Open For Closure

The U.S. is currently the world’s leading economy.  Leadership is important.   Leadership has it rewards.  We do ourselves a disservice by not manifestly maintaining our national and economic leadership.  Leadership comes with risks.  Being the leader always attracts those competitive followers who strive to depose the leader using any means necessary.  Our committed competitive adversaries use our open society and leading technology-based economy against us to pursue policies designed to eventually close us down—to close and foreclose advantageous opportunities and pathways for our society to achieve greater prosperity and well-being.  Regarding their competitive strategies of those aiming to take our place, China’s motivations stand out.  They have the most obvious and persistent envy and jealously of U.S. leadership.  For China, the Cold War never ended, but turned into a consequential Cash War at which they are currently succeeding using their own art of war with massive and long-term initiatives.  They’ve aggressively acted.  The US has been passive.

It has been said that there are 57-kinds of capitalism.  This invites the add-mixture and incorporation of 57-kinds of socialism into capitalism up to and including a point—an end point, societal failure.  As such, socialism always depends on capitalism to a degree.  Capitalism typically produces higher productivity, socialism does not.  For example, even with its social divides, per capita GDP under capitalist Rhodesia was historically greater than recent socialist Zimbabwe per capita GDP.  The latest 20-year recipe of fully infused socialism used in Venezuelan capitalism ended in total economic failure and human suffering.  Like Zimbabwe, annual inflation in Venezuela also exceeded 1 million percent.  Likewise hoping for revolutionary purity established from an outset, communist-socialism was supposed to be the ultimate Utopian state of the world according to those promoting said ideological systems.  But, the Iron-Curtain rusted even while the Bamboo Curtain also rotted.  In the end of every empirical example, abject socialism of every proportional mixture had become an obstacle to their several national well-beings and economic survival.  For example, after the fall of the Berlin wall, the writing was truly on every remaining centrally planned-economy wall describing the need for a scrapped or reformed socialism while the rest of the world moved ahead.  So, by leveraging its residual police state structure and state police, surviving Russian bosses (KGB) embraced crony (oligarchy) capitalism for use and control of its basic factor natural resources endowment and extractive-based economy.   As a result of their chosen sub-optimal route, world leadership and economic domination is also currently beyond the reach of Russia.

But, China was different.   To save face and power, they bifurcated—copied the West and ideologically evolved.  Commencing in the early 1990s, China set out on an extensible multi-year plan designed to correct and accommodate any failing concurrent and less pragmatic party policies so as to eventually adapt and dominate the world both economically and sociologically with its own new brand of perverse capitalist socialism.  Many are waking to this pervasive strategic threat.  Read The Hundred-Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower by Michael Pillsbury of the Hudson Institute.   Also read Death by China: Confronting the Dragon – A Global Call to Action by Peter Navarro and Greg Autry.

China is still determined.  Manifest historically and contemporaneously, it is still their innate systemic proclivity to dominate all interactional content and context in their country by leveraging their massive culture.  Such social-political quantity generates a host of unique qualities.  It is a massive cultural resource endowment with an aggressive attitude.  China’s world view of domination is still their persistent aim commencing with the exploitation of its own massive available cheap labor factors.  Applying such factors to competition, their self-regulating family-like discipline and metaphoric Bible is still The Art of War by Sun Tzu.  Even rooted in their own language, “China” means center country.  “Foreigner” in Chinese means inferior barbarian.  China believes they are and shall be in any event the better family.  To be the better using any means, cheating at business in China is considered cleaver—also, they have a cultural aphorism, “To steal an invention is easier than inventing it.”  These are accepted and pragmatic norms practiced over millennia by a culture whose common greeting to each other is not something like how-are-you-doing? but rather actually, have-you-eaten-today?  Hunger is a driver of many ambitions, especially for power.  A necessitous man is not a free-man—he is willingly trapped in existential schemes to survive and win.

If you can’t beat ‘em, join ‘em—seemed rational behavior for China after the collapse of orthodox communism.   Pirouetting from failed and costly past ideological and national mistakes, China learned very quickly to improve—especially from other successful nations.  We talk of the economic miracles of Japan and Korea since WWII and the Korean Conflict.  Look at China since 1990.  Go to any big-box retailer.  Walmart is a showroom store for Chinese goods.  The U.S. has turned into an outlet store for China.  Anything for sale made in the U.S.A. is becoming the rarest of trademarks.

Now, China’s motto is If you’re ‘gonna join ‘em, beat ‘em.  Check out worldwide trade imbalances with China.  By its elevated participation and maniacal entrance into the World Trade Organization, the world has been in a trade-war with China since 1990, but no one admits it.   China is winning.   China believes it can achieve superior and sustainable national wealth without any social regression because of its cultural purity and discipline.  On the other hand, mixed, benevolent and open societies generate unintended consequences and vulnerabilities, which can be exploited.  Like a typical product life-cycle, without national improvement, we sow the seeds of our own national obsolescence and productivity destruction.   Commencing in the later wealth-stage of national development, the early stages of national regression are usually a function of competitive complacency and burgeoning social entitlements.  Largess turns to lethargy.  As a function of these circumstances, the U.S. is ironically currently open for potential closure.  The U.S. must remain open, but never be vulnerable to loss or closure.  Leadership is never achieved or sustained by lagging behind in any weakened way.  Leading from behind is a myth.  Leadership is strategically maintained by fair trade-offs not free trade-offs.

China started with virtually nothing—and has created virtually everything mostly by exploiting the US.  It knew nothing about how to proceed at first.  China didn’t have to.  We literally handed them the proverbial DIY book.  China read the book, extracted the most strategic bits and executed it nearly perfectly.   They did it by the book—from our totally open R&D achievements published at the USPTO and voluminous managerial accounting/economics books.  Using (unauthorized) our published intellectual property and economic research against us to accelerate their growth, China has toppled barriers and leaped ahead in and through its comparative natural stages of national development since 1990.  Its generous preexisting endowment of low-cost labor was first exploited to disrupt and penetrate worldwide manufacturing segments with low-cost finished and durable goods.  Next, its entire investment stage was accelerated and subsidized by currency and exchange-rate manipulation to significantly reduce its national cost of capital.  Money flowed in.  Its innovation stage was established and sustained by intellectual property theft and forced technology transfer from joint venture partners.  Carefully and centrally managed by the Communist Party’s “landlord-based” socialist economic development model, its current renter-tenant population of Flintstone vs. Jetsons economic classes have narrowed and their purchasing power and political family loyalty is kept together by lower national taxes and compulsory social-media pledges of adherence to their own variant of quasi-capitalist socialism.  As a result, China is prospering with few business cycles.  With both plentiful guns and butter, China is now entering its wealth stage of economic development with a balanced arsenal of economic tools fully usurped from and financed by both unwitting and collaborative trading partners.  As a result, the quasi-quisling world has helped create and sustain a self-declared master political system and juggernaut economy, second only to the U.S.

Outsourced will be followed by sole-sourced.  Made in China will be followed by Owned in China.  As Chinese intelligentsia read this searchable online op-ed, they already know the end-game—their massive and growing accumulation of cash will be used by the Communist Party to go on a step-wise global brand-buying-binge together with developing plenty of follow-up product market services to cement long-term brand loyalty.  They have the cash.   For one example, Volvo, the Swedish luxury car brand, is a subsidiary of the Chinese automotive company, Geely Holding Group.  Under contract manufacturing terms and forced technology transfer, China already make most of the accepted world-wide corporate consumer brands.  Here is a list of the biggest U.S. firms to be swallowed, or are soon to be swallowed, by a Chinese company, according to Dealogic.  See Fortune.

After additional acquisitions and holding firm to their stated One-Road-One-Belt strategy, they will then fully own most the major brands and fully support these brands to the passive satisfaction of their customers.  With that, their current profits will accelerate.  After that, and a few years of further market penetrations, their per capita GDP will be unsurpassable.  The U.S. will then fade even faster.  So will everything else related to U.S. leadership.  This has been memorialized by various other observers.  Take Michele Nash-Hoff in  Industry Week,  Jan 09, 2018.  She asks in her headline, ” Should We Allow the Chinese to Buy Any US Company they Want?  See IndustryWeek.  Investment is good, but foreign investment must first be deemed good.

When China was naively granted Most Favored Nation status, the thinking was that if China could become as rich as America, they would be as nice and as fair as the U.S.  This grant helped evaporate the middle-class in the US by wealth transfer to China.  This class-removal thinking must be carefully reevaluated.  China still believes that it will be the world’s center-country with ultimate eminent domain and a growing middle-class.  That means China is certain to become a leadership threat to the U.S.  Would the world be a better place with China leading the way?  By comparison, has the world been better off with the U.S. leading?  Is there any defense for the U.S to keep its preeminent economic position?  More importantly, can the U.S. dollar retain and defend its reserve currency status?  To be the reserve currency is the global prize.  This key question must be the paramount concern for the Federal Reserve System.  The Federal Reserve is the ultimate caretaker of the U.S. economy and its leadership position in the global marketplace.  With so much at stake, there must be one best leader.  It is unthinkable to have a world where the U.S. dollar is not the reserve currency.   The U.S. dollar is in clear and present danger of losing that reserve currency status.  The U.S. must give full consideration and attention to its comparative national existentialism.  Resistance to predatory trade is not futile.  Our unique economic essence should not be added to the Chinese collective.   The U.S. has everything to lose.  China has everything to gain.  If not already woke, Wake up Federal Reserve System!

Among those who may be concerned, what is left to do?  Change the weather.  Among and between nations, recessions are still the great equalizer or deminimizer.  Recessions are like the weather, no one nation is immune from their economic existence and adverse effects.  Like weather, if recessions could be predicted with sufficient advance notice and strategic precision, recession knowledge and foreknowledge could be a safeguard or even weaponized and used by central banks to protect and defend their host economies and economic systems.  That way, their economies would be seemingly fully open but a fortress of counter-cyclical stability.  And, as a practical matter, this ultimate and immeasurably invaluable economic weather-controlling trade secret should belong to the leader.  So far, as admitted over the years by U.S. Central Bank leadership, this predictive economic  ability has not yet been obtained.  What if China were to develop this predictive decision-advantaged asset first?  We need to win an intellectual property economic arms race to strategically control the commercial weather, especially ours.