Chart of the day: US economic interdependence with globalization

From the Financial Times and very interesting.

Key fact:  goods and services trade only 1/5th of US economy in 1980.  Now it's one-third.

Other key data:

• US outward FDI stock 13% of GDP in 1990 and 33% now.
• Inward is 9% in 1990 and 24% now.
• So combined = 22% of GDP in 1990 and 57% now.

We also have the highest percentage of foreign born citizens since 1920.

Western serial entrepreneurs, meet African parallel entrepreneurs

Nifty Economist story on what economist George Ayitteh likes to dub the "cheetah generation" of Africa's business community (they're young, they're agile, and - unlike the preceeding "hippo generation" they don't blame Africa's woes on former colonialists but instead aim to fix things themselves by pursuing better business practices).  

Article contrasts serial entrpreneurs (who start company after company in sequence over their lives) with parallel entrepreneurs (who start mini-conglomerates of companies and seek to grow them all synergistically over time). The Economist argues that this is really the way things are unfolding in successful African economies.

Speaking from experience, I couldn't agree more.  Virtually every deal I'm currently structuring or pursuing in Africa involves these parallel entrepreneurs.  They all seem about 35 and they're all running this cluster of companies that involve them in all manner of adjacent opportunities and economies (most of these clusters extend over several African states).  They're amazing ambitious "young" people (I'm 50 . . . ahum!) and they approach every opportunity with a lot of vigor and near-perfect business manners, making them a dream to work with.

Outside investors, says the article, worrying that jacks-of-all-trades means good at none, but, according to one business analyst:

It makes African business leaders agile and adaptable - both good skills that are absent in many developed economies.

The key, I find, is to pair these types with financial players close enough to Africa (geographically and mentally) to realize their business worth.

Entrepreneurs are the life blood of an economy, because they create jobs and nothing is more important to sustainable growth.

Excellent NYT op-ed on China in Africa

By Damisa Moyo, whom I like a lot.

[Side comment: Why is it that all male African political commentators seem to be fat ugly toads and their female counterparts all look like runway models?  Not complaining - just asking.  As the adoptive father of two of the most beautiful - and clever - female creatures on this planet (both Ethiopian), I'm imagining very bright futures in dad's chosen field.]  

Sounds like she's shilling her new book, “Winner Take All: China’s Race for Resources and What It Means for the World.”  I will be sorely tempted to buy next time I'm in an airport.

I dissect at length:

IN June 2011, Secretary of State Hillary Rodham Clinton gave a speech in Zambia warning of a “new colonialism” threatening the African continent. “We saw that during colonial times, it is easy to come in, take out natural resources, pay off leaders and leave,” she said, in a thinly veiled swipe at China.

Tart start!

In 2009, China became Africa’s single largest trading partner, surpassing the United States. And China’s foreign direct investment in Africa has skyrocketed from under $100 million in 2003 to more than $12 billion in 2011.

This is why Wikistrat ran its recent sim on "China as Africa's de facto World Bank."

Since China began seriously investing in Africa in 2005, it has been routinely cast as a stealthy imperialist with a voracious appetite for commodities and no qualms about exploiting Africans to get them. It is no wonder that the American government is lashing out at its new competitor — while China has made huge investments in Africa, the United States has stood on the sidelines and watched its influence on the continent fade.

Fair enough.

Despite all the scaremongering, China’s motives for investing in Africa are actually quite pure. To satisfy China’s population and prevent a crisis of legitimacy for their rule, leaders in Beijing need to keep economic growth rates high and continue to bring hundreds of millions of people out of poverty. And to do so, China needs arable land, oil and minerals. Pursuing imperial or colonial ambitions with masses of impoverished people at home would be wholly irrational and out of sync with China’s current strategic thinking.

"Quite pure" is a sales job, given what she stated next.  In truth, China will press for advantages in Africa for precisely the reason Moyo cites here: they will do whatever it takes to keep the development train on track back home - and the Party in power.

Moreover, the evidence does not support a claim that Africans themselves feel exploited. To the contrary, China’s role is broadly welcomed across the continent. A 2007 Pew Research Center survey of 10 sub-Saharan African countries found that Africans overwhelmingly viewed Chinese economic growth as beneficial . . .

As we've heard many times on this site from Maduka, that does compute.

Now, on to a stickier charge . . .

And the charge that Chinese companies prefer to ship Chinese employees (and even prisoners) to work in Africa rather than hire local African workers flies in the face of employment data. In countries like my own, Zambia, the ratio of African to Chinese workers has exceeded 13:1 recently, and there is no evidence of Chinese prisoners working there.

Next comes suitably boilerplate statements about China needing to respect human and labor rights in Africa. Moyo asserts her case and then ends with . . .

But to finger-point and paint China’s approach in Africa as uniformly hostile to workers is largely unsubstantiated.

And then starts laying into African governments themselves - also fair enough.

My take: the more China gets into Africa, the more it enmeshes its interests with the locals, who, in turn, become more demanding of better deals - just like Chinese labor back home.  

Will it be a nice process?  Hardly ever is, judging by history.

But an unsurmountable process?  Not if China is as highly incentivized regarding back-home stability as Moyo argues here (and I agree).

After ripping African leaders a new one, Moyo ends powerfully with this:

With approximately 60 percent of Africa’s population under age 24, foreign investment and job creation are the only forces that can reduce poverty and stave off the sort of political upheaval that has swept the Arab world. And China’s rush for resources has spawned much-needed trade and investment and created a large market for African exports — a huge benefit for a continent seeking rapid economic growth.

No argument from me on that.  China is creating connectivity and opportunity - more so than the West right now.  The West is still a far bigger player in Africa, but China is the most dynamic agent right now.

In the end, this is a very good thing, and it certainly beats the alternative of weak South-South connectivity.

As I've stated before: Asia in general and China in particular has been the center of global savings for a while now.  That means we all need Chinese investment to work globally and for Chinese companies to improve in their behaviors as a result of all this connectivity-begetting-better-rules.  Needs to happen in Africa.  Needs to happen everywhere.

So all we need to do in the West is realize that this is a good "problem" or "challenge" - the best we've faced in Africa  . . . ever, actually. 

And then we need to ditch the hyperbolic finger-pointing, which serves no purpose.

Time's Battleland: CHINA | The Perfectly Ironic Chinese Foreign Direct Investment

Tuesday’s Wall Street Journal story of how Chinese state bank (China Development Bank) is pumping $1.7 billion into two long-stalled redevelopment projects in the San Francisco Bay area – namely, Hunter’s Point (a Navy base until 1974) and Treasure Island (same until 1996) — is worth noting.

Read the entire post at Time's Battleland blog.

Wikistrat CTO on Wikistrat methodology at industry conference

Interesting presentation.

Time's Battleland: (CYBER) Cyber Warfare Treaty: DOA, Thanks to President and Pentagon

Misha Glenny making a smart case in the New York Times for a cyber arms control treaty, but it won’t happen.

Why?

For the same reason why the U.S. has refused – for many years now – to engage other great powers on a treaty banning space weaponry: our Pentagon wants to dominate that imagine conflict space like any other. This fantasy lives on despite the great private-sector forays into space transport and travel.

Read the entire post at Time's Battleland blog.

One Kindle per child

Interesting WSJ piece on how aid projects are working to spread Kindles around Africa much in the same manner as the recent "one laptop per child."  Many of the same problems, many of the same good intentions, but a number of deltas worth mentioning.

The laptop per kid thing always struck me as overkill amidst a cellphone revolution.  The problem I still have with cellphones is one of their great tricks: you can be illiterate and use one quite well - thus the cellphone's reputation (deserved) as the greatest economic development tool of all time.  If you could read, my God the things you could suddenly do!  And if you couldn't, my God the things you could suddenly do anyway!

But just as a lot of people worry about the poor literacy of young people in developed societies - thanks to all these devices, I worried about the same in developing.  The writing skills of Millennials is - by generational standards - simply awful.  That's why I encourage so much reading and - more importantly - writing among my kids (all of which I personally edit whenever they give me the chance, so I can impart the same basic lessons my sister Cathie gave to me when she edited all my papers in college before I turned them in).  Good writing is becoming a lost art, and good writing starts with good reading of good writers - followed by application.

That's why this article caught my eye.  I still learn a lot about writing all the time - and always will, because I still read a lot (more and more fiction).  My fear with one-laptop was that we'd short-circuit a lot of useful learning, but with Kindles, which give you access to endless books and can go for a week on a good charge, you're filling young people's time and space with material that will ultimately advance them by developing their minds. 

Plus, as the article points out, with built-in Internet, Kindles are basically big mobiles, and everyone knows where those technologies can take people in otherwise "hostile infrastructure" environments.

Having just turned 50 and thinking about what I want to do with the next five-decade tranche, I do find myself drawn to efforts that will have catalytic impact in developing/emerging economies.  I have spent a great deal of my life fretting over the have/have-not thing, which is why - as a young man - I fell in love with globalization and its capacity to fuel the "Great Convergence" that progressively heals the Great Divergence of 1800-2000 (in income globally).

No, I don't see myself in aid efforts per se (although I have grand hopes for a philanthropic career at some point), but rather in the sort of infrastructure breakthroughs (still in that Development-in-a-Box mode) that are supremely catalytic.  There's just so much to work with right now, what with all the South-South transactions taking off.

I honestly cannot understand anyone pining for a past age.  We live in the best of worlds any human has yet enjoyed.  The problems we face are the best we've ever had, and there are so many good tracks of human progress to pursue.

I feel lucky to be 50 right now - at this point in time.

Wikistrat's disruptive entry into the consulting world

New slide Wikistrat uses to speak to its disruptive influence in the world of consulting.  Thumbnail below for greater clarity.

In truth, it's a more specific argument that the slide suggests.  Wikistrat isn't a full-spectrum consultancy but a specialized one that delivers a brutal efficiency on price in a space (simulations/exercises/wargames) that typically relies on 1099s (consultants) versus W2s (direct hires).  Firms simply cannot house all the talent necessary to pull off simulations, so they end up augmenting their own talent with lots of outside experts, usually sucking them into to traditional consulting engagements (write reports) that culminate with a F2F gathering that constitutes the exercise - just at far higher cost than what Wikistrat accomplishes with its on-call network working online.

Plus, the timelines with traditional consultancies are long - as in months.  Wikistrat, because it can amass so much talent so fast, can have them all working - simultaneously at their leisure and around-the-clock in a collective sense - to generate the same material in weeks.

That's cheaper and faster.  

The better part comes in our complete indifference to volume of ideas/scenarios/insights/concepts.  The F2F version of sims requires a drastic slimming down of possibilities.  Can't have all these high-priced and important experts (I've been contracted to do such drills many times) rummaging through all manner of scenarios.  So it's all reduced - pre-event - to just a few basic scenarios as dreamed up by the junior staff (their butts, the consultancy's seats).  

With Wikistrat, we can truly structure for unlimited exploration. Stage the simulation, yes, but then lets the dozens of participants go wild with their imaginations - black swan-hunting, as it were - for days upon days. Then, when all the spaghetti has been thrown on the wall, we have the analysts themselves (not our junior staff) collectively weed out the less informing scenarios from the greatly-informing ones (by votes).  And THEN we've got Master Narratives (numbers of scenarios linked across modeled stages) that are deep and wide and vetted and approved. And then we turn the same pool of analysts loose on exploring the downstream consequences and ginning up policy options.  

Hands down, that's just a more powerful model than having 95% of your blue-sky imagination short-circuited - pre-event - by junior staffers who are in-over-their-heads (drinking at the fire hose).  And that's where our "better" plays out: we don't fear exploring that volume of ideas (archiving all for the client in a completely transparent process) because we brute-muscle our way through it all with our numbers of brains (all storming).  With the traditional consultancy, much of that uncertainty and exploration has to be zeroed out beforehand - lest they waste the time of the assembled experts (half of whom are leaving early on the second day to catch planes).

Cheaper, faster, better.

Wikistrat hasn't reinvented the wheel.  It just created a bigger one that covers more ground faster - for far less cost.

Ultimately, Deng's victory (and Nixon's and Kissinger's too)

Some fascinating charts from WSJ:

Asians become America's top incoming immigrant cohort

From WSJ story noting that fastest-growing pop groups "supplies US with skilled workers."

And before you start griping about too many Asian immigrants:

Half of Asians have a college degree, compared with 30% for all Americans, and their median annual household income is $66,000, versus $49,000 for Americans as a whole.

Asians are more likely than the overall U.S. population to be married, or to live in a multigenerational household, and their children are more likely to be raised in a two-parent home, the report says.

"Asians exceed Americans on educational credentials and socioeconomic markers of success despite being predominantly first-generation immigrants," Mr. Taylor said. He added this sets Asians, three quarters of whom are foreign-born, apart from previous waves of immigrants.

So plenty to like.

The key reason why China ages 3x faster than America over the next four decades (PRC's median age rises from 36 to the late 40s by 2050 while America goes from 36 to just under 40) is that America takes in immigrants - Asians and Latinos.

Our immigrant nation status remains our greatest long-term strength.  China will belong to the old-crew powers come 2050.  America will be sitting with the young-crew great powers (India, Brazil, Turkey, South Africa, Indonesia, etc.).

Time's Battleland: NATIONAL SECURITY - What the Wisconsin Recall Says About the Future of the U.S. Military

Governor Scott Walker survives his nasty recall vote earlier this month, a dynamic triggered by his brutal reshaping of Wisconsin’s public sector unions.  Pundits are interpreting all this in terms of November and what it means for President Obama’s chances in that crucial swing state, but I see a bellwether for the future of U.S. national security.

Read the entire post at Time's Battleland blog.

Map of the day: AFRICOM's network of little "forts" grows

Remember, back in 2007, when I wrote the Combined Joint Task Force-Horn of Africa piece for Esquire ("The Americans have landed").  I spoke o f two dozen little forts around Africa by 2012.  Well, WAPO reports a good dozen or so mini-facilities used to fly surveillance missions - along with plenty of contractors.  Add those to the package of forward operating bases operated by AFRICOM and we are getting up there, my friends.

No, none of these equals a Fort Bragg.  As I said in my media appearances surrounding the piece, we're talking ATMs, not full-up bank branches.

But the network is growing - pretty much on the sked I laid out back then.

Why? 

Africom's animating spirit began with CJTF-HOA, which was basically a picket line established to catch bad actors migrating from SWA to Africa.  First it was naval, then it went on land, then it became a COCOM.

And COCOMs naturally grow.  They take about 20 years to mature (check out CENTCOM's history).

Good strategic projecting means there are no surprises - just things you've been waiting on and imagining for years.

This poor bastard . . .

Waited for several hours while I painted dozens of kids' faces.  Then he sheepishly asked if I would paint him too.

It took a while.

This is actually his mug shot from his arrest later that night.  Apparently, he tried to Jedi mind trick some cop who caught him driving like a maniac.

Sad.  Really sad.

The church fair

My annual face-painting duty.  Got back yesterday from ATL and my speech and was sucked immediately into this.  Even longer day today.

My two youngest.

Abebu's wolf looking pretty good after nachos.  Metsu breaking out her serious pose face.  She was supremely careful with her paint job.

Prior to the fair, I redid their hair as three french braids to keep it off what I knew would be complex jobs.

Brilliant movie-chart on Kiva loans from Core to Gap

HT to Thomas Frazel at Tulane.

I wrote about Kiva in Great Powers, naturally, because there my focus was on subnational and transnational actors (the trilogy, in Waltzian terms, went PNM = system, BFA = states, and GP = trans/subnational & individuals).

No surprise on the flows here: it's virtually all Core to Gap (wait for the "actor" credits at the end).

What I saw were four big flows:

1) US to Africa

2) US to Greater Middle East

3) US to Asia

4)Europe to Asia.

Fascinating stuff.

Meanwhile, I'm on the road giving a speech to a financial conference in Atlanta.

Globalization and the remaking of parts of this world

Nice piece by Friedman talking about the supranational challenges foisted upon Europe by globalization and the subnational challenges foisted upon the Middle East by the same.

He makes a big deal about both happening at the same time, but in my mind, the connecting logic is not all that hard to see.

Globalization requires strong states.  It does not eliminate them as many suppose, nor particularly weaken them. Data upon data shows that the national economies most able to successfully engage globalization do so thanks to strong states (strong in power, less so in reach as they tend to be democracies).

So when globalization comes to weak/fragile/fake states, like we have in the Middle East, it tends to fracture them, revealing the subnational fissures below.  In this way, the "divorces" we're witnessing now are very much like what we saw in the Balkans in the 1990s, where we saw a fake supranational state dismembered by the heterogeniety of the players within (some were ready to take on globalization and win, others less so).

So what are we looking at in the Middle East?  A long period of nation-building done by somebody, but mostly by the locals with help of foreign investors because outside governments with their aid are so bad at encouraging such things.  Beyond that, these relatively small states must come together in supranational organizations that reward their collective strength.  Imagine the US as 50 competing states versus a supranational union, because we are lucky to be so organized (actually, luck had nothing to do with it, because, once we made our miniature version of globalization happen in North America, we successfully set about replicating it globally over the past seven decades).

So yeah, a long row to hoe in the Middle East.

Europe is far more fortunate, and it's incorrect to make it seem like it's suffering similar dynamics.  Europe is full of real states and they have all the instruments necessary for true supranational union. They just need to evolve those instruments and their rules toward that end. So, if the Middle East faces a massive evolution/transformation that stretches over decades, Europe faces nothing of the sort.  It's just a matter of political will among the richer units (Germany especially).  The legimimate solution to Europe's problems can be set in motion in a matter of weeks.  It's simply a question of whether or not Europe wants that future or still fantasizes about a world in which smaller states can do better at globalization than supranational unions.

Look around your world on the question of resources.  Check out energy and food and ask yourself: do you see far more interdependency on the horizon or far less?  If you see the latter, you say, "We'll get by on our own!"  If you see the former, you say, "We'd be safer in a larger multinational setting."

The Middle East has little hope for such solutions, except among the rich PG states, where Riyadh pushes such confederation instinctively.  Europe is in a good enough place.  It just lacks the political will to do what needs to be done. 

This is not the tragedy of the commons.  This is tragedy defined by political generations of leaders not being ready for what history has thrust upon them.  You look at Merkel.  You know her story.  You know what she's been through and what she fears.

Merkel may still be up for the challenge.  Women tend to spot these opportunities better than men.  She may also be playing the clever game of letting events deteriorate to where she gets what she wants and believes Europe needs.  I suspect that is the case.

I also suspect we are witnessing an enormous gamble.  

But, in the end, I expect Europe to pull it off.  It won't be pretty.  It'll just be enough.

Europe, after adding so many stars so fast, truly risks losing some now. America went through that under far worse circumstances.  But have no doubt, Merkel needs to become a bit Hamilton and a bit Lincoln.

Globalization and the need for a "second life"

An old friend Hans Suter sends me the link to the New York Review of Books piece by Tim Parks.  In the piece, he argues that globalization is favoring English-language literature in the reading lives of elites within countries (here, I am defining "elites" just as urbanites with access to bookstores and a strong desire to read). That description is probably a disservice to the piece, which presents the usual sort of density of a NYRoB effort (and I use that term in a flattering fashion).  You really just need to read it yourself to enjoy and take from it what you will.  I personally enjoyed it immensely in the way I enjoy such things: not being terribly all that interested in the subject itself but immensely interested in the thoughts the piece triggered in my head (which, when you think of it, is exactly how a literary piece - even analysis - should make you feel).

It reminded me of how much I like the English remake of foreign films (think of "The Girl with the Dragon Tattoo") but how I still always prefer the originals in every instance.  I don't want a foreign experience translated for me any more than necessary (namely, the subtitles), because I like to immerse myself in the way they present themselves to themselves.  It's like eaves-dropping.  I mean, I've learned more about Iran in two movies, "Children of Heaven" and "Persepolis," than I have in all the non-fiction writing on Iran (to include serious political analysis) that I've ever come across.

So, where the Parks piece took me is this:

• I really think non-fiction will predominate over fiction as globalization advances. I feel like non-fiction will do "more good," if you will.  
• For now, I think English-language novels enjoy a dominance much like Hollywood does, and I think we're seeing now in novels the same things we've long seen in movies: increasingly, the purposeful structuring of literature for both a domestic and overseas audience. 
• Much like in the movie industry, you see the same conclusion reached in literature:  tent-pole products seemingly "conquer" the world while subtly being productized in such a way as to exploit inherent advantages afforded by globalization's advance, and yet, there still will always be a highly heterogenous local supply of "smaller" versions (smaller books, smaller movies).  The local "language," if you will, survives in its own way, while bridging languages (especially English) connect publics across borders.
• I think the more non-fiction and movies link up societies, we see the death of expertise on those societies within our own culture.  Notice, for example, how there really aren't any important Russian experts anymore - now that the Cold War is dead and buried.  Once the connections are made to the point where fiction and movies offer true connections (not a cause, but a characteristic of the connectivity I'm describing), you reach that point where the best experts are from the country itself - thus killing the local variety and relegating them to academia (e.g., we're so close to most of Europe now that you rarely see European experts on US news programs, because why not just ask experts on the subject from Europe simply to appear?).  Right now we're still dominated by experts on China and much of Asia and much of the Middle East and most of Africa, but in a couple of decades, those entire mini-industries will be erased from the public discourse - replaced by direct comms with the cultures in question.  And let me say that, in all instances, I can't wait!
• I could say, as a former regional expert on the former Soviet Union, that this is a bad development, but, in truth, I think regional experts mostly misinform and mislead rather than create genuine understanding (primarily because there is such an odd mix of orthodoxy and arrogance in such communities). So I'm happy to see the novelists win out in the end, along with the filmmakers, because I see them doing far less harm and far more good.
• Having said all that, I can still make a selfish argument regarding Wikistrat and its ability to amass expertise from the countries themselves versus relying (as we still do) too heavily on Western experts on the same.  Which is to say, I don't think Wikistrat is yet there, and yet I see it as a perfect vessel to increasingly "get there" over time - as in, diversity and numbers beat all.
• I would also argue that translation skills increasingly trump traditional expertise on foreign culture.  I think we'll need oodles of translators amidst this shift, and that that will be a very good thing.  So when I advise young students going into International Relations today, I tell them to focus on their skills as translators (not so much in the mechanics of language itself but in taking that direct-conduit role and applying it to what is traditionallyt known as expertise - so seeing themselves more as translators than experts) and eschew the achievement of deep insight for personal professional achievement.  You might think that request too self-sacrificing and self-effacing for young people entering a field, but it's not for most Millennials.  They already think that way.
• Personally, having just turned 50, I find myself thinking that my future ultimately lies in fiction, for all the logic cited here.  Part of me says it's like the old bit about necessarily being a liberal when you're young and a conservative when you're old: I feel like you write non-fiction until you can move on to a level of wisdom that allows more creative expressions. [As for those who start in fiction, God bless 'em because that ain't me.]

Anyway, a very interesting read that took my mind to a lot of places.  I think it might do the same for you.

An accurate if overwrought description of the Chinese economy

Wang v. Bo - preview of coming clashes!Got it via a friend who read Krugman's post on this post. Here's the Krugman's site, and here's the original post.

Hempton's description is correct, by everything I know.  He's just a bit much on the name calling ("China is a kleptocracy of a scale never seen before in human history.")  Krugman reads the post and sees, per his usual pessimism, a system bound to implode.

What Hempton describes is a form of capital expropriation of the Asian variety.  It is different in style than what happened in the West (super-low wages) because it focuses on abusing the average Chinese citizens' savings to prop up state-run enterprises while allowing the elite to siphon off extraordinary profits. But understand that Japan and South Korea did much the same, so yeah, the scale is magnificent but the dynamic is familar.

The system is right for China in terms of preventing instability and allowing for an overall rise in GDP per capita that generates a massive middle class (in sheer numbers, less so as a percentage of total population).  It'll be right until the people can't stand it anymore (populist anger) or the global economy can't stand it anymore (the export-driven growth and general mercantilism) or the national economy can't stand it anymore (the heavy reliance on public investment).

Now, Hempton's take is all righteousness to point of sounding like a Marxist, which is correct enough and ironic enough, but, you know, Marx was right on a lot of things.  He just couldn't imagine a political system smart enough and flexible enough to bend at the point of near-breaking.  In the West, he didn't believe democracies could pull it off - except they did.

Now, we Westerners can't image single-party states in the East managing the same.  Except Japan did actually move off the model - to a certain extent.  South Korea has done it much better.  China approaches the historical moment when it must happen; when it must turn into a system ruled by the middle.  

Will it become a recognizable democracy?  So many experts will tell you that cannot happen due to Asian civilization.  I personally find that bullshit and always have.  It won't resemble Western democracy but it will define - just like Japan and South Korea have - Eastern democracy (and yes, that concept makes some experts' heads burst into flames once they scream, "INCONCEIVABLE!").  

Here again, I think Marx is right in saying that capitalism is so revolutionary that it remakes societies.  It just does at the pace of generational change - duh!

China's system works in expanding capitalism throughout China and creating tremendous (and real) growth and in networking China with the global economy.  It works just like America's system of global governance through the absorption of export-driven growth and debt-financing-as-a-reserve-currency and providing (with all that cheap money) military Leviathan services worked for expanding globalization for about 25 years in the long expansion from the early 1980s through the late 2000s.  It works until it works itself into an imbalance that requires correction and new rules and new policies, etc.  It works until it succeeds too much and thus stops working - simple as that.

What always happens when a system like either of those reaches its apogee of success and no more success can be had is that the critics come out in droves and go ape-shit in their condemnations.  Suddenly, not only is the created imbalance bad, but the entire system is evil and all that came through it is viewed as a complete fraud.

This is way over-the-top analysis and Hempton's piece is chock full of it.  But it's this kind of Cassandra crying that signals you're reaching the endpoint and system-failure-triggering-revolutionary-solutions is nearing.

So yeah, an accurate description, and yeah, way over-the-top in its gloom-and-doomism.  

Why have the Chinese people allowed this system to unfold and expand and reach such imbalance?  Because it's delivered the country and a great deal of them a far improved life - simple as that.  

Why will the Chinese people progressively rebel against the system now and in the future?  Because it's reached the point where it stops working as well as it did in the past - in large part because China hits the same shift point between extensive and intensive growth that all risers hit - again, simple as that.

Yes, we can call it all sorts of names and point fingers, and pull our hair, and predict all manner of doom.

But you know what?  China ain't going anywhere.  The system will adapt.  

No, it won't be pretty, but the Asian version of capitalism adapts just like the Western version did.  Eventually the rich find they have enough and want to protect their wealth through enhanced social stability - even more equality - if that's what it takes.  Eventually, the rank-and-file see that they've eaten enough bitterness on behalf of China so that they deserve a better cut.

If China hits the same roughly-five-decades-mark on single-party rule and then spasms toward democracy, like so many other Asian nations have in their individual "rises," then that democratizing point probably arrives in the 2020s (but between now and then, expect tons of apres moi, le deluge handwringing that will mentally prep the Chinese people for the coming change).  I am convinced China cannot make it past that point in history and wealth creation (by 2030, a per capita GDP of about $20,000) without going full democratic (always with some Asian/Chinese twists, mais oui).

But, as we know, China is doing everything so fast in comparison to Japan and South Korea and other predecessors.  But it's also far larger (which is why EVERYTHING in China is the "biggest in human history" - puhleaze!), meaning we can't forget the extensive growth still to come in the interior provinces, where well over a half-billion poor people live.

China's rich coast must integrate its still-impoverished/poorly developed interior just like the rich-and-rising American East integrated its Wild West from 1865 to about 1900. Those were wild and crazy years, full of booms and busts and robber barons galore.  But that mounting angry populism eventually segued into a progressive era of tremendous progress, one that cemented the middle class as the republic's political center.

To me, the most fascinating question out there (besides the Fracking Revolution in energy) is, How fast does China's democratization process arrive?  China still has to make that interior growth happen, but, because it lacks true democracy, it's got this restive coast.  Already, you see this dichotomy reflected in the Party between the coastal, cosmo "princelings" and the far-more-red interior hard-core types more rooted in the Party's past.  You also saw it in the dramatic showdown between Chongqing's Bo Xilai (with his Maoist revival) and Guangdong's Wang Yang. This is classic red state-v-blue state stuff!

So yeah, the big political fights (and accompanying democratization) are coming.  They'll just unfold within the Confucian mindset of the system, which will actually help a great deal in keeping this thing from exploding.

So yeah, China is deep into that journey of transformation that we've seen so many predecessing systems experience as "punishment" for their successful rises within capitalism.  That's why, in my mind, there's no question that between now and 2030, all the changes desired by the West and many Chinese will come to pass - albeit in a manner that is particularly Chinese.  So no, I do see the power of culture and civilization in the "how" part; I just don't think it prevents or obviates the "what" part.

So read Hempton's piece.  Read Krugman's blog.  Just understand that none of this is all that unprecedented.  It's just the latest chapter in capitalism's expansion. Yes, it's a crucial one alright.  You add China to the mix and you go from a "global economy" to globalization - pure and simple.  But China won't be the last story in this epic cycle.

So don't wear yourselves out on fear and hyperbole - as "SHOCKING!" and entertaining as these "discoveries" are.

Chart of the day: US natural gas price versus Europe's versus Asia's

Found here.

Pretty compelling case for export, ja?

Chart(s) of the day: The Chinese economic "miracle" of past decade

From the Economist.

In a nutshell, it ain't their growing domestic consumption and it isn't their current account surplus (exporting prowess - see below), it's the amount of public investment.  And as the lower right (above) chart shows, China is revving that particular supply-side motor a lot higher than either Japan or South Korea did.  

All of this is to say: nothing miraculous here.  And no endless linear rocket upward either.