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"Victory will never be found by taking the line of least resistance." Winston Churchill

If people no longer expect objectivity from their political and legal systems, then all justice will be reduced to a power struggle between conflicting and irreconcilable perspectives, a struggle in which the most dominant and pervasive bias will replace fair and impartial process as the character of justice. But if objectivity in law and politics is everywhere supplanted by conflict between subjective interests, then the side of economic privilege and established authority will always retain dominance. A society in which people no longer expect representatives of its major institutions even to attempt to render objectivity in their professional demeanours is a society whose major institutions are in a crisis of ethical legitimacy. In such a society, there is wide spread cynicism regarding the possibility of fair political process because it seems impossible that impartial, unbiased dispositions could exist to enact such processes.

Robert Nicholls

Language and Logic

Monday, October 29, 2012

Strategic Capitalism: The New Economic Strategy for Winning the Capitalist Cold War

Strategic Capitalism: The New Economic Strategy for Winning the Capitalist Cold War

  • The world’s best competitors—with China in the lead—have adopted elements of managed capitalism, in which government and businesses work together toward a single aim.
  • China’s objective is clear—to displace the United States as the world’s economic leader by becoming the global rule maker.
  • If the West does not act soon, it stands to lose everything it holds most dear: financial prosperity, economic freedom, geopolitical power, national security, and even democratic values.
This is disruptive innovation on a global scale. But instead of companies using breakthrough products and brands to gain market share, nations are devising “game-changing” economic systems to seize influence over—and beyond—the global economy.
Bleak as the situation may be, D’Aveni contends that the West can reverse the trends currently tilting the global balance of power.
In order to meet the challenges of the future, America must revisit long-held assumptions about economics and economies, seriously consider radical alternative policies, and embrace the concept of Strategic Capitalism.

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Author d'Aveni describes how the new 'economic cold war' began, how the best competitors utilize managed capitalism (government and business working together), and what America will lose if it doesn't act soon. The Forward is by Daniel DiMico, Nucor CEO, and also is noteworthy. Mr. DiMico asserts that we are losing the trade war with China - it has already cost us millions of jobs, thereby devastating our middle class and government at all levels. He contends we need to enforce existing trade laws and agreements to right things. Second, he contends we need a national industrial strategy to replace the wishful thinking that a service-based economy can replace manufacturing as a wealth-creating engine. (Manufacturing used to be 30% of GDP, now it's at 9.9% - recommends 20%.)

Traditional American capitalism has become outdated. We have tied our hands and closed our minds - sticking to politically correct discussions. It makes no sense for a nation to maximize stockholder wealth transferring jobs and capital to foreign markets, leaving one's own people without jobs and unable to pay their mortgages. This is the equivalent of milking a mature nation (the U.S.), risking its ultimate survival. We need to stop accepting our weak economy as the 'new normal,' stop being distracted by wars, terrorism, gay marriage, etc, stop relying on theories encapsulating what used to work, stop focusing on the short term, stop believing that Free Trade with China, Mexico, etc. is not a mostly win-lose proposition, and stop predicting (hoping) that China's economic miracle will not last.

The 'really bad news' is that we're handcuffed by debts and deficits, our government decisions in these areas are made by professional politicians lacking expertise, cobbled together behind closed doors with strong (bud well hidden) biases purchased by political donors, numerous compromises that breed inconsistencies, conflicts, and holes. Suggests consolidating eg. The Commerce Dept., SBA, and several other agencies as a first step (proposed by Obama), and removing Congress from the equation.

Japan was the first to burst America's Free Trade honeymoon post WWII, treating customers, suppliers, and employees well, and refining its manufacturing skills to produce both better quality and lower costs. Japan, however, was dependent on the U.S. for its military defense, and probably too amenable to U.S. prodding - eg. follow accepted international monetary policy, leading to internal inflation. China, however, owes the U.S. nothing, has a much larger population (greater leverage over companies and investors, a seemingly infinite supply of low-cost labor, and strongly held values in which individuals are expected to sacrifice for the common good). It also has mastered the ability to use its firms as instruments of state and foreign policy, takes the long-term view, and does not manage to maximize profits. The CCP appoints at least the top three positions in each of its 50 largest SOES, and other state asset supervision entities control appointments at many others. (SOEs make up about half the economy.)

Our laissez-faire approach lacks national goals, forces firms to march to Wall Street's tune, allows businesses to be managed for the almost exclusive benefit of stockholders, and permits large numbers of jobs to be sent overseas - impoverishing the general public. Our approach also created three major recent problems - the Internet bubble, the real estate bubble, and then the credit crisis.

China's Three Gorges Dam provides 8X the power of Hoover Dam. It is targeting for non-fossil fuels to generate 15% of energy by 2020, and building one nuclear power plan/month.

China's Five Year Plan mandates that Chinese components replace foreign parts in all core infrastructure.' Chinese piracy costs an estimated $48 billion in U.S. 2009 sales (2.1 million jobs).

In 2000, most countries traded much more heavily with the U.S. than China. By 2010, India, Russia, Spain, Germany, Indonesia, Italy, and Japan had moved into China's trade dominance, leaving the U.S. with Turkey, Canada, Mexico, and the U.K. China is the world's largest exporter (> $1.2 trillion, then Germany at $1.2 trillion, and the U.S. at slightly less than $1 trillion).

U.S. annual government investment in infrastructure (2.4%), China (9%), Europe (5%). the national U.S. savings rate was 4.6% on 1/1/12, vs. 14.6% in 1975. Germany's is 16%, China's 38-53% (depending on which recent year).

The Heritage Foundation produces an 'Economic Freedom Index' comparing various nations. In the early 2000s, those with the least freedom grew the fastest, and by 2009 the relationship was negative. (Wealth/capital vs. the Freedom Index displays the expected pattern - for now.)

We need goals, depoliticizing the economic, long-term perspective, some free-market incentives, nationalism, benchmarking, experimentation, the ability to address problems quickly, and continuous improvement. The author also recommends we push China to comply with the agreements it has made, and establish a list of strategically important industries for ourselves - eg. telecommunications and heavy equipment, steel, IT, robotics, machine tools, etc., and return their production to the U.S.