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China's Superior Economic Model

online.wsj.com/article/SB10001424052970204630904577056490023451980.html

The free-market fundamentalist economic model is being thrown onto the trash
heap of history.

By ANDY STERN

Andy Grove, the founder and chairman of Intel, provocatively wrote in
Businessweek last year that, "Our fundamental economic beliefs, which we
have elevated from a conviction based on observation to an unquestioned
truism, is that the free market is the best of all economic systems—the
freer the better. Our generation has seen the decisive victory of free-
market principles over planned economies. So we stick with this belief
largely oblivious to emerging evidence that while free markets beat planned
economies, there may be room for a modification that is even better."

The past few weeks have proven Mr. Grove's point, as our relations with
China, and that country's impact on America's future, came to the forefront
of American politics. Our inert Senate, while preparing for the super
committee to fail, crossed the normally insurmountable political divide to
pass legislation to address China's currency manipulation. Secretary of
State Hillary Clinton, former Gov. Mitt Romney and President Barack Obama
all weighed in with their views—ranging from warnings that China must "end
unfair discrimination" (Mrs. Clinton) to complaints that the U.S. has "been
played like a fiddle" (Mr. Romney) and that China needs to stop "gaming" the
international system (Mr. Obama).

As this was happening, I was part of a U.S.-China dialogue—a trip organized
by the China-United States Exchange Foundation and the Center for American
Progress—with high-ranking Chinese government officials, both past and
present. For me, the tension resulting from the chorus of American criticism
paled in significance compared to reading the emerging outline of China's
12th five-year plan. The aims: a 7% annual economic growth rate; a $640
billion investment in renewable energy; construction of six million homes;
and expanding next-generation IT, clean-energy vehicles, biotechnology, high
-end manufacturing and environmental protection—all while promoting social
equity and rural development.

Some Americans are drawing lessons from this. Last month, the China Daily
quoted Orville Schell, who directs the Center on U.S.-China Relations at the
Asia Society, as saying: "I think we have come to realize the ability to
plan is exactly what is missing in America." The article also noted that
Robert Engle, who won a Nobel Prize in 2003 for economics, has said that
while China is making five-year plans for the next generation, Americans are
planning only for the next election.

The world has been made "flat" by the technological miracles of Andy Grove,
Steve Jobs and Bill Gates. This has forced all institutions to confront what
is clearly the third economic revolution in world history. The Agricultural
Revolution was a roughly 3,000-year transition, the Industrial Revolution
lasted 300 years, and this technology-led Global Revolution will take only
30-odd years. No single generation has witnessed so much change in a single
lifetime.

The current debates about China's currency, the trade imbalance, our debt
and China's excessive use of pirated American intellectual property are
evidence that the Global Revolution—coupled with Deng Xiaoping's government
-led, growth-oriented reforms—has created the planet's second-largest
economy. It's on a clear trajectory to knock America off its perch by 2025.

As Andy Grove so presciently articulated in the July 1, 2010, issue of
Businessweek, the economies of China, Singapore, Germany, Brazil and India
have demonstrated "that a plan for job creation must be the number-one
objective of state economic policy; and that the government must play a
strategic role in setting the priorities and arraying the forces of
organization necessary to achieve this goal."

The conservative-preferred, free-market fundamentalist, shareholder-only
model—so successful in the 20th century—is being thrown onto the trash
heap of history in the 21st century. In an era when countries need to become
economic teams, Team USA's results—a jobless decade, 30 years of flat
median wages, a trade deficit, a shrinking middle class and phenomenal gains
in wealth but only for the top 1%—are pathetic.

This should motivate leaders to rethink, rather than double down on an
empirically failing free-market extremism. As painful and humbling as it may
be, America needs to do what a once-dominant business or sports team would
do when the tide turns: study the ingredients of its competitors' success.

While we debate, Team China rolls on. Our delegation witnessed China's
people-oriented development in Chongqing, a city of 32 million in Western
China, which is led by an aggressive and popular Communist Party leader—Bo
Xilai. A skyline of cranes are building roughly 1.5 million square feet of
usable floor space daily—including, our delegation was told, 700,000 units
of public housing annually.

Meanwhile, the Chinese government can boast that it has established in
Western China an economic zone for cloud computing and automotive and
aerospace production resulting in 12.5% annual growth and 49% growth in
annual tax revenue, with wages rising more than 10% a year.

For those of us who love this country and believe America has every asset it
needs to remain the No. 1 economic engine of the world, it is troubling
that we have no plan—and substitute a demonization of government and
worship of the free market at a historical moment that requires a rethinking
of both those beliefs.

America needs to embrace a plan for growth and innovation, with a
streamlined government as a partner with the private sector. Economic
revolutions require institutions to change and maybe make history, because
if they stick to the status quo they soon become history. Our great country,
which sparked and wants to lead this global revolution, needs a forward
looking, long-term economic plan.

The imperative for change is simple. As Andy Grove pointed out: "If we want
to remain a leading economy, we change on our own, or change will continue
to be forced upon us."

Mr. Stern was president of the Service Employees International Union (SEIU)
and is now a senior fellow at Columbia University's Richman Center.


China's Superior Economic Model

online.wsj.com/article/SB10001424052970204630904577056490023451980.html

The free-market fundamentalist economic model is being thrown onto the trash
heap of history.

By ANDY STERN

Andy Grove, the founder and chairman of Intel, provocatively wrote in
Businessweek last year that, "Our fundamental economic beliefs, which we
have elevated from a conviction based on observation to an unquestioned
truism, is that the free market is the best of all economic systems—the
freer the better. Our generation has seen the decisive victory of free-
market principles over planned economies. So we stick with this belief
largely oblivious to emerging evidence that while free markets beat planned
economies, there may be room for a modification that is even better."

The past few weeks have proven Mr. Grove's point, as our relations with
China, and that country's impact on America's future, came to the forefront
of American politics. Our inert Senate, while preparing for the super
committee to fail, crossed the normally insurmountable political divide to
pass legislation to address China's currency manipulation. Secretary of
State Hillary Clinton, former Gov. Mitt Romney and President Barack Obama
all weighed in with their views—ranging from warnings that China must "end
unfair discrimination" (Mrs. Clinton) to complaints that the U.S. has "been
played like a fiddle" (Mr. Romney) and that China needs to stop "gaming" the
international system (Mr. Obama).

As this was happening, I was part of a U.S.-China dialogue—a trip organized
by the China-United States Exchange Foundation and the Center for American
Progress—with high-ranking Chinese government officials, both past and
present. For me, the tension resulting from the chorus of American criticism
paled in significance compared to reading the emerging outline of China's
12th five-year plan. The aims: a 7% annual economic growth rate; a $640
billion investment in renewable energy; construction of six million homes;
and expanding next-generation IT, clean-energy vehicles, biotechnology, high
-end manufacturing and environmental protection—all while promoting social
equity and rural development.

Some Americans are drawing lessons from this. Last month, the China Daily
quoted Orville Schell, who directs the Center on U.S.-China Relations at the
Asia Society, as saying: "I think we have come to realize the ability to
plan is exactly what is missing in America." The article also noted that
Robert Engle, who won a Nobel Prize in 2003 for economics, has said that
while China is making five-year plans for the next generation, Americans are
planning only for the next election.

The world has been made "flat" by the technological miracles of Andy Grove,
Steve Jobs and Bill Gates. This has forced all institutions to confront what
is clearly the third economic revolution in world history. The Agricultural
Revolution was a roughly 3,000-year transition, the Industrial Revolution
lasted 300 years, and this technology-led Global Revolution will take only
30-odd years. No single generation has witnessed so much change in a single
lifetime.

The current debates about China's currency, the trade imbalance, our debt
and China's excessive use of pirated American intellectual property are
evidence that the Global Revolution—coupled with Deng Xiaoping's government
-led, growth-oriented reforms—has created the planet's second-largest
economy. It's on a clear trajectory to knock America off its perch by 2025.

As Andy Grove so presciently articulated in the July 1, 2010, issue of
Businessweek, the economies of China, Singapore, Germany, Brazil and India
have demonstrated "that a plan for job creation must be the number-one
objective of state economic policy; and that the government must play a
strategic role in setting the priorities and arraying the forces of
organization necessary to achieve this goal."

The conservative-preferred, free-market fundamentalist, shareholder-only
model—so successful in the 20th century—is being thrown onto the trash
heap of history in the 21st century. In an era when countries need to become
economic teams, Team USA's results—a jobless decade, 30 years of flat
median wages, a trade deficit, a shrinking middle class and phenomenal gains
in wealth but only for the top 1%—are pathetic.

This should motivate leaders to rethink, rather than double down on an
empirically failing free-market extremism. As painful and humbling as it may
be, America needs to do what a once-dominant business or sports team would
do when the tide turns: study the ingredients of its competitors' success.

While we debate, Team China rolls on. Our delegation witnessed China's
people-oriented development in Chongqing, a city of 32 million in Western
China, which is led by an aggressive and popular Communist Party leader—Bo
Xilai. A skyline of cranes are building roughly 1.5 million square feet of
usable floor space daily—including, our delegation was told, 700,000 units
of public housing annually.

Meanwhile, the Chinese government can boast that it has established in
Western China an economic zone for cloud computing and automotive and
aerospace production resulting in 12.5% annual growth and 49% growth in
annual tax revenue, with wages rising more than 10% a year.

For those of us who love this country and believe America has every asset it
needs to remain the No. 1 economic engine of the world, it is troubling
that we have no plan—and substitute a demonization of government and
worship of the free market at a historical moment that requires a rethinking
of both those beliefs.

America needs to embrace a plan for growth and innovation, with a
streamlined government as a partner with the private sector. Economic
revolutions require institutions to change and maybe make history, because
if they stick to the status quo they soon become history. Our great country,
which sparked and wants to lead this global revolution, needs a forward
looking, long-term economic plan.

The imperative for change is simple. As Andy Grove pointed out: "If we want
to remain a leading economy, we change on our own, or change will continue
to be forced upon us."

Mr. Stern was president of the Service Employees International Union (SEIU)
and is now a senior fellow at Columbia University's Richman Center.