moon, we could have easily reduced energy consumption by 20 percent for the same productive output, transportation, and environmental comfort, and saved 2.2 trillion dollars. Surely, the costs to achieve such a modest conservation would have to be netted from the gross, but those costs could have been internally generated and added to America’s GDP.

America’s Multinational Corporations (MNC) were Indifferent Citizens

While America fought the war on poverty, her political leaders surrendered to the war on American jobs. Certainly, with the relative world peace supported by America’s military, globalization was bound to occur. With the risk of direct foreign investments reduced, the last five decades have unleashed an acceleration of money flow and intellectual capital from America to other countries.

While over 4 trillion dollars have been invested overseas by American uberwealthy, America has also been a receiver of investment, so that the net outflow has only been 0.7 trillion. However, the loss of America’s wealth and jobs has been much greater, contributing to a stagnant workforce where one in four able Americans has been idled. MNC direct foreign investment has indirectly added $4 trillion dollars to America’s debt.

The Fed Financed MNCs and Saved Banks but Failed to Keep America Employed

During most of the 17th century, Europe embroiled itself in wars that killed 30% of its population. Some of the world’s largest banking houses failed as royal debtors defaulted, including England in1672. Finally, in 1694, the king agreed to give the Bank of England authority to print all of England’s bank notes in exchange for bank loans to support his war with France. The newly created Central bank, having transferred its risk of loss to British subjects, profited simply by printing money for the monarchy. However, this excess printing did not stop the emptying of England’s coffers.

After America revolted to escape the monetary control of the Bank of England, Hamilton, the United States’ Secretary of the treasury, proposed a charter to a create a similar central bank for America. Against Thomas Jefferson’s insistence, the First Bank of the United States became the precursor to America’s Federal Reserve. Some say major banks manufactured a bank run in 1907 to destabilize the Treasury and instigate support for the Federal Reserve Act of 1913 establishing the Fed, a quasi-agency, private enterprise with a quasi-public board.

From the establishment of the Fed until today, many have argued that major Fed decisions have enriched banks at the expense of the American People. An example is the erroneous decision the Fed made to keep interest rates high for an extensive period of time as America and the World clearly were entering the Great Depression. Also of heated debate was the decision to bail out the banking industry at the start of the Great Recession.

Nonetheless, Fed decisions combined with lobbied efforts to reduce financial regulations, allowed Wall Street to orchestrate multiple financial bubbles that consecutively destroyed value in American portfolios. It cost taxpayers $88 billion to bail out the S&L crisis. The boiling and bursting of the dot.com bubble evaporated $5 trillion dollars. Notwithstanding that the credit default bubble lost the world $30 trillion in value, it has thus far cost America $51 billion in bank bailouts, $787 billion in stimulus, $1.5 trillion in quantitative easing, $5 trillion in lost property values, and with over 5 million bankruptcies and 5 million foreclosures, ruined trillions of dollars worth of wealth generating credit.

In Conclusion

Adding up the numbers versus our $15 trillion dollar debt, it is amazing that the resiliency of the American economy is thus far holding ground:

10,000 tons of gold: $0.5 trillion
Wars: $3.4 trillion
Great Society: $9.5 trillion
Lack of Energy Policy $2.2 trillion
MNC DFI: $4.0 trillion
Banking Debacles: $12.4 trillion +
Total $32.0 trillion

The idea of currencies unsupported by gold reserves is not in itself troublesome. Whether Crowley shells, tally sticks, or paper money, if the market has trust in its role as a place holder for non-incidental barter, any money will do. However without the external discipline imposed by a gold standard, America must instead substitute gold’s imposition for a President strong enough to stand for American sovereignty, a Fed subjugated to defend a stable currency, a Congress selfless enough to impose its own financial discipline, and a willingness of American businesses to defend American jobs. Otherwise, America’s five decade reign over this short lived worldwide fiat money dollar system will come to an end.

Did China Learn from Japan? You Bet!

In 1853, Commodore Perry, demonstrated United States military force on behalf of U.S. business interests. Perry intimidated Japan into a one sided treaty with threat of vanquishing Japan’s much less industrialized military. Having been subjected to America’s use of colonial might, Japan embarked on the Meiji revolution, a modernization frenzy for 60 years, much as has been occurring in China since the 1978 Four Modernizations.

Just as America colonized through WWII for economic dominance, rationalized with a mistaken belief of cultural superiority, Japan colonized through imperial treaties and war for decades through the 1930s. During this time, similarly to China today, Japan’s leadership inspired a deep devotion to Japan’s destiny through education, media, military and other institutions.

Similarly to China’s concerns today, Japan was unable to limit its urbanization and required rapid GDP growth through the 1920s. When Japan’s economy was devastated by the Crash, instead of leaning socialist like America, Japan’s submitting culture turned militaristic, assassinating its elected Prime Ministers in favor of military leadership.

Japan’s military miscalculated its securing of oil from U.S. controlled colonies and eventually lost the war. After the war, the world, retreating from its wounds, was unable to contain decolonization. However, friendly autocratic governments mostly replaced colonies with terms favorable to business interests. The U.S. policy of world military dominance secured these relationships for a time.

In this environment, Japan thrived applying its discipline and tightly controlled banking and industry to a growth miracle. The miracle ended with bubble inflation caused by non secured raw material inputs, loose monetary policy, and a large rise in the valuation of the yen. Japan’s economy, like the United States, also succumbed to globalization.

Did China learn from these events as it prepared to reenter the world stage? You bet.

Of course, Chinese people are not evil and Chinese have long endured too much racism in America. But, no-one should be deceived by the Chinese government’s strategy to secure enough raw materials during this relatively peaceful period as possible for the future inward growth of their nation before such hegemonic relationships are hindered. China learned from Japan’s pre-war mistakes and will not repeat them.

Yes, the Chinese government is manipulating the value of its currency to give it an advantage in the international market. The idea that it is somehow unfair is a bit weird to me. If China wants to accept fewer dollars for its labor, why is it not entitled to do so? The world’s insistence on revaluing currency higher is just a system like any other. China is only copying a technique well implemented by Japan earlier.

Its U.S. strategy has limits, and China is coming to the end of those limits. China has fed off of the United States as much as it can. As a potential fatal flaw, it may have sucked too much life from its host. China must now somehow realize these saved dollars before Bernanke has a chance to take them back through QE2 and Qex’s.

Will the Chinese government collapse any time soon similarly to the end of the Japanese miracle? Heck no.

Whether Hot or Cold Governance, Middle America Seeks Change

Ah the pleasure of food that is either cold or hot! Place ice in coffee and it becomes lukewarm, and neither hot nor cold, to be spit out of the mouth. Since the time that Barry Goldwater and Mao Zedong coexisted, perhaps the world’s economic and political systems have globalized into a lukewarm concoction, unappealing to the senses, pulled headlong by a decentralized mass of multinational corporations.

As America’s current leadership struggles to redistribute wealth, some in the administration, have reflected admiringly on the ideals of Mao. From Anita Dunn, who said that Mao was her favorite philosopher to President Obama, who was influenced by Saul Alinsky’s Rules for Radicals, the American administration points its ship in the direction of a distant socialist star. In stark contrast, elected Tea Partiers in Congress, repulsed by the mire of Washington’s lukewarm beauracracy, are waving the libertarian flags of Goldwater’s limited government.

Meanwhile, as America’s governance continues to linger in lukewarm languidness, China’s political class is struggling to keep ahead of mass entitlement implied by a move toward socialist capitalism. While a mildly heated temperature can still be felt in China’s economic success, as the acceleration of the Chinese economic miracle begins to fade, the vast middle of China will feel the lukewarm effects of unfulfilled promises as well.

As the great middle of each in our societies is impacted by our own brands of lukewarm politics, some will yearn to spit them out in favor of a fond memory for hot and cold.

Wal-Mart, My Store, Your Job Loss

1984 was the first year I entered a Wal-Mart store. I was assigned to Poteau, Oklahoma, the county’s center with a population less than 10,000. This was a perfect community for Wal-Mart’s initial strategy.  I was amazed by the store’s size compared to the size of Poteau.  Its big box aside the main drag in town was a bit overpowering, but I felt they did their part to minimize it with their elderly greeter. Although Wal-Mart was 22 years old in 1984, it still owned a mere 0.3 percent of the U.S retail market at the time.

I soon found myself by-passing local stores and running to Wal-Mart to buy diapers and other sundries because it was the biggest store in this small town, had most of what I might need, I really had no branded retail outlet to consider as an alternative, and Wal-Mart had the lowest prices in town.  As the years went on, and Wal-Mart began to penetrate more populace communities, I found that Wal-Mart was becoming more of my weekly life.  I began to differentiate purchase decisions between commodities, which I gladly bought at Wal-Mart, and those reserved for my own indulgences, which I reserved for brand stores. Wal-Mart became my accepted outlet for everything from batteries to bar soap.

I reserved other retail outlets for my material comforts.  My flavors, I bought from Fresh Markets.  I bought the the highest quality electronic gadgets of the time from outlets like Best Buy. For a cruise, I chose to upgrade to Royal Caribbean.  Witnessing this behavior, Wal-Mart introduced a few mass marketable selective brands as well.  With a solid understanding of their market position and a drive toward lowest cost, Wal-Mart acquired eight percent of the entire U.S. retail market.

We have come full circle.  Just as the shipping merchants were the kings of commerce pre-industrial age, Wal-Mart dominates the seas today. Wal-Mart’s shipping fleet is a testament to modern technology. Its sleek ships sail fully laden with cargo from China to American ports in 5 days, a full 4 days sooner than the average cargo ships used by others today.  Importantly, Wal-Mart  applied state of the art technology to drive down a major component of their business model.  They had to counteract America’s trading deficits because these floating works of art sail back  to China empty.

To achieve its retail dominance, Wal-Mart has honed its China strategy.  Now, 80 percent of goods sold in Wal-Mart originate in China. The vast majority of China’s retail market is tied to giant outlets like Wal-Mart, Wal-Mart alone accounting for 12 percent of China’s exports.  Our buying behaviors, China’s selling behaviors, and unfortunately net American job losses are intricately entwined through the market engineering of the world’s greatest multinational corporation, America’s largest retailer, and history’s largest company, Wal-Mart.

Will America’s Lack of a Multinational Corporation Policy Bring a Resurgence of War? (Part 1)

World history has been dominated by trade wars and military interventions to resolve trade conflicts. From the 15^th through the 19^th centuries, shipping merchants became wealthy competing for trade routes and exploiting price differences between nations’ captive markets.  Wealthier nations financed mercantilism to increase their gold coffers at the expense of other nations that lacked merchant ships and navies to protect them.

In the 19^th century, those nations of Europe and America that had accumulated wealth through mercantilism, now invested in the transformative industrial innovations of their time.  For much of the 19^th and 20^th centuries, the industrial revolution compounded the wealth of these nations, and advanced the theoretically achievable wealth of the entire world.  However, a concentration of industrial strength by relatively few countries led to export surpluses that drove countries to compete for trade routes, and that eventually caused an eruption of war. 

In the 20^th century, technology advances supported worldwide business capability, yet wars, government corruption, and misguided trade barriers dissuaded businesses from expanding to other countries. But the wars did temporarily thrust underground the notion that trade differences should be settled through bloodshed.  Nonetheless, the United States pursued military dominance.  As the 20th century ended, the U.S. emerged the sole superpower, creating a unique opportunity.  For the first time in history, the entire world could peacefully pursue economic parity.

The world responded by leveraging wage imbalances between the world’s rich and poor nations.  Entire civilizations altered age-old governance systems so their people could participate in world wealth redistribution.  China created a capitalistic engine to support its socialist goals as the center of the ASEAN economy.  India reduced the pressures of its caste system to benefit from newfound prosperity.  And we are witnessing today the Middle East standing up to dictatorships that have shielded their people from participating in the world’s economy

Europe’s and America’s businesses reacted by aggressively expanding into global markets through direct foreign investments of multinational corporations (MNCs). Their expansion resulted in the transfer of both wealth and jobs to other countries, and created a formidable force that wounded America.  As we face down this force, America should be asking the following questions 1) through our military support of world stability, did we better America’s future?, 2) can we simultaneously innovate to advance our nation’s wealth frontier while supporting the rise of the rest of the world?  And 3) have we determined an economic path forward that will protect the world from a reemergence of military struggles?  The answer to these questions will depend on the ability of United States to develop a coherent policy regarding MNCs.

Bruce Nussbaum’s Blog on HBR

 

Bruce Nussbaum recently posted this blog on Havard Business Review.  His message was spot on.  He heralded the issue with trumpets. Multinationals are not just transferring jobs overseas through direct foreign investments.  To gain access to China’s markets, they must couple DFI with technology transfer.    Here is my short editorial.  Our great American hope for competition, American innovation is being sold to the highest foreign bidder.  The way to compete with this innovation drain is to reseed innovation here in the fertile ground of small domestic American businesses.   Now Bruce’s great article:

What’s Wrong With America’s Innovation Policies

10:12 AM Wednesday January 26, 2011
by Bruce Nussbaum  

President Obama gave a stirring speech last night, saying “We need to out-innovate, out-educate, and out-build the rest of the world.” He used the word “innovate” more times in his State of the Union than any other U.S. president. To those of us who believe the future of the country depends on its innovative capabilities, this was hugely positive. But the obstacles to boosting innovation in the US are far higher than the President acknowledged. Indeed, as CEOs gather at the World Econimic Forum in Davos, they are much greater than most business leaders are willing to say.

Here are some harsh truths that President Obama did not face in his State of the Union speech: there is very little actual innovation taking place within Big Business; Washington innovation policy is placing big bets in the wrong places; China’s innovation policy is superior to America’s.

Let me explain. A devastating National Science Foundation Business R&D and Innovation Survey that generated almost no media discussion when it was released in the fall showed that only 9% of the 1.5 million for-profit public and private companies in the U.S. had any product, service or process innovation between 2006 and 2008. Of manufacturing firms, 22% innovated. In non-manufacturing, a mere 8% innovated. As economist Michael Mandel has observed, “you can’t be an innovation economy if only 9% of your companies are innovating.”

Under both Democratic and Republican administrations, for nearly 20 years, Washington has been placing the wrong bet on R&D. Hundreds of billions in government funding has gone into bio-sciences without any significant return. Genonomics was heralded as the Next Big Thing after silicon, the driver of future economic growth. It isn’t producing results in terms of new companies, jobs, or economic growth in general, yet billions more flow into NIH and universities every year.

China’s brilliant “Fast Follower” innovation policy is generating the biggest transfer of technology in history. A combination of state-driven policies is driving this policy — requiring Western companies to partner with Chinese firms to do business; demanding transfer of the latest technologies in exchange for access to markets; favoring “indigenous innovation” in government purchasing; fencing off green and other industries from foreign competition; offering low-interest state-bank loans to local champions. This industrial policy is at odds with WTO standards, but is a boon to Chinese economic growth and a long-term threat to U.S. global competitiveness.

A realistic American innovation policy will need to take these three harsh truths into account. We need a much more skilled business leadership than we have currently, capable of creating as well as managing. We need to refocus government investment into manufacturing, energy, and materials. And we need much more vigorous global economic policy that meets the challenge of China’s innovation policies.

When President Obama speaks of a “Sputnik moment,” he clearly understands the need for innovation. The next step is crafting policies that deal with the harsh truths of American innovation and move us forward.

Bruce Nussbaum is a member of the Council on Foreign Relations. A former assistant managing editor for Business Week, he is professor of Innovation and Design at Parsons The New School for Design.