First Coffee for November 11, 2005

David Sims : First Coffee
David Sims
| CRM, ERP, Contact Center, Turkish Coffee and Astroichthiology:

First Coffee for November 11, 2005

By David Sims

The news as of the first coffee this morning, and the music is… well, we have Dave Brubeck, some John Cage, some Weird Al Yankovic lined up in the changer, should be an interesting work environment:

First CoffeeSM’s still scratching his head over a Business Week editorial titled “What America must do to compete with ‘Chindia,’“ concerning how we should be “responding” to China and India’s economic “challenge.” Maybe for starters we can stop calling them “Chindia,” a remarkably ignorant, patronizing locution, as if there’s no difference between the two, as if China and India have the same economic strengths and weaknesses, same central policy, same business goals, same problems and issues, same government, same attitudes towards the United States, same food…

(Readers who are reading this off the blog page might want to hit to keep reading, as the italics help.)

BW: Ever since the collapse of the Soviet Union, Americans could reasonably dream of a world dominated by a single superpower: the US. No longer. The rapid transformation of China into an economic powerhouse, and the likelihood that India will follow in its footsteps, means the US must prepare for a far different future, one where it must learn to share economic power as never before.

FC: The article starts off on the left foot – the Soviet Union was never an economic threat to America’s “superpower” status, its demise is irrelevant and confuses the point here. While the Soviet Union was disintegrating under the internal contradictions of state-command economies (hi China) America was competing economically with Japan. It’s Japan’s economic fall that set the stage for China and India’s ascension.

BW: Such change won’t be welcome or easy. But as America’s economic dominance is challenged – China could surpass the US as the world’s largest economy by mid-century, with China and India combined accounting for roughly half of all global output –Washington must craft fresh strategies that will still allow the US to thrive in this new tripartite world order.

FC: Why China and India doing better axiomatically dictates America do worse has never been explained, unless you operate under the delusion that wealth is a static thing, that the pie never gets bigger – if you have more it’s because somebody else has less. Sharp observers of international economics know that wealth is created, and the pie always keeps getting bigger. And the absolute worst disaster is that Washington could start devising new ways to muddle around in the market.

Here’s a good rule of thumb: Anytime somebody claims that a country “could” be somewhere fifty years from now, it’s best to disregard such unsubstantiated speculation. As Chinese economic growth and foreign direct investment are already tapering off here’s a bet that says in five years their growth curve will be a lot lower than it is now.

BW: First, America must renew its commitment to innovation, allowing US companies to keep creating new products and services that customers around the world want. The US has long shown a knack for producing the kind of high-margin manufactured goods (aircraft, construction gear), branded consumer products (Coca-Cola, iPods), and smart intellectual property (movies, drugs) that are hot sellers from Boise to Bangalore to Beijing.

FC: What’s there to “renew?” It’s easier to develop an innovative product or service, protect your intellectual capital and profit from it in America than anywhere else in the world, nobody’s proposing anything to screw with that, the rest of the world has an insatiable appetite for things American, no change on the horizon, what’s the problem? Facts, not empty rhetoric, please.

BW: But today’s Asian competitors are quickly acquiring the technical skills that underlie much of American innovation. For instance, China and India graduate a combined half-million engineers and scientists a year, vs. 60,000 in the US. It’s the same lopsided story in life sciences. Even if training in the US is better – a debatable point – the sheer amount of low-cost brainpower that China and India will have at their disposal will eventually give them an edge.

FC: An edge in what? Outdoing us in movies or aircraft, iPods and Coca-Cola? Ha ha, and ha. “Technical skill” is the least of it, 98.3% of scientists and engineers will never innovate in their lives – Stephen Spielberg and George Lucas didn’t start out as techies on movie sets, Bill Gates and Steve Jobs started out as entrepreneurs who learned technology, not as techno-geeks who learned entrepreneurship.

Entrepreneurial innovation is not an acquired technical skill but the product of a culture which fosters creative, independent thinking, protects intellectual property, rewards successful risk, keeps regulation to a minimum and makes capital readily available to start-ups, a first-class infrastructure open to all and right now there’s no place like America for any of that – certainly not China either now or in the foreseeable future.

The Soviet Union churned out millions of scientists and engineers for decades, where’s all the innovation? The Arab world has thousands of scientists and engineers and has not contributed a single innovation to the world in the past century. You can’t swing a cat on a street in Tokyo without knocking over half a dozen Japanese scientists and engineers and Japan’s famous for not innovating. Does anybody seriously believe that if Steve Jobs and Bill Gates had been born anywhere except America that Apple and Microsoft would exist today?

BW: That’s why it’s time for Washington and the states to set more rigorous standards for instruction in such key subject areas as science and math, where Asian students consistently outperform. It will take years to see the payoff there. In the interim, the government needs to rethink visa changes that, since the September 11 attacks, have made it more difficult for foreign students majoring in technology fields to attend college or graduate school in the US. Many of those students go to work for American companies after graduation, invaluably bolstering our technical competitiveness.

But there’s a lot more than schooling that needs to change. For one, the US has dominated global commerce and culture for so long that few Americans study any language other than English.

FC: First CoffeeSM would really like to see this inane argument about school math and science scores simply evaporate like the mist it is. In America the standardized tests those scores are drawn from are given to all students (everyone takes both parts of the SAT, math and verbal), in most of the rest of the world they’re given to students specializing in those subjects. Imagine if you took all the future English, sociology and art majors’ math and science scores out of the mix – taking out First CoffeeSM’s SAT math scores would have raised his high school’s average a good percentage point – and just reported the math and science scores for the kids tracked into math and science programs, which is what places like China do.

Plus people who witch and moan about our math and science scores never get around to explaining why we, evidently a nation of technical, mathematical and scientific doofuses, so dominate the world economy, scientifically and technologically. Know what the top country in both math and science scores for school kids is? World power Singapore. See how irrelevant they are?

BW: Indeed, only about 9 per cent of Americans speak a second language. More worrisome: Although college enrollment in Chinese language classes has grown 20 per cent in the last decade, the 2000 census found that less than 1 per cent of the US populace speaks Chinese.

FC: How irrelevant. No study ever done anywhere by any organization under any circumstances using any criteria has ever reliably shown that America would be economically, socially, politically, better off if Americans spoke more foreign languages. None, ever, period, end of discussion, how about those White Sox. It’s one of those arrogant little factoids repeated by people searching for some way to look down their noses at America, but please give one solid, concrete proof that if more Americans spoke Chinese we’d be better off. Remember back when we were all urged to learn Japanese? Russian?

BW: That’s fine today, when America still rules the global roost. But given the eastward shift of design and manufacturing and the Asian expansion hopes of many US companies, more Americans must become proficient in local languages.

FC: Here’s the logic in play: A. America’s the world’s dominant economic power, has been for decades now. B. Americans speak relatively few foreign languages. C. The whole rest of the world’s learning English because America is the world’s dominant economic power. Therefore, Americans should speak more non-English languages. Anyone who follows that line of “reasoning” please drop an e-mail.

BW: To be sure, the ascendancy of China and India is not assured. Both countries face a host of challenges that could have big destabilizing effects on the global economy if not handled smoothly.

FC: Both countries face a host of home-grown inhibitions to world economic dominance which will in all likelihood keep them from ever assuming it.

BW: For example, if China’s growth slows and its unemployment rises, it could face political unrest from both those who lose their jobs and the hundreds of millions of peasants still in the countryside. That would surely put a chill on foreign investment and could even disrupt shipments for the hundreds of foreign manufacturers who now use it as a production venue. And China’s fragile banking system, only now starting to face competition from foreign firms, could still implode and roil world markets.

FC: China’s growth is already slowing. Its countryside is already getting a lot angrier and starting to smash up things. Foreign direct investment in China for the first nine months of 2005 is below that of 2004. The sort of saturation investment that followed China’s entry in the World Trade Organization in 2002 is over now, and so are the eye-popping “growth” stats it caused – Volkswagen’s announced it will cut its Chinese investment 40% by 2008, and they won’t be the only ones. Chinese banks live and lend in a highly artificial world of government control – China needs to spend $5 of capital to bring $1 of incremental output, by far a worse ratio than America (or India). This is what living under Communism does to a banking system, and the shift into reality will be brutally harsh whenever China decides to do it.

BW: Meanwhile, India’s public finances are a mess – budget deficits at the federal and state level are near 10 per cent of gross domestic product – and its historical rivalry with neighboring Pakistan could escalate into a military conflict that could stall growth.

FC: India’s public finances have always been a mess. But in the early 1990s they pushed through economic reforms which greatly freed up business and led directly to the current boom. The problem now is that India needs to take on its labor unions to reform its too-rigid labor laws, and convince communists in its own government to go along with things like cutting government spending and boosting infrastructure development, and there’s stiff resistance.

BW: But counting on China and India to falter is foolhardy. Beijing has proven surprisingly adept at managing its economy, tripling per capita income in a generation and attracting tens of billions annually in foreign investment. Likewise, India is putting in place the infrastructure upgrades and reduced bureaucracy to shift it from a services-outsourcing specialist into a broad-based manufacturer in the China mold.

FC: Indian manufacturing is increasing, but its economic advantage will always be in services, and it’s wisely concentrating its energies there. It’s China which is facing an unsustainable path of massive government subsidies to money-losing industries, artificially cheap labor (prison labor, etc.) and when they stop doing that we’ll see the massive social destabilization the government fears more than anything else. Don’t count on them to falter? This is the ignorance of “Chindia:” There’s no reason why India should falter, there’s no reason why China can avoid faltering.

BW: That’s why the emergence of China and India as economic giants should be a wake-up call for America – and the rest of the developed world, for that matter. The “Chindia” region’s mix of cheap skilled labor, capital-friendly governments, and huge domestic markets is simply too potent to be dismissed.

FC: Who’s dismissing it? Nobody First CoffeeSM knows of. So the pie gets bigger in those parts of the world as they create more wealth. Bully for ‘em. We’ll get a lot of that pie. World economics is not a zero-sum game, that’s the old leftist canard which died along with the Soviet Union. Or so First CoffeeSM thought.

“Wake-up call?” From what? Exactly how is America sleeping? Honestly, some people should think about what they write.

BW: So the US must continue vigorously engaging India and China as trading partners who just may fuel its future growth along with their own. Otherwise, America risks becoming the next Old Europe: desperately trying to slow the march of global progress in a vain effort to retain past glories.

FC: True enough about the fate of Old Europe, so calcified it can’t create jobs to save its life (we’re not joking here), but why anybody would even think that America was in danger of that fate enough to write an article on it completely escapes logical thought. If anything it’s the attitude expressed in this Business Week article, that China and India are threats, that would harm America.

So can we all agree that comparing math and science scores of school children around the world is irrelevant apples to oranges and has no bearing on a country’s prosperity or even scientific achievement; that Americans have gotten along just fine speaking English and will continue to do so as the rest of the world graciously learns English too and we don’t particularly need to learn French or Chinese; and that China and India won’t develop into the sort of stable economic powerhouse that America is until they learn to protect intellectual property, make capital readily available to start-ups and reward innovation and that India seems to be smelling the coffee here a lot faster than the Communists who still run China; and that the rise of China and India to whatever level they find should be welcomed, not feared or managed or “responded to” by American business and business regulation?

Thank you.

If read off-site hit for the fully-linked version. First CoffeeSM accepts no sponsored content.

Featured Events