Over at the Robert Reich blog there is a recent commentary on Chinese currency policy. Reich makes some interesting comments on the Chinese approach to industrialization.

But most fundamentally, China is oriented to production, not consumption. It wants to become the world’s preeminent producer nation. While keeping the yuan artificially low is costly to China — it pushes up the prices of everything China imports — China is willing to bear these costs because its currency policy is really an industrial policy.

We think the basic purpose of an economy is to consume, not to produce. So we only grudgingly support industrial policy. We think of government efforts to rebuild our infrastructure as a “stimulus.” We approve of government investments in basic research and development mainly to make America more secure through advanced military technologies. And we give American companies tax credits for R&D wherever they do it around the world.

Don’t be fooled into thinking that US companies will continue to make big profits from sales in China. China allows big U.S. and foreign companies to sell in China on condition that production takes place in China – often in joint ventures with Chinese companies. It wasn’t American know-how, so it can eventually replace the US firms with China firms.  [Italics by Gaussling]

It seems to me that American policy leaders have no clue whatsoever on how to coexist or compete with China economically. Because of the authoritarianism in contemoporary Chinese culture, they are able to focus their resources on long term goals while we in the USA rely on a kind of economic Darwinism. It seems that we are waiting for the rational forces of the marketplace to take us forward in the economic struggle with China.  In reality, American businesses have no nationality. Their obligation is only to achieve maximum shareholder value, irrespective of parochial concepts of national interest.

Americans like to put on a show of maintaining an orthodox capitalistic stance against a nation state like China. One with a centrally controlled economy.  Unfair currency policy is a foreign policy that China is using to leverage the flow of export dollars their way.  Somehow we are content to play cards with an opponent who has stacked the deck.

It is worth remembering that much of the technology that economically emergent states use to energize their manfacuring sectors was paid for by US citizens over the last 100 years. Electronics , metallurgy, chemistry, aerospace, transportation, automation. The US has made substantial contributions to technologies that are now ubiquitous.

These emergent states have not funded generations of successive invention and improvement to achieve their semiconductor FAB or petrochemical complex. Corporate investors dropped it out of the sky.  This technology that we have been busy exporting has been dearly paid for by generations of hard working citizens here. Yet, through the exercise of advanced business philosophies, this magic of ours has been transplanted off shore to the benefit of a few.

I think there is an assumption that our American democracy is somehow a uniquely robust form of democracy. It is hard to make that argument anymore. A culture that equates money with speech and validates it in the Supreme Court is a culture that accepts the notion that the congress is part of the marketplace of goods and services.

In the face of a shift in the global economic center of gravity, Americans are busy in an orgy of fratricidal disassembly of its institutions. Journalism and independent media come to mind.  The former watchdogs of democracy are now quasi-analytical entertainment divisions of a few major comglomerates.

The market is like a stomach. It has no brain. It only knows that it wants more. I think nations like China know this about us and take full advantage of the fact that we like to wear the badge of orthodox capitalist on our sleeves. In a way we are just country bumpkins who have never traveled out of the county. We’ll be true to our doctrine as we run aground.

I think that, in the end, publically owned corporations will be the death of our economic vitality. Blind reverence for CEO’s who maneuver a dividend no matter what the economic climate force this species of organization to abdicate any sense of national affiliation. It’s been happening for many years. Legions of B-school students study the strategy of Jack Welch and similar ethically agnostic characters who serve the greater good of the corporation.

Instead, legions of B-school students should be trying to figure out how to sustain American manufacturing rather than how to outsource it. These people should not confuse M&A with progress. Making things and offering services that people want is how progress happens. If taxes are too high to sustain business within these borders, then an open effort to bring corporate taxes into line based on mathematically defensable arguments should be made. To work for progress is to be progressive. We need more progressive business people, not more financial wizards. The grownups of America need to step up.

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