China: Big Problems But With a Plan, The United States: Big Problems But Without A Plan

Although China has gotten a lot of favorable praise over the past few years because of its economic growth, all is not well in the most populated country on earth, according to a feature article in the October 8, 2010 issue of The Week magazine:

• A great deal of China's economic growth and activity relies on export growth and when the rest of the world's economies went through their downturns, demand for Chinese imports also dropped significantly. As a result of this external dependency, 100,000 Chinese factories closed which resulted in 30 million Chinese workers losing their jobs. Domestic economic consumption, which accounts for only 36% of the gross domestic product, could not pick up the slack.
• More than six million Chinese college graduates enter the Chinese workforce every year but the vast majority of them will not land a job that is commensurate with their education level. They often ending up working for less than $500 a month which is just a little bit more than the average factory worker. This year, about one million college graduates are competing with each other to land 15,000 government jobs.
• In the past few decades, over 200 million Chinese peasants, about 15% of the total population, have migrated from farms to cities looking for work. Most have ended up working in low end jobs with no benefits and low salaries. However, most of them have now been exposed to how the small majority of wealth Chinese live, resulting in a growing resentment between the working poor and the new professional class arising in China's cities.
• China saw widespread strikes and demonstrations earlier this year protesting the low wages and poor living conditions of many workers. Across all of China, per capita income is only $3,678. In the midst of this poverty, sales of Jaguars, Mercedes Benz, and Rolls Royces grew more than 100% in a single year.
• China's growth has caused the country to become one of the most polluted and toxic environments in the world. Sixteen of the top twenty cities in the world with the most polluted air are in China. Half of China's rivers are rated as severely polluted. Extensive road building, mining, and other construction have left the countryside scarred and subject to mudslides and floods. As an example, the article cites mudslides this past summer that left over 1,700 Chinese either dead or missing. The World Bank says that by 2020 as many as 30 million Chinese may become "environment refugees," roaming the country in search of clean water and air. Very scary stuff.
• Those Chinese citizens that protest environmental and political problems are often thrown in jail.Wow, unemployment problems, import/export problems, pollution problems, income disparity problems, etc. Sounds overwhelming bad. A lot of the same problems that plague our economy and society also are a big problem for the Chinese.

However, the Chinese government at least has a rational plan to try and solve their problems. Consider the findings of an article in the October 18, 2010 issue of Business Week magazine:

• The Chinese government is about to issue its next five year plan.
• This next plan is expected to emphasize a shift to domestic consumption in order to not leave the Chinese economy so dependent on the economies of other countries.
• From a social perspective, the plan will focus on solving the income disparity issue by raising the minimum wage, building up its social safety net programs, and encouraging investment throughout the country, not just in the urban areas. These steps should also help grow the domestic consumption by providing more disposable income to more Chinese.
• It will pay close attention to growing its less polluting services sector while it reduces its reliance on heavy polluting manufacturing and heavy industries sectors.
• Going back to the article  in The Week, that article also mentioned that the government will invest at least $440 billion over the next ten years in green technologies to address its pollution problems.

Although the problems in China are large and complex, at least they have a plan to address them. They took the time to understand the root causes of their problems and then developed plans to address them:

1. Too much pollution: transition the economy to less polluting industries while investing in green technology.
2. Too much reliance on exports: enlarge the domestic market for Chinese produced goods and provide more disposable income for their citizens to fuel the growth in domestic consumptions.
3. Too much income disparity: do not take from the rich and give to the poor via taxation, raise the minimum wage level for everyone, i.e. do not make everyone the same by making the rich poorer, make the poor richer. The former approach would never work anyway since there are way too many poor to be made rich by attacking the rich.

They have a process and plan to fix what ails them. I do not know how successful they will be but at least they are trying to problem solve in a traditional and usually effective manner: define the root cause of your problem, analyze alternative ways of addressing the root causes, and then focus your resources on leveragable solutions to eliminate those root causes.


Now, compare their approach to the long term plans and strategies that our political class has developed. Unfortunately, you cannot do that since our political class, across both parties, have not come up with a long term, leveragable strategic plan for the country. The same issues that plagued the country forty years ago are still present, and in many cases are worse than ever: failing public schools, lost war on drugs, illegal immigration, non-existent energy policy, rising health care costs, etc.

 Now, some people would argue with my assertion but I challenge anyone to tell me what is the long range strategic plans of the United States. The only plans our politicians have is how to get themselves elected and stay elected. There is no root cause analysis being done, no discussing alternatives and compromising in the search for solutions, and certainly no effective long term strategies being implemented.

 Still do not believe me? Consider some recent "major" legislative initiatives:

• Obama Care Legislation - this plan is very similar to the Massachusetts state health care reform bill. However just a few years after it was implemented, the Massachusetts plan is severely overrunning its budget, has not reduced hospital emergency room visits (one of it's main goals), is currently reducing benefits, and looking to delay registration of new enrollees. Economic analyses of the entire 2,700 page Obama care law by various experts is now showing that the financial basis of the bill is pure fiction. Disaster.
• Financial Industry Reform Legislation - the bill excluded three of the biggest components of the financial industry in this country, auto loans, Fannie Mae, and Freddie Mac. You cannot say your reformed an industry when you purposely exclude three of the biggest components. Plus, what was included in the bill was mostly fluff, leaving the heavy lifting of reform to unelected Federal bureaucrats. Disaster.
• Cash For Clunkers - multi-billion waste of money, a standalone disaster of a rebate program that gave away taxpayer money but did not result in incremental sales. A program that was totally non-leveraged in any way, indicating a lack of understanding of root cause analysis and problem solution. Disaster.

These are not strategic long term plans, these are amateurish attempts to fix a set of problems without understanding the root causes of those problems. The Chinese political class seems to understand how to problem solve since many of their leaders are engineers, who are trained as scientists and problem solvers, as compared to most of our politicians who are lawyers.

We are faced with a double whammy. The Chinese political class contains better problem solvers AND... they have a large amount of financial flexibility, given how fast their economy has grown over the past decade. Our political class has not shown an ability to solve problems AND... they have very little financial flexibility since they have wasted trillions of dollars in bad economic policies over the past few years.

Thus, how do we solve our problems and finally move the country forward on a viable long term path? Two things have to happen. First, the political environment in this country has to become much more respectful and civil. No constructive dialog and problem solving can happen when we are yelling at each other, calling each other names, demonizing those that have a different opinion, and mutual respect is non-existent. Last year, respected Democratic moderate Senator, Senator Evan Bayh of Indiana, decided not to run for another term despite the fact that he was well liked, well respected, and his family had a long tradition of political service. In an interview with Charlie Rose in Business Week he expressed his feelings on how the political environment had become so poisonous and mean-spirited that it was not longer an enjoyment to serve the country.

In the November 7, 2010 issue of Parade magazine, an article about retiring Congressman Bart Stupak conveyed the same frustrations. Consider some of his quotes and experiences from the article:

• "It's so hateful now. My colleagues tell me, 'You look smarter every day for leaving.'"
• "Every boundary of decency has been crossed."
• "The more personal you can make the attack, the more money you can raise to defeat your opponent."
• When asked if only the mean spirited or thick skinned will now enter politics, he responded: "add one more element: the very rich. So many good people would be proud to serve, but they wind up saying, 'If the other guy spends $3 million, what chance have I got?' The most money and the sharpest attacks tend to win."

The second thing that needs to happen to move the country forward is that we have to self-finance our way to a flexible and long term solution. The Chinese have the luxury of a large currency and wealth surplus from their incredible economic growth over the past decade. We need to be much more creative from a long term planning perspective. We are in a deep financial hole in this country, without those type of Chinese economic resources.

Thus, in order to change our strategic direction, we need to quickly and deeply downsize the the federal government bureaucracy and use those freed up budget dollars to refocus the country's priorities. We need to break out of our current rut, a rut that New York Times columnist David Brooks called "immobile government." An immobile government is one that has become so fat and so stiff that it is no longer efficient or effective. We spend and prioritize great amounts of money and energy on the wrong things for any number of reasons:

1. We have always done it that way and never considered not doing it in an immobile different way.
2. Our politicians have a financial and electability stake in not doing it in an immobile way.
3. Our politicians are not smart enough from a problem solving perspective to not to it in an immobile way.

Many of the fifty steps described in "Love My Country, Loathe My Government" address this immobility issue. I will not go into all of them now but they range from Step 1, which would downsize the Federal government by 10% a year for five years to Step 41 that would establish a code of conduct for elected representatives (of which the concepts of teamwork, respect, and integrity would be integral parts). The entire book is focused on making the immobile mobile, the inefficient efficient, the ineffective effective and the politicians in this country problem solvers.

We have problems but worse than that, we have no plan. It is time to start stop being immobile and start doing things differently, doing the same things we have been doing are not solving our problems.

Consider the wise words of Albert Einstein:

"The definition of stupidity is doing the same thing over and over and expecting different results."

Let's not be stupid anymore. Let's demand that our political class change the way they do business, start treating each other and American citizens even if there are differences of opinion, and finally start problem solving for the good of the country and not the good of their political careers.


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