Edward Luce, the chief U.S. columnist at the Financial Times at the Financial Times, has distilled the major challenges facing the United States into a single readable, not-too-long (292 pages) book.
Anyone who follows politics will be familiar with some of the problems he cites, but seeing so many of them in one volume can be provocative, not to mention depressing.
Near the end of the book is a line that sums up his views: “America is losing its ability to tackle problems.”
Luce doesn’t offer a list of solutions at the end, but he really doesn’t need to. Many of the problems would be fairly simple to solve. He offers at least two key reasons that they aren’t.
One is the belief, American exceptionalism, that America is superior to everyone else. The NY Times’ Thomas Friedman expertly lampooned this in an imaginary cable from the Chinese embassy in Washington.
“...Americans...travel abroad so rarely that they don’t see how far they are falling behind. Which is why we at the embassy find it funny that Americans are now fighting over how “exceptional” they are. Once again, we are not making this up. On the front page of The Washington Post on Monday there was an article noting that Republicans Sarah Palin and Mike Huckabee are denouncing Obama for denying ‘American exceptionalism.’ The Americans have replaced working to be exceptional with talking about how exceptional they still are.”
This leads to unwarranted complacency.
A second barrier to action is ideology. America used to pride itself on pragmatism. The question to ask of a policy or business practice or government action was simple -- does it work?
Free trade, open markets, tight visa and immigration controls and financial deregulation have taken on the role of ideology -- isn’t it time to ask how these policies are working, especially in the face of competition from countries with strong state governance of their economies? Shouldn’t the rise of China make Americans ask whether industrial policy always fails? Other countries are raising the question, especially after the financial crash led by deregulated banks sent America into a recession.
Over the last two decades, at least, the U.S. has seen a rise in economic insecurity for the American middle class, once the basis of American prosperity. Luce convincingly links this decline to the erosion of manufacturing jobs. GM workers in the 1960s earned the equivalent of $60,000 today plus health care and pension benefits. A Walmart employee earns about $17,500 with few, if any, benefits. Moving from manufacturing to service work usually leads to at least a 20 percent cut in pay. Meanwhile health insurance has become so expensive that people stay in jobs with health coverage rather than starting their own businesses because they can’t risk going without insurance and they can’t afford it at individual rates.
Industrial policy is often opposed by economists, especially those in Washington who are well removed from the nation’s industrial heartland, because it interferes with the market. Let the grimy industrial jobs move overseas to be replaced by high-level service and intellectual work, they contend. (They might worry more now that off-shoring has moved up the skills chain. Investment reports are prepared by Indians who can read company reports as well as anyone on Wall Street, X-rays are examined by radiologists anywhere in the world after moving across fiber optic lines, It’s probably just a matter of time before economists can be outsourced as well.)
Industrial leaders tend to be more practical and more activist than anyone in national politics. (Left and Right labels just don’t help much here.)
Jeff Immelt, CEO of GE, told Luce: “If you even whisper the phrase ‘industrial policy’ in Washington, D.C. today then, within twenty-four hours you will be stoned to death. I mean, China is out there eating our lunch every day but we still won’t challenge the orthodoxy.”
Of the world’s 10 largest airlines, all of whom are customers for GE engines, only Southwest is an American firm. Immelt said that unlike the decades after World War II when American executives rarely traveled outside the country and government officials were world travelers seeking to contain communism, these days Washington has a very parochial view and business executives live on planes as they travel the world to visit their plants and customers.
“Do I think Washington gets how fast and far America’s role is shrinking in the world? Doesn’t seem like it to me,” said Immelt. Leaving industrial policy to chance while China, and others, have active industrial promotion, is just stupid, as Robert Reich has been saying and writing for years.
Andy Grove, the former CEO of Intel, suggests taxing the off-shoring of jobs and getting over the idea that the free market is the best possible system. Luce notes that while China’s leadership is dominated by engineers, engineers are almost entirely lacking in Washington leadership which is run by lawyers and MBAs, not to mention marketing and public relations pros. Senate Majority Leader Harry Reid, in a meeting with Silicon Valley firms, didn’t know what a semi-conductor was, and then kept referring to them as supercolliders.
An Oregon official recounted drinks with officials in Taiwan who, later in the evening, started laughing at America.
“Please keep sending us jobs,” they said. “I realized when they let down their guard that they saw America as a joke. It was a real shock to me.”
Luce is devastating on Washington bureaucracy and its priorities. Germany spends $1 billion a year on trade shows; Washington spends $30 million. The Pentagon runs 23,000 IT systems, the federal government has 56 separate programs to improve financial literacy and still has the lowest rate of income mobility in the industrialized world.
U.S. spending on infrastructure, as percentage of GDP, is less than half Europe’s and under a third of China’s. DARPA, which created the Internet, was restricted to military research only in the 1980s and saw its budget cut.
He describes Washington’s political class as the frog in water as it heats to a boil -- they don’t realize what is happening until it is too late. But it works for them right now -- ten of the twenty richest counties in the country are in the Washington, D.C. metro area.
He said the U.S. needs relief from Sarbanes-Oxley especially for small companies and a permanent tax credit for research and development -- Congress insists on maintaining its power to renew the credit annually, making long-term business plans difficult.
Green policies are routinely defeated by oil and coal interests -- he says fossil fuels own Washington. Or it might be defense contractors -- the five largest spend $100 million a year each on lobbying.
Meanwhile, the President has 3,000 positions that require Congressional approval, the disclosure forms are ridiculously detailed and Congressional approval can take months, all of which discourages a lot of smart people from serving in government. Luce makes a comment I haven’t seen anywhere else -- a lot of Congressional committees are now run by chairs who are second-rate in every way except raising money.
It’s later than Americans think, says Luce. The country desperately needs industrial strength innovation, not just social media, but it has fallen steeply in global rankings for innovation.
“To overcome a problem, you must first recognize that it exists,” an entrepreneur told him.
