Our Government is Paralyzed and Polarized

I don't always agree with Tom Friedman. He has, for example, been far too enthusiastic about the benefits of globalization. But I think he is spot-on in his recent rant in the New York Times. Taking a page from the recent Wikileaks dustup, Friedman imagines he is sharing with us a cable, intercepted if you will, between Beijing and the Chinese embassy in Washington, D.C. (You can read the whole article here).

The tone is one of satisfaction, even relief, because America is demonstrating a contemptible inability to face up to its challenges, especially those posed by China.  Here are some excerpts.

"Things are going well here for China. America remains a deeply politically polarized country, which is certainly helpful for our goal of overtaking the U.S. as the world’s most powerful economy and nation." 

"...There is a willful self-destructiveness in the air here as if America has all the time and money in the world for petty politics. They fight over things like — we are not making this up — how and where an airport security officer can touch them. They are fighting — we are happy to report — over the latest nuclear arms reduction treaty with Russia. It seems as if the Republicans are so interested in weakening President Obama that they are going to scuttle a treaty that would have fostered closer U.S.-Russian cooperation on issues like Iran. And since anything that brings Russia and America closer could end up isolating us, we are grateful to Senator Jon Kyl of Arizona for putting our interests ahead of America’s and blocking Senate ratification of the treaty...."

"...Americans just had what they call an 'election.' Best we could tell it involved one congressman trying to raise more money than the other (all from businesses they are supposed to be regulating) so he could tell bigger lies on TV more often about the other guy before the other guy could do it to him. This leaves us relieved. It means America will do nothing serious to fix its structural problems: a ballooning deficit, declining educational performance, crumbling infrastructure and diminished immigration of new talent."

"But the Americans are oblivious. They travel abroad so rarely that they don’t see how far they are falling behind... In foreign policy, we see no chance of Obama extricating U.S. forces from Afghanistan. He knows the Republicans will call him a wimp if he does, so America will keep hemorrhaging $190 million a day there."

"Most of the Republicans just elected to Congress do not believe what their scientists tell them about man-made climate change. America’s politicians are mostly lawyers — not engineers or scientists like ours — so they’ll just say crazy things about science and nobody calls them on it. It’s good. It means they will not support any bill to spur clean energy innovation, which is central to our next five-year plan. And this ensures that our efforts to dominate the wind, solar, nuclear and electric car industries will not be challenged by America."

...Thank goodness the Americans can’t read our diplomatic cables."

And that does not address what the Europeans think about us, our broken government, and our downward spiral to oligarchy. That will be another post.

Facts and Filters

  Business media, like all media, has its own internal model or set of assumptions that drive commentary. Publications in the field often engage in obvious ideological cheerleading. On a more subtle level, much of what is written obscures a reliance on a circumscribed model that shapes our views and unconsciously walls off alternative interpretations.

   For example, the June 23 online edition of InformationWeek reported that giant Chinese PC maker Lenovo recorded a 10.2% share of global PC sales, the first time the company has garnered a double-digit share. Lenovo CEO Yang Yuangqing is naturally ecstatic at his company's performance, and gushed about Lenovo's “two-fisted strategy.”

   It's almost as if he thinks Lenovo's innovative products were the reason. Or was it brilliant marketing? InformationWeek seems impressed, noting that Lenovo's 47% year on year sales increase was the industry's highest, but then ponders, almost as an afterthought, why Lenovo's profit margin of 0.78% is so much lower than its American competitors.

   InformationWeek did not bother to connect a few dots. By way of contrast, the print edition of BusinessWeek (April 5, 2010) ran a major article on how Western companies are finding that doing business in China is becoming increasingly difficult. As BW details, Chinese officials are ramping up a variety of neo-mercantilist tactics to ensure the success of Chinese firms and to keep foreign business in check.

   One such tactic is a policy of “indigenous innovation” which means, among other things, government procurement contracts are to give preference to Chinese suppliers. Lenovo was specifically named as a beneficiary of this Japan-inspired policy.

   Combine this with China's weak currency, also the intended result of government policy, and low labor costs, and you have the real reasons why Lenovo is enjoying outsized sales increases. Despite all that, Lenovo registered paper-thin profit margins. So where is the innovation? And with so much in its favor, one might ask why Lenovo does not have large margins to go with its revenues. Either Lenovo is hugely inefficient, or it is dumping products in its overseas markets. The former is possible, the latter would fit in with the neo-mercantilist devotion to market share and reduced emphasis on profits. And as with government favoritism, this is in line with the Japanese experience.

   Two different sets of assumptions on what is driving commerce, two different commentaries, and two very different conclusions on impact and importance.

   Just remember why unemployment is slated to stay chronically high for years to come and why corporations and our government policymakers have allowed manufacturing to deteriorate.

   These are the dots they refuse to connect.