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Article
Are We Living in a State of Denial?

Global economic woes aside, we might have a solution for US economic growth, if we can get a fresh look at policy.


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Some good news in the midst of all the economic woes showed the government announcing an increase of over 9% in net manufacturing volume, as well as an increase of over 250,000 jobs. We haven’t had an uptick like that for a decade! This news, plus a ribbon cutting ceremony we attended at a manufacturing facility got us a bit cheery.

But global economic woes persist, with a lack of solutions to national problems. The US government could solve its fiscal crisis with bold bipartisan moves. The EU is far more problematic. If you really are broke, unless someone bails you out, the path forward is murky.

Other economies are doing well—Canada, Brazil, and of course India and China, although the latter truly have massive internal poverty woes, themselves. However, their strategies in areas such as education and economic development continue to lift new generations out of poverty. If you’re not in debt, you can actually invest in your future! (See Figure 1.)

Figure 1

Canada, Brazil and China, as nations, are not in debt, but their citizens are not debtors, as a rule. And China’s growth, as we know, outpaces the US. In fact, according to the IMF, our GDP will shrink (Figure 2) over the next few years—ouch!

Figure 2

But it could be that our biggest problem also could be our biggest solution. With China and India now rapidly becoming the world’s biggest consumers, why have we not got more on the table, trade-wise?

Commodities and certain manufactured goods are still most prominently coming from the US, Brazil, and Canada, for example. And although commodity prices are highly variable, the US is a net food producer of astronomical proportion! And we can do more—much more.

Source: By Liu Yiyu (China Daily)

China and India have increased their auto purchases collectively by about 14%. China consumes a huge percentage of the world’s total energy—coal as well as petroleum. They need water, consumer goods, construction and industrial equipment, transportation vehicles, food, and tech goodies. No doubt, they want to manufacture much of what they consume, and this has been problematic for the G-8 nations. Although corporations headquartered within their borders have seen profits rise from sales, the wealth that these global companies distribute to employees and shareholders is elsewhere.

With smaller base populations, countries like Japan lead thru innovation. They still maintain their lead in high-end manufacturing, and manufacturing that has low labor-to-output ratios like semiconductors and nanotechnologies. They need to preserve these industries to improve their balance of trade. The US needs to think about these issues more deeply. What is the right mix, here, since we are not a low population country? Canada has an interesting mix of industry and innovation, as well as being a smaller population country. The point is, your industrial and trade policies need to map to the resources you have. Don’t chase models that might work for another nation with its own unique assets.

Software technology, another longtime Western growth engine, has been challenged, we all know, in China. Censorship and hacking, as well as outright intellectual property (IP) theft has made it challenging to do business and reap rewards for one's innovations in China and in emerging economies all over the globe, where the respect for IP is low, and underground markets for counterfeiting and cyber crime can thrive.

But clearly, China is the symbol for the challenges we face in economic positioning. We don’t mean to deny China their day. But all boats rise with a rising tide. This means that economic and trade strategies have to be thought through by a more collaborative private/public partnership approach, not one with proprietary special interests. Bigger names than mine, like Henry Kissinger, in his book On China, recommend more talk, more mutual learning vs. the dangerous adversarial relationships born of the obviously highly competitive situation we are in. If we don’t rally around these issues we will find these bright spots in the economy fade and we could see more onerous relations amongst many nations that need to be productive trading partners.

References:

See Niall Ferguson’s presentation on understanding the fiscal crisis for some sobering data

Having a China Dream— Interview with author Joe Studwell

Conversation and interviews on Charlie Rose

On China, by Henry Kissinger

For better news, see US Manufacturing Technology numbers here


To view other articles from this issue of the brief, click here.

 

 




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