BEIJING, CHINA – MARCH 02: Visitors crowd as they look and take pictures of a case holding lunar … [+]
Last week, China made a bold move in its quest to become an innovation superpower, unveiling a five year plan to grow the country’s economy by six percent, increase spending on technology, and weaken the pro-democratic opposition in Hong Kong. Closer to home, President Biden warned that without sufficient investments in infrastructure China is a threat and issued an executive order to strengthen U.S. supply chains.
The lines have been drawn and the game is now afoot.
To stay ahead of China, the private sector must put aside short-term shareholder primacy. It must withdraw from its craving for consistently impressive quarterly upticks in profits. The 40-year reign of this philosophy, singling out the shareholder as the only worthy stakeholder, has left us with unparalleled socio-economic inequality and social immobility in degrees worse than any major nation in the developed world. In tomorrow’s world, military might alone will not protect our national security or even our ambitions for a democratic society. Inclusive economic growth must become the reimagined governance for capitalism in America and deliver turbo-charged prosperity for all Americans.
We are sorely in need of a massive and visionary plan, something similar to what we achieved with the Apollo mission or the Human Genome Project, that would coordinate the efforts of both the federal government and corporate America. Such a project would orchestrate the work of public and private sectors to lead the world in 5G innovation and technological compatibility. It would also build a working model for the same sort of public/private teamwork in other fields such as artificial intelligence, where China also wants to be the global leader and first mover.
Are we even positioned to move toward something this transformative here in the U.S.? Maybe. Reports on President Biden’s recent executive orders look to me, and others, like a trial balloon testing America’s receptivity over the issue of something like a national industrial policy. That is precisely what is needed — an organized mission to bring industry, commerce, and the government together for a concerted effort to maintain America’s leadership in technological innovation.
To begin, we must recognize that our bias for maximizing short-term returns to shareholders has hampered long-term growth for shareholders and all other stakeholders. Economic growth has been hindered by our maniacally obsessive focus on the next financial quarter. China sees all of this, and it has quietly oriented itself to take advantage of our own short-sightedness.
Once the shareholder primacy addiction has been put to rest, there will remain the work of framing an enormous, integrated initiative from both government and key business leaders. It would require a coherent and rigorous vision for the next few decades. We need to think that far ahead. China does.
Much has been written about how we play chess while China plays Go. In the game of Go, you slowly accrete more and more command of the board, one country, one industry, one bit of intellectual property at a time. As an example, China’s game means colonizing most of Africa, cornering its oil, gas gems, metals and especially its rare earth minerals, essential ingredients for electronics, AI, clean energy sources and devices that utilize them (batteries) and more. Have we mapped out a supply chain involving Africa or other friendly regions? Do we even care? We have ceded way too much of our manufacturing expertise to China and have thus made ourselves dependent on them in a way that hampered our response to the pandemic a year ago—China became a choke point for supplies much needed to combat Covid-19. It was a case study in the need for an American industrial policy that we need to examine in depth. Much has also been written, and this is more to the point, about China’s ability to align its public and private sectors to work toward a common, national goal, decades into the future.
Let us be clear about what needs to be done. China’s economic power is generated by capitalism. That means access to capital, competent, effective, and sustainable supply chains, technology, human resources as well as any other needed resources. The other key ingredients of capitalism are the principles of prudent risk, appropriate incentives, and rewards. China’s capitalist engine has all of that. Like capitalism in America, Scandinavia or China, the basic engine that produces this growth has no conscience, no moral or ethical compass. It’s driven only to compound its own growth. Capitalism needs guidance about who benefits from the value it produces. That is the role of organizational governance. In China, its centralized in the Communist Party and its government—it establishes the control, the laws, the reward structures, and ultimately the leadership for its capitalist enterprises. In its first forty years of industrial growth, America’s companies served multiple stakeholders. Over the past four decades, corporate America has rewarded only its shareholders at the expense of nearly everyone else. For example, shareholder primacy has helped create a devastating socio-economic inequality and over time, lower levels of R&D, Basic Research, productivity, and innovation for America’s businesses. These realities, and more, gave China the opportunity to roar toward our position.
To win the economic race against China, America’s business must revive stakeholder capitalism. It worked when America was the world’s industrial leader and created our middle class as the world’s largest economic market. Today, it’s working again in many familiar companies: Microsoft
We can win the economic race with China. The challenge is for us to get in the game and begin playing for the long-term, with wisdom, caring and fairness. At our best, that’s who we are.
