© The Financial Times Ltd 2016
FT and 'Financial Times' are trademarks of The Financial Times Ltd.
The Financial Times and its journalism are subject to a self-regulation regime under the FT Editorial Code of Practice.
Last updated: February 1, 2014 9:38 pm
The Upside of Down: Why the Rise of the Rest is Good for the West, by Charles Kenny, Basic Books, RRP$26.99, 240 pages
Capital Wars: The New East-West Challenge for Entrepreneurial Leadership and Economic Success, by Daniel Pinto, Bloomsbury, RRP£25, 256 pages
Unleashing the Second American Century: Four Forces for Economic Dominance by Joel Kurtzman Public Affairs RRP£18.99 / RRP$27.99, 304 pages
This is a tale of three glasses. The first, The Upside of Down, by Charles Kenny, is half-full. The west may be in relative decline but, he argues, as individuals we are getting better off. The second, Capital Wars, by Daniel Pinto, is half-empty and wobbling at the edge of the table. The west is not only in relative decline, Pinto believes. It is also in danger of committing suicide. The third, Unleashing the Second American Century, by Joel Kurtzman, is overflowing with champagne. The only thing standing in the way of indefinite US hegemony are the naysayers who “make a living trashing what we do”.
Since Kurtzman cites me as one of the latter, I will be careful (his full list includes George Packer’s The Unwinding, Fareed Zakaria’s The Post-American World, Cullen Murphy’s Are We Rome? and Morris Berman’s Why America Failed). As a former editor of the Harvard Business Review and now a senior fellow at the Milken Institute, Kurtzman comes with stellar credentials. Unfortunately, they are more visible on the dust jacket than in the book itself. He makes one or two strong points about what is going in America’s favour. These include the energy revolution, which could turn the US into a net energy exporter in little more than a decade and cut its trade deficit in half, and will also assist in the reshoring of manufacturing activity to the US. He cites the abundance of cheap capital, which, though nowadays true of a large chunk of the global economy, is nevertheless a boon. And he detects “soaring levels of creativity”, which, though overstated, remain fair in comparison to any other single economy.
Almost all of Kurtzman’s other points are a rehashing of old fashioned red, white and blue patriotism. Twice, including in the subtitle to his introduction, Kurtzman quotes the old adage: “No one ever made a plugged nickel betting against the USA.” This may be true of the past. But Kurtzman does little to convince the reader that the future will always be the same. Mostly, he asks us to take his judgment on faith. “After poring over spreadsheets filled with facts and digesting enough statistics to make me drowsy, I can report back with a very high level of confidence that America’s best days are ahead of us,” he says. Let us hope he is right. But it will take more than self-belief to demonstrate it.
Even where Kurtzman is on firm ground, such as the vitality of US innovation, he offers no evidence that it is increasing in relation to other economies. Most of the data point to an efflorescence of innovation in large tracts of the world where none existed before. Apple may have invented the iPhone. But Samsung is increasingly eating its lunch. The US may have a head start in robotics. But here Germany and even China are now out-investing the US. Darpa, the Pentagon’s research arm, may have invented the internet. But others are trying to emulate the model with big dollars at a time when Washington’s research and development budgets continue to fall. It is true that “creativity is in our [America’s] culture”, as Kurtzman argues. But there is nothing from his spreadsheets to back up the following assertion: “no other country in the world has come close to matching the brainpower, creativity, and boldness that presently exist in the United States”.
To underline, “declinists” do not need to argue that the US is not innovative – America is undoubtedly the most inventive society in the world. All they need to do is demonstrate that its near-total former stranglehold on innovation no longer holds true. That is pretty easy to do. Kurtzman also needs to catch up on what is happening in other countries. He suggests that Indian technologists, for example, only flourish as entrepreneurs when they are in the US, where they get “infected with our enthusiasm”. Back in India, he writes, those working together in companies “rarely use each other’s first names. The structure tends to be hierarchical. People get ahead by doing what they are told to do. Speaking your mind is not encouraged.” This assessment is not shared by Silicon Valley’s venture capital firms, which have opened large offices in Bangalore. Kurtzman may be right that the US is about to start growing with “astonishing speed”. But it will not be because America’s innovation lead is growing. If you want to feel good about America’s future, read Kurtzman. Don’t let the bubbles go to your head.
If you want to experience the hangover, turn to Pinto. As the chief executive and co-founder of Stanhope Capital, one of Europe’s largest private investment firms, Pinto is an unlikely source of radical doomsterism. At times he is prone to exaggeration. His chief thesis is that quarterly shareholder capitalism is robbing the west of the investments that will enable it to thrive again. “By locking stakeholders into a system plagued with divergent interests and obsessed with immediate results, western capitalism is effectively committing suicide,” he argues. Likewise: “Too focused on the instant satisfaction of our needs, we in the west have preferred to sell our birth right for a mess of pottage.”
If you ignore the Spenglerian lapses, however, there is much that is thoughtful here. Pinto argues that western capitalism has been taken over by chief executive “apparatchiks”, who are killing its original spirit of entrepreneurialism. The “near deification” of company bosses is to blame. Explaining his motivations for writing this book, he asks: “How could one remain a powerless spectator in a world where the CEOs of our largest corporations have turned themselves into public relations officers, more concerned with pleasing fund managers who never set foot in the real business world, than with preparing . . . for the challenges of the future?” His preferred model is the family business. His favourite structure is the conglomerate. And his chief bugbear is the financial sector.
Only the last point chimes with conventional wisdom – everyone loves to trash Wall Street. But Pinto’s championing of family ownership is genuinely unfashionable. He also backs it up with reams of data. For example, privately held companies in Britain invest 50 per cent more of their revenues in R&D than their listed counterparts. Between 1987 and 2009, the share of US public companies owned by institutional investors rose from 46 per cent to 73 per cent. Over a similar period, the average holding period of a listed stock has fallen from five years to five months and there has been a sharp rise in price volatility. Meanwhile, almost all of the big banks have gone from private partnerships to publicly listed concerns and from financiers of real businesses to central players in a casino.
In contrast, emerging Asia has confined its financial sectors to the facilitating role envisaged in economics textbooks. Almost half of Asia’s largest companies are either family controlled, such as India’s Tata group, or state-owned, such as China’s Citic (both are also thriving conglomerates – another deeply unfashionable model). Pinto makes some salient points about the western farmer eating his own seed corn. And he offers sensible advice that we must emulate Warren Buffett and other “long-term activists”, and jettison the herd instincts of fund manager capitalism. He is also wise to counsel against the “Maginot Line” of protectionism. The west’s ailments require neurosurgery rather than the emergency room: “We will need to show patience and discernment and avoid quick but unsatisfactory fixes,” he says. Still, Pinto’s medicine seems modest relative to his diagnosis.
Which brings us to Kenny, who offers a much-needed dose of Alka-Seltzer after the excesses of the other two. Upbeat without being Panglossian, Kenny’s starting point is that relative decline is inevitable. The rise of the rest is not only well under way. It is also desirable. Economics is not a zero sum game. If the Chinese and Indians are less poor, that means they will buy more of our products. Relative decline can be enriching. Just ask the UK, which has been relaxing in a “big bath of Epsom salts” since losing its hegemony. Britons live longer, have free healthcare and are better at laughing at themselves, says Kenny. Decline is not a choice, he argues, in rebuttal of Charles Krauthammer, the conservative US pundit, who believes it reflects an absence of willpower. Quite the contrary: it is a pleasure. Or rather, it ought to be a pleasure, if we play our cards right. “It is important to recognize that policies to ‘regain US dominance’ are destined to fail,” he argues. But steps to revitalise the attractiveness of the western model are easily within reach.
As a policy wonk at the New America Foundation, a think-tank in Washington DC, Kenny has plenty of suggestions about how to make it so. Americans are rightly proud of the fact that the world’s best and brightest come to US universities. But they should become more global themselves. Just 0.4 per cent of the world’s overseas students are American – and half of those are studying in the UK. Yet places like Shanghai’s Fudan University and the University of São Paulo rank higher than, say, George Washington University or Notre Dame and charge a fraction of the fees. And why not extend Medicare coverage to Mexico, which would reduce US retiree health costs and give seniors a few days in the sun?
Meanwhile, the US should beware of alienating the foreigners that it educates. It is easier for cattle to cross the US-Mexico border than humans. And yet, Kenny writes, “federal authorities have started attaching radio-frequency ID tags like those used on livestock to students from India”. He cites reports estimating that the US spent $3tn on homeland security and foreign wars in the decade after 9/11 while suffering fewer than three dozen fatalities from Islamist terrorism on its own soil. In the same period, 150,000 Americans have been murdered by other Americans. And so on.
Kenny’s account of US misdirectedness is salient. Yet he never strays too far from his chief argument – the west has all the resources it needs to make life better for all of its people. That, after all, is what the game should be about. I have one big quibble with his book, which applies to the other two as well. Kenny is long on policy recommendations. But he has nothing to say about why the US, and other western democracies, are so bad at adopting good policies nowadays. Without an explanation for gridlock, and how to fix it, much of what Kenny urges is academic. The west in general, and the US in particular, is in a crisis of decision-making. Kenny may well be right that things have never been so good. But as long as most westerners believe otherwise, no amount of Alka-Seltzer will help.
Edward Luce is the FT’s Washington columnist and author of ‘Time to Start Thinking: America and the Spectre of Decline’ (Abacus)
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.