The Race With China—It's America's to Lose
The Pew Research Center recently reported that 15 of 22 nations believe that China has or will replace the U.S. as the world’s leading superpower. When you consider China's directed-propaganda machine and the U.S.'s publicly spirited oppositional government (which is often shameless in its criticism), this hypothesis might seem natural, but it's not a foregone conclusion.
China's recent growth is impressive, but many countries have exhibited mighty growth rates after introducing economic freedoms, not all have been able to sustain it.
In combination with low-cost labor to sell, along with foreign and government investment to spend, growth comes easy. There is a reason that only 31 of 193 nations recognized by the United Nations have durably transitioned from low-per-capita developing countries to high-per-capita developed ones. Putting the pieces in place (such as skills, rules, institutions, and infrastructure) in order to make the transition to an economy capable of continuously driving innovation and productivity is hard.
It's also required for sustaining economic growth.
There are two foundational characteristics underlying every developed country: Economic freedoms that permit the market to decide on resource allocations and political freedoms that allow the people to decide who oversees the institutions that protect their freedoms.
These freedoms permit people to think, speak, meet, pursue work, aspire, and achieve freely, and they ensure that government leaders will not arbitrarily take away the fruits of their freedoms. These characteristics lay a foundation for continuous innovation and increasing productivity. Supporting these freedoms are government institutions that provide for the rule of law, an efficient regulatory environment, and an educational system that encourages a thirst for knowledge and the ability to think.
China permits limited economic freedoms, and skimps on political freedoms. This never works because the two are joined at the hip. How can someone feel free to achieve and acquire, knowing that their fruits can be arbitrarily taken away?
There are about eighty-million Chinese Communist Party (CCP) members and they are above the law. Industry and government leaders holding get-out-of-jail-free cards encourage corruption to flourish. Invisible hand? Humbug. Competition? Nada. This is state-directed cronyism that promotes market inefficiency, demotivates the non-elite majority, and creates a regulatory environment that changes without warning and has arbitrary enforcement.
Educational systems in China emphasize rote learning, not free thinking. Even coursework that encourages free thinking is hobbled by an environment of repression. Repression and innovation mimics oil and water.
Normally, having freedoms and well-developed institutions create the rules and support systems that enable the private sector to do its job—wealth creation.
With a firm foundation, business leaders can focus on motivating and mentoring employees to build innovative, efficient products/services to meet the best market opportunities in the developed and developing world.
In China, business leaders need not bother motivating employees because foundational deficiencies will undermine their attempts. Leaders know that the CCP's overriding objective is control not wealth creation. If anyone had any doubts The Economistjust noted that 72 billionaires in China died of unnatural causes in the last eight years. No private property protections, rule of law, or regulatory certainty motivating wealth creation here.
There are, though, massive amounts of assets controlled by state-owned industries. Imagine the impact of making 20 percent to 30 percent of American industry non-asset producing. Worse, allowing it to work as a negative competitive force on the private sector that has no alternatives, but needs its services.
America is the world's most individually oriented country. This strong individual-orientation irks many, but it is a tremendous source of America's innovative strength. There is a reason Nobel prizes are predominantly awarded to individually oriented, freedom-rich, free-thinking countries. The U.S. leads by 210 with 326 Nobel prizes. Communitarian-oriented Japan has 19. Communitarian, freedom-poor China has two (one is in prison, and one in exile).
Neither China's continued rapid rise, nor America's forecasted descent is assured. Twenty-five years ago, economists predicted that Japan and Germany would overtake the U.S. by 2007. The forecasters failed to properly account for America's freedoms and institutions that allow innovation and productivity to thrive.
Today, America has some institutional cracks to fix to support wealth creation. Government is becoming inefficient and there are fissures in education, like low high school and college graduation rates, and an insufficient emphasis in science, leadership, and international topics. These fixes are critical if the U.S. wishes to maintain its status as the world leader in innovation and productivity, to becoming an export juggernaut serving developed and developing markets, and to providing a taxable base to tackle its unsustainable debt.
While China's population is four times that of the U.S., Americans out-produce the Chinese by more than four times. China does have momentum, but the need to transition its economy to efficiently building innovative products will slow it down.
Super big combined with super unstable and super repressed is not a formula for a superpower—at least not a durable one. Super institutions and super free is. The leading superpower title is America’s to lose.
International economic and business analyst, Kathleen Brush, PhD, MBA, is the author of new book, “Leadership: Getting Ready for the Latest Global Challenges.” Kathleen is a featured columnist on TheStreet.com and has been interviewed on issues of globalization and international leadership on Fox News, CNBC, Fox Business News, PBS, in The Washington Post, Bloomberg BusinessWeek, Entrepreneur, World Trade Magazine, CFO Magazine and more.