Thursday, December 1, 2011

Andy Stern (Former head of Service Employees International Union) Says: "Look to China as a model"

Though I disagree with several of his assumptions, Andy Stern raises some provocative and necessary questions which should make us re-examine America's version of free-market capitalism. Essentially Stern's point is that China, an economy with obvious Communist roots and still very central command/control elements in its current iteration, experiences continued economic growth with the U.S., still reeling from the irrational exuberance of free markets which brought us the technology and later the real estate bubbles, leading to disastrous consequence, as we now know.  Stern freely cites no less a capitalist icon than Andy Grove, who suggests a "third way", neither unfettered free market capitalized espoused by the Milton Friedman's of the world, but not state socialism either; rather, something in between.

All this is important to discuss and flesh out. There is one big Elephant in the living room, however. We have been down this road before. First it was the Western European socialist model, held up as the ideal. A "humane" version of capitalism, that guaranteed not only employment, but steady wages, great benefits and all those long European vacations. Then in the 80's came Japan. "Industrial policy" was the buzz phrase of the era. By golly, went the logic, "only if the U.S. had a MITI", to "pick winners and losers", then perhaps the U.S. could gain its footing and compete against these ferocious competitive challenges from the East.

Yet today, in the year 2011, would anyone on that vast geopolitical chessboard, assessing the relative economic and political strengths, say the U.S. would be wise to "trade places" with either Western Europe or Japan? I think the question itself does not even require one to answer. And this does not even address stuff like "quality of life", "upward mobility" and so on.

So in 2011 we now have China. Is China in the same or similar place Western Europe was in the 1970's and Japan was in the 80's?  A new "bright and shiny" object, that will invariably lose its luster and not come to close to meeting expectations?  Truthfully, I don't know. China is a great and ancient civilization, whose resurgence is not going to disappear. But it has a lot of problems: growing disparities of wealth, a highly over-heated real estate market (think Las Vegas circa 2005 but times about 20), limited if non-existent "rule of law", a lack of innovation, to name a few. I also know that if current growth rates continue China will surpass U.S. GDP in something like 10 to 15 years. But I also recall that in circa 1989 the real estate around the Imperial Palace in Tokyo had a higher valuation than all of the real estate in Canada (or was it California?). In any case, circumstances, therefore, can and do change, eh?  To put things in perspective, even as of today, the GDP of the U.S. is still about equals the GDP's of  China, Japan and Germany COMBINED.


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