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July 23, 2012

Advent of U.S.A. version 2.0

The "Economist" July 14th published an article "Comeback Kid" (on recovery of the American economy), when I was about to finish a thesis in a similar vein. But while "Economist" focuses on short-term economic prospect, I rather speculate on the advent of a "U.S.A. version 2.0" with changes not only in its economy but also in the society, politics and even foreign policy. The U.S.A. may again be in a historical turning point, poised for a new growth based upon a new alignment.

Manufacturing comes back to the U.S.
Despite the slow recovery after the financial crisis there are now positive signs in the economy; sales of automobiles and new housings are picking up. However, it would be unproductive, if the U.S. economy simply reinstates its pre-crisis structure, based upon the bloated money supply generated by modern financial machinations. The Lehman Brothers shock clearly demonstrated that a healthy growth would require more production and not money magic.

True, it would be hard to rein in the greed and zeal of the financial sector, but it would be possible to expand the production sector (industry and service other than financial speculation). Today there are favourable conditions for it. Firstly, the wage level in China is rapidly growing (on the coast area even "shortage of labour" is in talk). Last summer Boston Consulting Groups published a report (http://www.bcg.com/documents/file84471.pdf), predicting that within five years from now the production cost in the U.S. South will be on par with the cost level in Chinese coastal area and that this may resurrect U.S. industry and create no less than three million new jobs.

And secondly, various states in the U.S. are eagerly promoting investment, offering favourable conditions for it. This induced many companies (both American and foreign) to expand and even newly build plants in the U.S. Let me enumerate some examples:

○In March 2012 Chrysler announced that it will start production of its new "world car" in Illinois.
○Caterpillar is poised to build a new plant in Georgia.
○Ford Motor is moving part of its production from Europe to Kentucky.
○General Electric is moving part of its production from China to Kentucky.
○Intel is building a large factory in Arizona to produce cutting-edge semi-conductors.
○The Dutch electronic giant Philips has its main factory for production of medical equipments in the U.S.
○French Alstom has built a large plant for production of atomic reactor equipments in Tennessee.
○French Vallourec SA has built a plant for production of seamless steel pipes in Ohio (Japanese Sumitomo Corp. has a share of 20% in this)
○In January 2012 German BMW announced that it would invest 0.9 billion dollars to expand its plant in South Carolina.
○Volkswagen opened a new $1 billion plant in Tennessee in 2011, employing over two thousand workers. And its subsidiary Audi intends to invest one billion dollars to build its first plant in the U.S.
○In Georgia investment grew to 1.6 billion dollars in 2011 from mere 0.75 billion dollars in 2010. The Japanese firms counted for 1 billion dollars with Toyo Tyre & Rubber's 0.9 billion expansion of its plant.

Besides, the U.S.A. remains by far the best place in the world for innovation because of its open system and presence of supporting technology, personnel and capital.

Manufacturing 2.0
The world may be standing on a threshold of a new industrialization era. First of all the shortage of energy will be substantially mitigated. The ample supply of shale gas and shale oil may even lower the energy cost (for the U.S. inter alia). It may hamper the development of substitute energy. But if an inexpensive method to produce hydrogen be invented [e.g. development of photo-synthesis technology], it may lower the energy cost even more without additional emission of carbon dioxide.

Second, drastically new ways are being introduced in manufacturing. Complex cubic items can be "printed" now. Certainly printing technology would be too costly and slow for mass production, but remember how the conveyer system invented in the U.S. once triggered another wave of industrialization, drastically expanding the size of economy.

Besides, there have appeared such "manufacturing" giants like Apples, which (in difference to the conventional multi-national companies) mostly depend upon out-sourcing of production abroad. They consider the whole world as their production basis and as market. The U.S. dollar links all countries, as if they were one economic entity. In this milieu the conventional concepts of national GDP, trade surplus and trade deficit are losing relevance. A new system of counting should be developed.

All this would mean that we should not be swayed by the superficial success of the Japanese, Chinese and other economies. Instead we should soberly analyze to what degree these economies possess conditions for farther self-sustained growth: capital, labour, technology, entrepreneurship, imagination, foreign language skill and balanced relations between private sector and government. The "state capitalism" may work in times of crisis, but it utterly cannot deal with the need of modern societies. I used to live in the Soviet Union. I know on myself how "well" the state-run economy worked. People may allege that the Japanese economy prospered even under intense intervention of the government, but Japanese firms (except for banks) were not given instruction by the government on what and how many to produce, whom and for how much to sell products and from whom and for how much to order raw materials, parts and credits.

A Multi-national Nation
A fundamental change is taking place before our eyes: America is becoming truly multi-national. In June 2012 the U.S. Census Bureau announced that the erstwhile minorities were now majority in population of the babies below one year old. In a sense the U.S.A. is becoming a "world", which is regulated by one government and by common values. In spite of many negative phenomena, shooting sprees, widening income gaps, unemployment etc., intrinsic American morals like honesty, accountability, openness and rule of law are still intact.

Building a multi-racial and yet democratic state is a daunting task, but the U.S. has precedents in its history, in which it successfully incorporated huge influxes of immigration. In late 1800s to early 1900s about 18 million people immigrated from Europe (so, they may not be of different "races"), drastically increasing the total population of the U.S. from 40 million in 1870 to 90 million in 1910. During 1970s and 1990s civil rights of the minorities were elevated so much that many of them have become middle-class citizens today. As long as the U.S. economy remains vibrant, new immigrants will keep trying to abide by the rules and morals of the society, because only by so doing they can build better life for themselves.

Foreign policy based on balance of power
For President Obama choices are limited in the foreign policy; many Americans voted for him to stop the Iraq War, and the status of the American economy today would not allow new military interventions abroad. He has to rely upon diplomacy in its pure sense of the word. In other words the U.S. today is using the classical balance of power technique. Russia and China name it as "multi-polar world" with diminished role of the U.S., but America so far manages to maintain its leading role in world affairs. Russia and China still lack in prerequisites to lead others; their currencies are not international reserve currency (remember that after the Lehman Brothers crisis it was the U.S. FRB which amply provided dollars to banks worldwide, thus saving a breakdown of international transactions), their media do not possess international clout, and more importantly they cannot offer ideas and values which attract people (especially younger generations) in other countries.

The U.S. diplomacy has been very active and fruitful in Asia; without excessively confronting China it is establishing balance of power in Asian Pacific area. Myanmar has become open to the world, the ASEAN countries enjoy unprecedented support of the U.S., Australia and India strengthened cooperation with the U.S., Pacific islands countries are assured of support and cooperation, and even after the withdrawal of the forces from Afghanistan the presence of the U.S. will be kept in Central Asian countries. This intricate network of mutual support and cooperation works well for the maintenance of the status quo, which is vital for avoiding large-scale military collisions.

It seems as if the U.S. were undergoing material changes. Are we now witnessing an advent of a new U.S., the "U.S. 2.0"? We cannot be sure yet. Much would depend upon the prospect whether America will be able to rebuild its economy with more share of production and a smaller dependence on financial machinations. I do hope that the U.S. resurge with robust economy and with its basic values and mores intact: openness, accountability and humility before God.


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