Tuesday, December 8, 2009

The risks of remaking ourselves in China's image

In the wake of the financial crisis, there has been a lot of justified hand-wringing in America about our economic prospects. Some of this criticism has pointed to China, and particularly China's industrial policy, as an example we should follow. “In China, shovel-ready means shovel ready,” James Owens, Caterpillar’s chief executive, said in April, lauding the country’s quick mobilization of resources. Fareed Zakaria, editor of Newsweek, declared China “the winner of the global economic crisis.” While it's clear that China's political system allows it to respond more quickly in a crisis, it isn't clear to me that China's industrial policy is the reason for its prolonged and rapid economic growth. Other factors - foreign investment, a cheap renminbi, zealous local governments where officials are promoted on the basis of how much economic growth they can chalk up - these seem more important in driving growth than the policy of propping up a few industries with state bank loans. There are plenty of lessons we can learn from China, as Bill Powell of Time argues articulately here, but they aren't in the realm of big, unwieldy policies to stimulate development (and sometimes overdevelopment) in certain sectors. China has changed the competitive landscape. Revaluing its renminbi, while long overdue and important for addressing some global imbalances, is not going to bring back any significant number of manufacturing jobs. America needs to look carefully at preserving and building on what has made our economy so competitive in the past, and how we can ensure that our future growth trajectory brings as many people as possible into the fold. For more of my thoughts on this, see my piece on Foreign Policy's website published this week here.