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No Mercy No Malice

Seeing Red

August 20, 2021

The Hall of Fame for Catastrophic Geopolitical Decisions is concluding its first-ballot induction of the decision to nation-build in Afghanistan. After we acknowledge the recency bias, and stop blaming Biden or Trump, we can ask W to write, in chalk made from the bones of 370,000 dead souls, “I seriously fucked up” a billion times.

So … I need a distraction. Typically, I turn to time with the kids and then Zacapa … in that order. However, as we register that it’s impossible to lose a war with aplomb, and my home state is governed by a mad king, I’m left wanting for something stronger. Let’s venture one concentric circle out.

The post-Cold War era is over. From 1990 to present, the United States has been the sole superpower. But as influential as we’ve been, American interests are no longer the organizing principle around which everything aligns. The last three decades have been a period of fractious regional conflicts, largely hapless efforts by the U.S. to exercise state power at home and abroad, and corporate/private interests running unchecked.

But we have returned to a bipolar world, and a superpower duopoly will again be the organizing principle. This time the countervailing force against the U.S. is China.

21st Century China

Every nation’s progress is dwarfed by China’s march in the post-Cold War era. In 1990, its GDP was roughly $400 billion in current dollars. Today, it stands at $15 trillion, an annual growth rate of 13%. By comparison, the U.S. economy, which has done well during this period, grew at 4.35% per year. According to World Bank data, 750 million Chinese were living below the international poverty line of $1.90 per day in 1990; that number has fallen below 10 million. There are more households with wealth over $110,000 in China than in the United States: 100 million vs. 99 million. Read that last sentence again.

Though the U.S. economy remains larger and more efficient than China’s, both tower over every other country.

China’s status as the other half of the duopoly stems from more than economic heft. China spends $250 billion per year on its military, more than any country besides the U.S., which spends over $700 billion. (The next biggest spender is India at $75 billion.) China’s 2.2-million-person active military is the largest in the world. A recent analysis from the International Institute for Strategic Studies concluded that China “is the state best placed to join the U.S. in the first tier” of cyberwarfare capability. It’s also the only country vying with the U.S. for the lead in patent grants, space launches, and Olympic medals.

China is the world’s most capable manufacturer. Its factories produce 28% of the world’s goods (the U.S. is second at 17%), and its sophisticated supply chain is essential to our digital economy. Over just the past 20 years, China has become the leading trade partner of three times as many countries as the U.S.

China is willing to flex these muscles. Its Belt and Road Initiative is spreading Beijing’s influence (and debt) throughout the developing world, with a projected investment of $1.2 trillion in 60 countries by 2027. China has exported more than 500 million Covid vaccine doses. The U.S. has shipped 110 million.

But favors from Beijing come on Beijing’s terms. Try making a movie critical of China, and you likely won’t find a major production company or distributor willing to work with you, because Beijing will shut off access to its box office, the largest in the world. Some of the toughest actors on screen cower under the threat of reduced ticket sales and apologize for referring to Taiwan as a country. Spoiler alert: Taiwan. Is. A. Country.

After Canada arrested the CFO of Chinese electronics manufacturer Huawei at the request of the U.S., China started limiting imports from Canada and sentenced a Canadian citizen to death. Beijing has also used trade policy to intimidate (among others): Norway for Liu Xiaobo’s 2010 Nobel Peace Prize, Australia for an investigation into the origins of Covid, and Sweden for declining to use Huawei for its 5G networks. And the country maintains an active program of forced repatriation (i.e. kidnapping) of Chinese nationals abroad who run afoul the state’s interests.

In sum, China is second only to the U.S. in hard and soft power but far ahead of the rest of the world, and it’s the only nation besides America with the will and means to exercise that power on a global scale. Is China our enemy or competitor? The answer is yes.

21st Century Cold War

The 21st century Cold War will look very different from the U.S.-Soviet rivalry of the 20th. Some of this augurs in favor of a more cooperative, less combustible relationship. The Great Firewall is more permeable than the Iron Curtain, economically and culturally. China’s manufacturing depends on healthy U.S. and European economies to provide customers. Before Covid, there were more than 300,000 Chinese students studying in America.

But with interdependence and digitization comes a host of soft tissues and chokepoints. The prospect of a Soviet tank corps pouring through the Fulda Gap kept 20th century Cold Warriors up at night, but at least that would have been public and obvious. Terror-by-proxy, intellectual property theft, and cyberwarfare can destabilize U.S. interests in ways harder to attribute or measure.

Learning From Competitors

As well as being interconnected, we face many of the same challenges. In both countries, powerful corporate interests suppress competition and skirt regulatory control. Both countries wrestle with the corrupt influence of social media on education, productivity, and happiness. Both countries have birthed an economic elite that’s looking to pull up the ladder and ensconce its descendants in dynastic wealth. More than a few issues of this newsletter could have been written in Chinese without much amendment.

The government facing these challenges in Beijing is profoundly different from the one in Washington. A one-party state can’t be voted out of office, only overthrown. If you lose reelection in a democracy, you can procure a speaking agent and sleep through board meetings. If you get ousted in a one-party state, you usually get shot. Chinese leaders, with singular control and no exit strategy, have the ability and motivation to think long term. China has been playing the long game for generations, and it shows. The U.S. has been governing via Twitter and also, it shows.

This is not a post defending China’s system of government. Mass surveillance, genocide, and shitty vaccines are not an acceptable trade for economic success. But you don’t have to like a competitor to learn from it. And some of China’s recent actions are worth considering as we begin to repair/improve our system.

Crackdown

For better or worse, the Chinese Communist Party (CCP) has proven what’s possible in a world with fewer checks and balances. What once seemed like a rap on Jack Ma’s knuckles has in less than a year transformed into a systematic overhaul of the national agenda. Xi Jinping’s message is clear: National interests will not cede to private ones.

National interest No. 1: No more monopolistic abuses. In April, Chinese antitrust regulators fined Alibaba $2.8 billion, or 4% of its domestic annual sales, for an anticompetitive practice they call er xuan yi, or “choose one out of two.” The phrase refers to Alibaba’s tendency to punish merchants who sell products on rival platforms as well as its own. Regulators later fined food-delivery giant Meituan $1 billion for the same reason. And, as of this week, China will issue a sweeping new privacy law that makes it more difficult for big tech companies like Alibaba to collect consumer data.

No. 2: No more toxic platforms that harm the well-being of children. This month, a state-owned media company grilled online gaming, branding it as “opium for the mind.” Perhaps “opium” is overkill, but they’re not wrong. Chinese gamers on average register more than 12 hours of gaming a week, more than in any other country. When the article was published, Tencent’s stock plummeted (gaming is one-third of its revenue). The company reduced the amount of time kids can game per day and banned real-money transactions by children under 12. The money spent by minors on the platform didn’t compare, it seems, to what could be lost by snubbing the government.

No. 3: Protect economic mobility. China has recognized that its education system is turning into a caste system (as in the U.S.). As the CCP put it, it’s become “severely hijacked by capital.” With a less than 2% acceptance rate at China’s Ivy League (Peking, Fudan, and Tsinghua), the private tutoring market in China has boomed, enabling the wealthy to pay extra to buy their kids into the best schools, so they in turn can accumulate more wealth. America’s response to this issue? Lock up Aunt Becky for two months. China’s? Require all private tutoring companies to go nonprofit and ban them from going public or raising foreign capital. If that casts a chill over the entire Chinese education market, so be it. The CCP, like the universe, is indifferent.

And just this week, Xi called for the regulation of “excessively high incomes.” These are only a few of the forceful attempts he’s made to right societal wrongs. Unfortunately, the inevitable product of unchecked power is that he’s also wronged a lot of rights. (See above: genocide.) Which system is best — one ruled by an authoritarian leader or by filibusters? Simple, ours. But, again, that doesn’t mean we can’t learn from theirs.

System Comparison

Ultimately, this Cold War is likely to be decided on the same basis as the last one: as a competition between social-economic systems. The U.S. prevailed in the Cold War because its system produced superior economic returns. The Soviet economy collapsed in a quixotic effort to maintain military parity on a relatively anemic economic base. And the burden of its failed occupation of … Afghanistan. While the U.S. begins this contest with significant advantages over China, China enters as a more potent competitor than the Soviet Union at its peak.

A simple way to describe the outcome of the Cold War is that democratic capitalism defeated authoritarian socialism. In a sense, the China-U.S. rivalry will determine whether democracy or capitalism was the fulcrum of victory. China has embraced capitalist economics … within an authoritarian state.

Every modern nation is trying to achieve innovation and economic growth while moderating ascendant private interests that run roughshod over the commonwealth. The challenge is to properly price externalities including emissions, monopoly abuse, and income inequality — howls at the night moon by the innovation class as we shit in the well during the day.

I perceive these choices along two axes, the degree of economic freedom private enterprise enjoys and the amount of social planning done to protect the commonwealth.

The U.S. has more or less abandoned action on social concerns in favor of unregulated economic activity. American corporations largely do as they please, and we have neutered the institutions meant to protect the commonwealth. Would Michael Milken have been sentenced to 10 years in federal prison in 2021?

China has taken the opposite approach, sacrificing economic freedom (though it’s staying within the framework of a capitalist, free-market economy) in favor of state planning and protections. My 1980s libertarian roots tell me this is doomed to fail, but the past 30 years of Chinese success suggest I should rethink more than my sartorial preferences from that decade. I just reread the last sentence and I sound like a douchebag.

Social democratic countries, Germany being the largest and most successful, attempt to strike a balance. My gut says this is no man’s land, the worst of both worlds, and sluggish growth will hamper the European welfare-state model. It’s worth noting that China’s growth has in many ways come more at the expense of Europe than the U.S. For example, China is now home to eight of the largest global companies, leadership seized mostly from Europe.

The holy grail would be a system that fosters maximum innovation and hard work but also invests in future generations. We often think of economic freedom and social planning as mutually exclusive, a zero-sum game. (You can also achieve neither, as in Russia.) Is the best of both worlds achievable? The U.S. flirted with this in the mid-20th century, but we focused on the interests of white men in our social planning. Since then, we have devolved into a system that separates us by identity rather than character, failing to register that greatness is achieved in the greatness of others … together.

Mother of All Macro Bets

One of the most interesting ways this century’s bipolar conflict will differ from the Cold War is that our two systems are financially connected, meaning we can invest in one another. And we do: Chinese entities hold more than $2.1 trillion in U.S. financial assets, including government and corporate debt and equity, while U.S. entities hold nearly $1.2 trillion in Chinese assets.

Americans are by definition heavily exposed to the U.S. economy. One way to hedge against Chinese success in the bipolar investment race is to invest in Chinese equities. Consider that an investment in the Chinese economy generally in 1990 would have returned 13% per year, far outpacing the S&P 500’s return of 8% over that period. Individual opportunities were even more lucrative. In 2000, Masayoshi Son invested $20 million in a young Jack Ma’s internet startup. In June, Softbank’s stake in Alibaba was worth over $150 billion — one of the greatest venture investments of all time. (Despite Softbank’s efforts to give it back via $10 billion subsidies for people looking to rent desks.)

BTW, ever wondered who would “play you in the movie”? I found out yesterday. But I digress.

Currently, the market is severely discounting many Chinese companies, based on the fear that the heavy hand of the regulatory state will suppress growth and strand capital. Last month, SEC Chairman Gary Gensler announced that the regulator was applying additional scrutiny to Chinese IPO listings and strengthening disclosure requirements around the risks of government interference. These are significant headwinds, and as a result both Baidu and Alibaba trade at lower multiples to earnings than their U.S. counterparts. The market likes Uber’s revenue 6x more than that of Chinese ride-share company Didi.

My view: This is a rare moment when beachfront property is going on sale. Xi may have rapped the knuckles of Jack Ma and the tech entrepreneur class, but it’s difficult to imagine he’ll cut off their fingers. Xi needs the engine of economic growth to keep humming, as there are still 300 million people living on less than $5.50 a day in China. This economic miracle is only half complete.

Whatever Xi does, there’s the real possibility that the Chinese system, as morally flawed as it is, might produce greater prosperity than the U.S. model. And shareholder returns are a product of opportunity and execution. If China in 2040 is the dominant power and a 2-billion-person economic success story, all the regulatory overhang in the world won’t cut into the wealth its corporate shareholders will enjoy.

Who can say? My money is still on the U.S., as I’m hopeful we will look east and learn.

Life is so rich,

P.S. My colleague and friend Adam Alter is teaching a Section4 Sprint focused on the fundamentals of Product Strategy. I’m the guest lecturer. Join us.

64 comments

  1. A. Chatterjee says:

    Very compelling for China – one impending issue that was not discussed is the rapid ageing of the workforce in China and increase in labour costs. Growth is bound to slow. I also can’t help but comment on – in unbridled free market like US and a centrally planned economy like what is common is that a relatively few (elite) yield economic and political power while maintaining the facade of government elected and and for the people.

  2. Carol Rennie says:

    Interesting, the role of opium 200 years ago and today. The British Empire starting western dominance over the East – financing itself with and winning Opium wars against China in 1840s – does the Talibans financing itself and the US withdrawal from the Middle East mark the transfer of dominance from West to East again?

  3. Kwesi Solomon says:

    Reverend

  4. Julian Sale says:

    The US political and economic systems do not accommodate long term planning as well as the China systems. Thus, I conclude China will prevail in the long term.

    • Neil Roble says:

      Authoritarianism is disciplined and well-organized; hence excellent at long-term planning. Excellent point, Julian.

    • Joel James says:

      As that famous economist Mike Tyson once said, “Everyone has a plan until they’re punched in the face.” Modern China has yet to take a a good face punch – when that happens, we’ll see how their long-term plans and ability to innovate around it, prevail.

  5. Thingo says:

    This is a very convincing take on the current global past/current/potential future. Very much enjoyed.

  6. Jo_ny says:

    Brilliant article Scott… I am not sure which, USA or China’s economic systems will “win” in the future, but I know that Chineses people will live a much higher standard of living and have a much better quality of life.

    Socialist governments make sure drinking water is safe, don’t allow genetically modified fruits and veg, provide health care, more vacation days off (like your summer vacation), bullet train transportation, free university education, low priced pharmaceuticals, art classes exist, force businesses to close on Sundays for a societal break, regulate energy prices, etc. …you know the small thingies that make up the all important fabric of life.

    America has already lost… because they live like vicious dirty greedy dogs trolling each other on Twitter while crumbling roads, bridges, sidewalks, and pollution is everywhere… this provides their dirty and broken day-to-day living environment. Businesses don’t invest in the good of the community or country, they’re only focused on shareholders and bonuses.

    The decresed lack of care the US government has had towards regulating its businesses correlates perfectly with the break-down of human values in America over the last 50 years.

    It’s so dog-eat-dog that uneducated people (63% of the population) are stockpiling and carrying weapons (even open carry in some states) just in case it gets sooo bad… that they have to start killing each other for necessities.

    The bad thing about America is how horribly people were taught, and how they continue to treat each other terribly, without kindness or respect. And you just won’t see that on the streets of Beijing or even in the Chinese countryside.

  7. robert smalley says:

    Interesting piece of comparison USA – China, but it does not accept the reality of the moment. The western world is defunct, is does not give a dogs backside about GDP. The focus, without any attempt of rational, is on human rights and climate change. This distorted insular direction is perpetrated by those without the brain capacity to evaluate nonsensical narratives, the vast majority of the 50% gender split. China, Russia and North Korea are laughing at the western ‘democracies’ . The western world is a spent force.

  8. SJ says:

    Agreed…remembering the recent Freakonomics podcast about how individualistic societies tend towards short-term thinking

  9. Tas says:

    It’s a red queen’s race w/ everything from surveillance tech to gene-editing. So maybe best we can do is about-face, pull rug out and shift entire global economic growth model. Somehow. That’d be real ‘innovation’. Probably needs to happen at some point. Chart it. When would be too late? 2050? If money is the only thing that talks, all of our ‘talking’ will be very limited in the future, considering the path we’re on.

  10. Jose Ortiz says:

    In an ever more individualistic society it is very difficult for it to realize the importance of the general well being. Governments either democratic or authoritarian, with internal check and balances to avoid corruption, can teach, explain and at the end and if necessary impose the general to the individual wellbeing. Individuals are willing to give if the know it will have a positive impact in somebody or something and always remembering the Laffer curve

  11. Rajul says:

    Really thought provoking piece Scott. Loved it.

    Thank you for penning it down.

  12. James Marino says:

    What is the relationship between Russia and China? In this global game of chess, do they conspire against the US?

    • Javan Sinicus says:

      Even during the height of the Cold War, when the Soviet Union and the PRC were supposedly cut from the same Marxist cloth, both were not able to co-conspire against the US.

  13. Scott Gould says:

    America’s take on China is so racist.

    Can’t you Americans get over needing to be “the best in the world” and actually embrace some co-human living?

    China isn’t an enemy who wants to kill you. I mean, geez.

    • Tas says:

      What? Liberty isn’t racism. And whether we alway represent that isn’t the case here. It is what the US is founded on. An idea. We’re not founded on Wall Street et al, which couldn’t care less and only looks at this situation as a business transaction.

      • George says:

        Famous American patriot used to declare, “give me liberty or give me death.” Now, Uncle Sam goes around the world saying, “we give you the liberty and freedom to die by our drones and missiles.”

  14. Rena says:

    Reminded of a novel I read awhile back
    2030
    Albert Brooks
    As I recall the setting was not so pretty…we need to, as Prof Galloway has suggested Wake Up to the new reality….

  15. Tim Emmett says:

    An excellent analysis. However, US regulatory powers are still significant. Given the China propensity to take and not give, perhaps the US should insist to the likes of Apple that it onshores its manufacturing back from China and re-establishes domestic capacity. Power and patronage work just as effectively in the US and the West, just as they do in China.

  16. Gianni says:

    You are born in the wrong century: you could have been one of the many American intellectuals who went to Russia in the 30’s and sang the praises of the Stalinist society: now you have to be satisfied with incensing Xi Jinping.

  17. Marc says:

    I congratulate the author on giving the most concise and on-point view of China/US interdependence I have read in the past 5 years. You have offered a superb road map to make investment decisions and analyse govt actions. As the Father of a SUNY-Maritime student it is heart-warming to know there is such critical thought and insight within the professorial community. Thank you for writing an amazing piece.

  18. David Sorensen says:

    China’s economy is heavily dominated by exports to the free world. What happens if/when these consumers decide that they would rather not buy from a bully like China? The apartheid boycotts of S Africa would be an interesting case study.

  19. Wing Yang says:

    Professor G, reading your Insights is the most enjoyable routine activity on my Saturday morning. I’d like to know your views about China stock market if possible.

  20. JC Wandemberg Ph.D. says:

    Hi Scott, why did you leave the EU out?

  21. Loren says:

    One of your best posts, of late. Well written and articulate arguments

  22. Wendi says:

    This was so loaded with great stuff – that I sent it to my two sons, 30 and 40. That’s a first. Thanks, Scott!

  23. Karl Hungus says:

    Growth, growth, growth. The brick wall that capitalism (both the Western and Chinese version) is careening towards is called “finite planet Earth”. No number of technological breakthroughs nor colonization off-Earth (never gonna happen) will get us around the reality that this blue marble can only support so many humans and provide so much material wealth. One of the keystones of the Capitalist system(s) remains and has always been the assumption of infinite resources. How will either version of Capitalism ultimately deal with this impending reality of our home planet’s limits?

  24. Linda C says:

    what about Climate Change in all this? Not to mention the goals of each country are polar opposites culturally – one focused on individual freedom above all else, the other on communitarian wellbeing above individual rights. Underlying your analysis (though I agree with most of it) is that this is a zero-sum game. And that’s where you go wrong for your kids’ generation – our kids, our grandkids. We have to stop this either-or b.s. This is one planet for everyone. BOTH systems (or all the systems out there – India, New Zealand, EU, MENA, Africa) need to put the planet and future generations’ wellbeing above all else. I challenge you to look to the ecosystem of NGO’s, not just for-profit businesses and the flailing hodge-podge of gov’t regulations and geopolitical maneuvering. We all need to think BIGGER than one single country.

  25. joe jones says:

    in recognition of “w’s” afghan and iraq accomplishments there is (in my mind) only one suitable way for the nation to show it’s thanks. america should issue a new denomination in a 3 dollar bill with his portrait predominately displayed.

  26. Eileen Campbell says:

    Kelly AuCoin?! Are you kidding me? Jason Statham all the way.

  27. Gary Wexler says:

    Adding a big missing piece to this very complex Chinese puzzle: The human one which should be fitted right in the center of the picture being assembled here. As a professor and consultant, I’ve come to personally interact with and know hundreds of Chinese Masters in Communication students as well as business leaders and creative professionals. First off, they are human with emotions,, dreams, ambitions, worries and a hell of a lot of depression. In one of the classes I teach I ask my students to write their first paper on “What creates meaning in my life.” While the Chinese students may not articulate orally much in the first few weeks of class, until they become comfortable,, they will pour out their souls—-their guts—when writing this paper, telling me it is the first time in their lives they have been given this opportunity. When describing meaning, they will talk about the influence of Confucius upon their lives, their families, their proud history, their pets, their culture, their art. When talking about depression, they will write about their society’s relentless pressure towards success, the pressure upon their professionals to drink after work with their bosses and clients—-and the alcoholism of their fathers. But one characteristic in mostly consistent—-their expression and motivation to work hard and succeed. And in classes, trainings and consultations, I see how they put action to words. By the end of the semester, they will almost always run circles around the American students. Why? The Chinese are not smarter. But they are committed hard workers. In the last few years, the Americans for the most part are focusing their attentions and efforts upon their wokeism, their unrelenting search for the micro-aggression and the paralyzing pains that occupy them and overcome their abilities to learn, read and study class material, quoting their allyship with Critical Race Theory and the issues of Diversity, Equity and Inclusion. Almost everything you teach to American students today eventually comes around to this issue and is the chief animator of all discussions. We are leaving the Chinese to step over us and race way ahead. (Knowing all this woke entanglement very well, I want to defend myself from being labeled as a racist. I am in total alignment with the ugly truth and exposure of American racism, and that there must be an urgent correction in our country. I just disagree with many of the methodologies we are using to combat it. But I have learned that if you disagree with the orthodox practices of these methodologies, you are considered a racist.) America needs to begin balancing its energies and actions between these important issues and other important issues.

    Recently, I have read several articles suggesting that we stop requiring college degrees in order to lower the barriers of people entering into careers in technology. The Chinese are raising those requirements all the time and we are now thinking of lowering them. What does that mean for our future success as a country of competitors on the world stage?

    Many people have asked me, given the competitive race between China and America, the underhanded and covert ways of the Chinese Government, if I don’t feel guilty providing so many Chinese with American know-how.

    The issue is not my spreading of knowledge, creativity, idea creation and skill to the Chinese. The issue is that Americans are willing to let our edge go and not work with the same commitment to excellence as the Chinese.

    The Chinese people are not to blame for their growing influence. They are wonderful human beings. We Americans need to begin examining and blaming ourselves for our own willingness to let go of our edge. We can’t blame the ambition and energies of the Chinese.

    • marino says:

      Gary! great corollaries! … you are a great professor! God Bless you! … and also a special human being who really LOVE they one you criticize! we need to teach to the new generation that it is way more Friendly and Loverly an “honest enemy” that a FAKE friend who just applaude for empty and useless devotion.
      My best compliment and thank you to teach me two new words: Wokeism and AllyShip!

    • Adam Gersbach says:

      Gary, thanks for sharing. Very refreshing to read this. You put words together better than I can and yet still considered a racist to some. Stay strong!

    • John Zac says:

      Civilizations must be rooted in logic, not entirely but at some level. The dark ages were not, that’s why they were called the dark ages. Now from top down the US underestimated this necessary trait because an idiot hooked on burgers, fries, baseball, bullshit, video games and shopping pads profits. I think we are gonna pay a steep penalty for that miscalculation

    • Neil Pitman says:

      As a Brit who has worked with the Chinese for many years, I cannot but agree with the comments. There is a different (and overwhelming) work ethic with Chinese people, one that Western society does not understand. Until we learn to work as hard (or maybe as smart) as them, they will always be on a path to overtake us.

    • Glen says:

      Gary, what you say doesn’t matter much if the socio-political environment crushes the individual flat, right? You are focusing on the wrong unit of analysis — focus instead on the State, like Scott.
      Both China and the US are neglecting the coming-generation:
      “The holy grail would be a system that fosters maximum innovation and hard work but also invests in future generations.” China has produced massive waves of graduates, BUT there are no jobs for them — a HUGE problem — eventually creating society-wide *unrest*. USA has same problem to a lesser extent. BOTH countries are eating their children alive.
      You are also missing credential inflation, which is invisible to you — credentialism should NOT be confused with progress / growth.
      Another way of describing the tension between the generations (and how to adequately manage it), or the “conflict between” generations, is to remember that the transition between youth and adulthood REQUIRES the latter to cede power and control to the former — it is, as often noticed, a power struggle over assets and opportunity.

  28. Dale Dewey says:

    Scott – I ALWAYS enjoy your comments and perspective and usually agree. I also appreciate your political incorrectness and am never offended. At the risk of being too woke and too politically correct, I’d like to say that describing something as bipolar, while the point is made, unfortunately adds to the confusion around this disorder. Millenials use the term all the time and barely even know what they are saying. In your article replacing bipolar with polarized, polarizing or polar opposites would not only be more accurate, but make your point even more clear.

    BTW – I would not be offended by you saying that someone who was up and down or sharing two views at once was bipolar because bipolar really means being both extremes at once or swinging back and forth between the extremes. That is not the case for either China or the US. I also agree with your Holy Grail position, but having lived in Europe for a long time, I think they have found a good balance in general between capitalism and a social net. They also have great infrastructure and health care. In my view the main problem in Europe is they look to much to the past and not enough to the future. The US continues to power forward in technology, but China is on a much faster upward progression. Thanks for all your insights.

  29. Giles Caver says:

    You had me until the end. The PRC’s equities haven’t been artificially discounted; they appropriately account for the regime’s growing crackdown on the private sector and unmentioned long-term headwinds — a large, rising and under-resourced elderly population; decades of reproductivity controls resulting in female infanticide, male-female imbalance and stalling population growth; official racism resulting in the genocide of ethnic minorities and shutting out of immigrants who could relieve the aforementioned population imbalances. The PRC is also losing its manufacturing cost advantage while repressing the intellectual freedom required to compete in the services. The regime is building a house of cards that will end in tears.

  30. C Cook says:

    Xi has used the heavy hand to reign in corruption, wealth, and dissent. Control will not leave as the flaws get mitigated. The corruption of power will win out, until the nanny/police state collapses under its own weight. The recent analog is Japan 1980s. Many parallels, having worked for a Japanese controlled company, I have first hand experience with Command and Control management and arrogance in execution. China is on the same road, Americans are reacting in the same way. Rest of world will eventually see the flaws in a China ‘friendship’. Pakistan is heavily indebted to China, and now finds out that the good deal on Huawei telecom came with a back door for all data that goes to the CCP. More to come.

  31. John Zacharopoulos says:

    Maybe but maybe the variability changes easier in large populations such as these. For instance 320 million in US with our so called freedom has produced x amount of mental illness and social problems. China risks 5x that, so what do they do? Issue controls, which are the key to their growth…they can’t risk going any faster cause the risk of them spinning out of control is greater than ours.
    Plus look at the great job we’re doing here

  32. Conor R says:

    A different shuffle of the kaleidoscope:

    The US is making the mirror image of the Soviet mistake.
    They thought they needed little if any private sector.
    We think we need little if any public sector.
    Most of the country subscribes to the Reagan view that government is the problem not the solution.
    In both cases, the country gradually spirals into the ground with one broken wing.

    Really, you ask? Isn’t the stock market hitting new highs every day?
    I say Jan 6 is just the scuffle at Lexington. The country is coming apart at the seams because people know it is not working for them.

    When you say the US is best, I have to ask “best for who?”. Since 1970 the average Chinese is dozens if not hundreds of times richer. Since 1970 the US median salary is flat.

    The countries who are coining it, China, Germany, Korea, are the ones where the private and public sectors work together, where people and corporations have a healthy respect for government and government knows it relies on people and corporations for wealth.

  33. John Murphy says:

    Great piece!
    But I definitely agree with Don K below. .. . . . . . . . . .
    Chine and the environmental impacts of how they have grown and the declining population will have unknown BUT large impacts on the projections you have extrapolated.
    The U.S. needs term limits desperately to alter the slide into oblivion. Are our Leaders going to do that? I seriously doubt it. Glad I won’t be around to see the horrible answers.
    JM

  34. Jan Kollmann says:

    Hope is not a strategy.

  35. Barb Cerny says:

    2 Canadians been have imprisoned in China for almost 3 years (the 2 “Michaels”) because we arrested the Huawei founder’s daughter at the request of the US who want her extradited. Canada is stuck in the middle while 2 innocent men may spend their lives in a Chinese jail or possibly be executed. I am boycotting Chinese goods.

  36. zack porter says:

    Who should play you in the movies?
    Kara’s choice is https://en.wikipedia.org/wiki/Jon_Gries from “The White Lotus”. He too works with his shirt off.

  37. Holly Daly says:

    my best friend’s mother in law gets $94 an hour at home and she has been laid off for six months. the previous month her pay check was $13548 just working at home 5 hours every day… see this page.>>> 𝐖𝐰𝐰.𝐏𝐚𝐲𝐬𝟏𝟏.𝐜𝐨𝐦

  38. Keith E says:

    One thing we should be cautious about is extrapolating China’s growth trends forward. For example, their population is projected to peak in 2025 and then trend downward as their birthrate declines due to rising prosperty. They will face tremendous issues with a growing senior population coupled with a shrinking younger generation tasked with supporting them.

  39. Don K. says:

    Great post. I’ve been thinking about this a great deal lately and agree with almost everything you said. However, as much of a threat as they appear to be, you can also look at Japan in 1990. People thought then that Japan would be a world leader in the not-to-distant future, potentially beating out the U.S. economically. How’d that work out? The USA has real problems, but when push comes to shove, we somehow manage to figure things out. Hopefully, we will again. Scott G. for president!:)

  40. Maddison Byrne says:

    SDFSDF

  41. Roy says:

    Excellent, cogent piece…. the reality is, humans suck at perceiving scale well at all. Ask folks the difference between a million and a billion seconds to prove it. And China’s all about scale. I recall a stat that there are over 20 Chinese cities of 10+ million people… that’s 20+ NYC/LAs and I doubt that most Westerners could even name 5. Yikes.

  42. Dylan says:

    Your most relevant and thoughtful piece, in my opinion. Bravo.

    I would love to see you have Ray Dalio on Office Hours to compare and contrast your positions against his own after the release of “The Changing World Order.” I imagine he would invite the opportunity.

  43. Jacco Kroon says:

    What strikes me about this very enjoyable article is

    1) the total absence of the European Union as a model
    2) the total absence of the threat of climate change and which model would be most successful at countering it

    I also sincerely doubt wether the number of global companies (by nationality, which in itself is a contradiction in terms) is the right yardstick for measuring economic success of a societal model or any type of success for that matter.

  44. Thomas Berryman says:

    “…the Chinese system, as morally flawed as it is, might produce greater prosperity than the U.S. model.” Substitute ‘Sinaloa cartel’ for ‘Chinese system’ and you get the same answer. An extreme comparison of course, but my point is that looking past the “moral flaws” when making investment decisions is, simply put, not okay.

    • stan konwiser says:

      The Sinaloa Cartel functions as a parasite of the countries it operates in. It does not have the responsibilities of governance so a comparison to the CCP model is not valid.

      • patrick m says:

        Interesting to note that the CCP is also a parasite, as are all collectivist systems. May be more in common w/ the Sinaloa Cartel than appears at first blush. Certainly just as morally bankrupt, if not more so.

  45. stan konwiser says:

    Two comments that might influence the conclusions drawn from this interesting piece:
    1. The remarkable growth of China under Xi is largely due to the extreme trade imbalance between China and the US. Much as Chavez’s socialist Venezuela was able to ‘prosper’ during the period of high oil prices, it collapsed when oil dropped. Xi has used those trade imbalance dollars to develop internal consumption which is not there yet (see GDP/capita comparison). If Xi can create the internal growth before the West shuts off the cash flow into China, all bets are off. China will be the economic powerhouse the US was after WWII.
    2. The US is being thwarted in the contest between China and the US by the simple fact that the multinational companies are no longer loyal to the US. Since WWII, what was good for GM was good for America. Now, what is good for those companies and interests that attend Davos no longer necessarily align with US interests. Those same companies have abandoned Western manufacturing in favor of made in China. They are no longer interested in ‘developing’ the third world with all its infrastructure and governance problems. They are committed to making their money the easy way: in the Chinese market. They see their future growth there, rather than in the mature US/Euro market. The hope for the US is that Xi will do what Communists/Socialists do: deny the opportunity to become fabulously wealthy. That promise of potential riches is what drives innovation and wealth creation. Once denied, that innovation will simply leave for greener pastures: The Western World

    Scott, you are absolutely right: Life is so rich.

  46. DTH says:

    That’s a good choice to play you on screen!

  47. max burger says:

    very thoughtful piece. a must read !!!!