The United States vs. China… what’s the prognosis?
By: Michael Greiner
Tags: International Relations, Culture, Economics, China, Economy

The United States vs. China… what’s the prognosis?

Shanghai at night. Photo by Li Yang on Unsplash

Back in the early 1990s, when I was a much younger man, while working as a Congressional staffer in Washington, I witnessed a hearing that has vividly stayed with me since then. In an early morning meeting, the committee my boss served on heard from experts on American competitiveness. After hearing from one witness after another that America was doomed to fall behind Japan, one of the members verbalized what many of us were feeling at the time: “when I woke up this morning, I was in a pretty good mood.”

That morning, we left the hearing room feeling down and discouraged. Of course, we could not know what was about to occur. Within months of that hearing in 1991, the United States would start a revolution in many respects as disruptive as the invention of the printing press. The internet and technology revolution of the era would launch the longest recorded economic expansion in the history of the United States until July 2019, almost doubling the U.S. Gross Domestic Product (GDP) from 1991 through 2000 with an average growth rate of 3.85 percent.

At the same time, Japan entered an extended recession characterized by deflationary pressures. Even now, Japan’s economy has yet to recover the mojo it had in the 1970s and 1980s.

For those old folks like me who remember that era, it was a scary time. I remember the Ford Motor Company ads touting their commitment to “Quality is Job 1” as the U.S. automakers attempted to hold off the onslaught of Japanese vehicles. In 1985, the “Big Three” American automakers, GM, Ford and Chrysler, controlled 73 percent of the U.S. auto market. Now, they struggle to sell 35 percent of the vehicles in our country, a far smaller percent than GM alone once controlled.

While the auto industry has been transformed by the transpacific competition, the world economy has been transformed by the American-led technology revolution. As with any such economic change, winners and losers have been created. In some respects, the frustration of America’s white working class that led to the rise of Trumpism started in that era. Nevertheless, on average, America prospered in the 1990s to a degree not seen in decades.

Now it is the United States that is struggling to regain that economic mojo. And rather than Japan, we now look at China with trepidation. With a population four and a third times the size of ours, and a growth rate that has not dropped below 6 percent since 1991, we have good reason for concern. In this world where power derives from economic strength, the size of China’s economy is projected to eclipse our own in just seven years.

China is feeling strong. Its leader, Xi Jinping has acted aggressively, bullying its neighbors, embezzling from foreign firms, and projecting strength into remote regions such as sub-Saharan Africa. And with Trump’s largely successful efforts to abdicate American global leadership, he has created a vacuum that has allowed China to step in.

And yet, I can’t help but feel like I’ve been here before. The predictions of American economic decline were overstated in 1991, maybe they will be again. That is my hope.

To be sure, we have some problems we must address. Our assault on education funding, especially higher education funding has only accelerated since the Great Recession. At the same time, we have made it more difficult for immigrants to come here, income inequality has reached a nearly all-time high, and we have allowed industries to consolidate under the control of just a few firms. In this way, we have hobbled ourselves in the competitive strengths we have relative to other countries: our higher education system, the ability for immigrants to bring their energy and ideas here, our willingness to allow people from all backgrounds to participate in our economy, and the dynamism of our markets. These factors combine to create a level of innovation and creativity unequaled anywhere else in the world.

And yet, by our policies, we are giving away those advantages. These trends have produced a troubling result. Here, in the home of entrepreneurial capitalism, entrepreneurship has been steadily declining, going down by about 50 percent from 1978 to 2011

These potential American advantages are particularly potent when compared with China’s potential weaknesses. In 2014, the Harvard Business Review published an article entitled “Why China can’t innovate.” The gist of the article was that decades of investment in research and technology in China has failed to produce the kind of dynamism historically present in the United States. The authors argue that the reason for this deficiency is the inability of the government to let go of the levers of power and thus allow innovation to flourish. Remember that the government opening up the internet to private activity (thanks in large part to Al Gore) was what drove the last period of exceptional American innovation and growth. China won’t allow that to happen.

We see evidence of the iron grip of Chinese society stifling innovation everywhere. Xi has engaged in a veritable reign of terror, purging more than 1.5 million government officials, military leaders, and party elites. Anyone who becomes wealthy and successful through their own efforts becomes a target. Just look at what is happening to Jack Ma, one of China’s foremost entrepreneurs.

The differences between the two countries are more than just policy differences. Based upon his experience working with different divisions of IBM, Dutch sociologist Geert Hofstede identified six dimensions that define national cultures. China and the United States display massive differences in the dimensions of individuality vs. collectivism, long-term orientation, indulgence vs. restraint, and power distance. In other words, in the United States, our culture respects people behaving independently, focusing on producing short-term results, acting rather than thinking, and respecting all people regardless of their position. China, however, takes the opposite position on all four of these dimensions.

I heard an example of this on the radio. The NPR show Marketplace was interviewing former Fed Chair Ben Bernanke and former Treasury Secretaries Tim Geithner and Hank Paulson. The host asked his guests if he could call them by their first names rather than by their titles. All three readily agreed. That is an example of the American ideal of low power distance. In most other countries, people with such distinguished backgrounds would want to be called by titles reflecting the respect they believe is their due. But not here. That is an example of differing cultures.

Taking this example further, then, in the United States, the janitor can approach the CEO with an idea. In fact, management scholar Henry Mintzberg pointed out that about 40 percent of American strategic ideas emerge from within the firm’s operations rather than being designed by the leadership. China and other countries, with their higher power distance, close themselves off from that kind of creative input.

These differences can have negative implications to be sure. The recent covid crisis provides us with a case in point. While China was able to turn around its economy and culture on a dime, quickly isolating the virus, the United States has dithered and argued, turning the simple wearing of masks into a political statement. That is the negative ramification of our obsession with independence over collectivism. At the same time, it is that independence, in part, that allows innovation and creativity to thrive. We respect the rule breakers, we “think different.” Those are not values shared with China.

There are those who argue that Xi’s strong-armed actions represent a last gasp of China facing a demographic crisis much like Japan has (see Helen Raleigh’s book, Backlash: How China’s Aggression Has Backfired). What’s more is that Xi has made spurring innovation a priority. But you can’t impose innovation; it comes from a culture that values free thought from unexpected sources.

If we as a nation can address our challenges to re-energize our economy, nothing can stop us. But if we continue to step on our own advantages and hobble ourselves, China has nothing to fear.

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