Tuesday, July 12, 2011

The Guy With the Dragon's World View

In recent years there has been no shortage of Americans who have visited China and returned to breathlessly report that they have seen the future and it works. Like the Western useful idiots who made similar pilgrimages and paid similar homage to the Soviet Union in the 1920s and 1930s, they usually choose to willfully ignore, deny, or downplay the dark side of the “progress” that these totalitarian societies have supposedly made that makes them superior to the liberal democratic alternatives.

The latest embarrassing example of this unqualified view that all America needs to do is start acting more like the visionaries in China appeared in Saturday’s WSJ. It was penned by Robert J. Herbold, author of “What's Holding You Back? Ten Bold Steps That Define Gutsy Leaders” and was called China vs. America: Which Is the Developing Country?:

Recently I flew from Los Angeles to China to attend a corporate board-of-directors meeting in Shanghai, as well as customer and government visits there and in Beijing. After the trip was over, in thinking about the United States and China, it was not clear to me which is the developed, and which is the developing, country.

Like many who fall for the glittering allure of modern China, Herbold’s conclusions are apparently based on visits to the country’s largest cities. It would be like saying that you understood America because you were in New York and Los Angeles for a few days. Herbold goes on to compare China and America in a number of areas, always finding the latter wanting.

Infrastructure: Let's face it, Los Angeles is decaying. Its airport is cramped and dirty, too small for the volume it tries to handle and in a state of disrepair. In contrast, the airports in Beijing and Shanghai are brand new, clean and incredibly spacious, with friendly, courteous staff galore. They are extremely well-designed to handle the large volume of air traffic needed to carry out global business these days.

In traveling the highways around Los Angeles to get to the airport, you are struck by the state of disrepair there, too. Of course, everyone knows California is bankrupt and that is probably the reason why. In contrast, the infrastructure in the major Chinese cities such as Shanghai and Beijing is absolute state-of-the-art and relatively new.

The congestion in the two cities is similar. In China, consumers are buying 18 million cars per year compared to 11 million in the U.S. China is working hard building roads to keep up with the gigantic demand for the automobile.

The just-completed Beijing to Shanghai high-speed rail link, which takes less than five hours for the 800-mile trip, is the crown jewel of China's current 5,000 miles of rail, set to grow to 10,000 miles in 2020. Compare that to decaying Amtrak.

Infrastructure always seems to be the thing that really gets the China fanboys’ hearts aflutter. It’s the classic “at least the trains run on time” admiration for autocratic rule. And when you visit the large Chinese cities, the roads, rails, and airports are impressive especially if you never wander far from them. Believe it or not, I’m never been through LAX so I can’t compare it directly with the Shanghai airport. But a couple of things should be kept in mind:

1. It’s always going to be easier to fund and build infrastructure when you don’t have all those pesky political considerations that come with democracy. If the one-party government decides it wants to build a road from A to B, there’s little to stand in the way. Environmental and property concerns are not going to be impediments.

2. Some portion of the infrastructure projects in China serve no obvious purpose. It’s infrastructure for the sake of infrastructure. Building roads, bridges, airports, and rail lines are a good way to invest the surplus savings that China has accumulated, provide jobs, and pump up the GDP. There are literally roads to nowhere in China and airports and train stations that are ghostly empty. Now, you can argue that this is building for the future, but it’s not necessarily clear when that future will arrive and if the infrastructure being put in place today will meet the requirements of tomorrow.

Government Leadership: Here the differences are staggering. In every meeting we attended, with four different customers of our company as well as representatives from four different arms of the Chinese government, our hosts began their presentation with a brief discussion of China's new five-year-plan. This is the 12th five-year plan and it was announced in March 2011. Each of these groups reminded us that the new five-year plan is primarily focused on three things: 1) improving innovation in the country; 2) making significant improvements in the environmental footprint of China; and 3) continuing to create jobs to employ large numbers of people moving from rural to urban areas. Can you imagine the U.S. Congress and president emerging with a unified five-year plan that they actually achieve (like China typically does)?

The specificity of China's goals in each element of the five-year plan is impressive. For example, China plans to cut carbon emissions by 17% by 2016. In the same time frame, China's high-tech industries are to grow to 15% of the economy from 3% today.

Really? Really??? Herbold touts the effectiveness of the infamous five-year-planning process. Yes, the same five-year-plans that lead to such wonderful achievements in Stalin’s USSR and Mao’s China. Does anyone out really want the U.S. Congress and president to come up with our own five-year plan and then achieve it? We are still talking about the United States of America here, right?

Government Finances: This topic is, frankly, embarrassing. China manages its economy with incredible care and is sitting on trillions of dollars of reserves. In contrast, the U.S. government has managed its financials very poorly over the years and is flirting with a Greece-like catastrophe.

Here, Herbold has a point. To some extent at least. We all realize the US financial position is unsustainable and change is urgently needed. However, it’s not clear that China’s position is quite the cat-bird seat that Herbold describes. The reality is that no one truly understands China’s finances since transparency is not exactly one of their core values. We do know that their banks are sitting on a boatload of bad loans (usually made to government-owned entities), but we don’t know the true extent of those liabilities and the risk they pose to China’s overall financial stability.

So far, Herbold’s thoughts on China could be characterized as ignorant and misguided. Now, they turn odious.

Human Rights/Free Speech: In this area, our American view is that China has a ton of work to do. Their view is that we are nuts for not blocking pornography and antigovernment points-of-view from our youth and citizens.

Got that? On the one hand we think China has a lot of work to do on human rights and free speech, on the other they think we should be trampling them far more than we do. Who’s to say who’s really right? Hello moral equivalency of the most sinister sort.

The most distressing aspect of Herbold’s willingness to look the other way when it comes to the matter of freedom in China is the casual manner in which he brushes it aside. In a nine-hundred-thirty-eight word piece on China, he spares less than forty words on human rights/free speech and doesn’t even touch on religious freedom, property rights, the justice system or a host of other issues related to freedom and democracy. The elephant in the room has been reduced to a dust bunny and then quickly swept under the rug.

Herbold ends with a summary of the problem for the United States as he sees it (not enough autocracy) and a call to action.

Let's face it—we are getting beaten because the U.S. government can't seem to make big improvements. Issues quickly get polarized, and then further polarized by the media, which needs extreme viewpoints to draw attention and increase audience size. The autocratic Chinese leadership gets things done fast (currently the autocrats seem to be highly effective).

What is the cure? Washington politicians and American voters need to snap to and realize they are getting beaten—and make big changes that put the U.S. back on track: Fix the budget and the burden of entitlements; implement an aggressive five-year debt-reduction plan, and start approving some winning plans. Wake up, America!

Wake up and junk this whole inefficient liberal democracy thing. Sure we’ll have to give up some individual liberties and personal freedoms (overrated anyway if you ask me), but think of the roads, airports, and high-speed trains we’ll get in return. Seems like a small price to pay for some real progress.