William Watson: If you can’t beat China, surrender
William Watson Apr 4, 2012 – 9:17 PM ET | Last Updated: Apr 5, 2012 7:48 AM ET
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Corporate honchos forget we were running a First World economy while Mao was trying to get peasants to build blast furnaces in their backyards
I sat in on a meeting this week of some major Canadian corporate honchos and retired diplomats who are working on a strategy they’re going to recommend to the Prime Minister for dealing with the challenges posed by the advent of rapidly growing emerging economies such as the BRICs: Brazil, Russia, India and China — but mainly China.
It is symptomatic of a chronic Canadian problem that they mainly emphasized the challenges posed by dynamic new competitors rather than the opportunities offered by hundreds of millions of new customers hauling themselves up out of poverty.
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The meeting was held under Chatham House Rules so I can’t tell you who was there — though you would know several names — or what exactly was said. I am able to report that the strategy proposed by a majority of participants can be summarized in one word: surrender.
Surrender, not in the sense of giving up on investing or selling into these countries or letting them take over our market, but rather surrender in the sense of giving up on doing both business and international relations in the way that has served us so well since the Second World War and before and instead adopting a more, well, Chinese approach.
The Chinese, I heard, have several major advantages over us. They have a government that has no compunctions about picking economic winners and pouring tens of billions of dollars — $60-billion in aerospace alone — into the sectors it’s betting on. Unlike ours, their government has a “strategic vision” for the Chinese economy. They have five-year plans. (Of course they have five-year plans, I couldn’t help but interject. They’re communists! Five-year plans is what communists do.)
They and India have cheap labour and the Chinese state-owned firms and sovereign wealth funds apparently pay no heed to the cost of capital when making decisions. (They apparently have Carney-like discount rates of zero all the time, which should at least enable them to pay a pretty penny for any assets they buy from us.) Up against these odds, the consensus seemed to be, it’s very hard for us to compete.
Now, we were running a First World economy while Mao was trying to get peasants to build blast furnaces in their backyards, was unleashing the Red Guard on anyone bourgeois enough to wear eyeglasses, and was imposing starvation on many millions of his citizens and poverty on all of them. But now because the Chinese have finally come to their senses and adopted a variant of capitalism — our system, remember — that has given them powerhouse growth for three decades we apparently need to abandon many of our habits, laws and even values and follow the Chinese model.
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Thus our governments have to get behind our “national champion” firms. (Is what’s good for Bombardier really always good for Canada?) Our politico-industrial complex (my term, not theirs) has to get its act together and come up with strategies for our entire economy, our leading sectors and our government-owned banks. In effect, we have to learn from the upstarts and become more like our Chinese and Indian competitors, whose governments are never shy about throwing their weight around, writing rules that favour their own champions, leveraging access to their increasingly affluent markets and in every way possible skirting the accepted international rules of trade and investment.
In sum, we have to stop being boy scouts and start getting tough. And, what you might least expect from a group of business heavyweights, our governments have to show us the way. (That we have a business class that wants government to lead is — can there by any doubt? — the real Canadian problem.)
What’s even stranger: As much as I heard about the need for our various governments to get involved in industrial strategizing, I heard even more about how inefficient, capricious, indecisive and short-sighted these same governments normally are in their dealings with business, and how they and their agencies, many of which overlap ineffectively, so often work at cross purposes.
Yet somehow, once it becomes clear that an effective industrial strategy requires it, these governments will abandon the habits of centuries and become streamlined, decisive and as tough and single-minded as Goldman Sachs. No doubt it would help them to do so if we adopt the Chinese political model of having only one party and no election that ever actually means anything.
With my staunch pro-market views I was of course accused of being naive. “Adam Smith” and “B.S.” (I abbreviate) were used in the same denunciatory sentence from one captain of industry. But if the strategy you favour depends on governments suddenly transforming their essential nature, the question needs to be asked: Who’s being naive? (One especially world-weary participant accused me of being “ideological,” which in the usage conventional in such debates means “holding views I disagree with.”)
The fact is, thank God!, we are very different from China — even if, slowly, they are moving in our direction, and will continue to do so if only we (i.e., the West) hold our nerve. We run an open society. Our courts are independent from the government. We are free to lobby, and sue, and form whatever interest groups we like. We’re also, it might be added, riven by regional jealousies. All of this greatly complicates Canadian public policy. And it means our governments, which must answer to many constituencies, will never be as efficient as China’s.
That is, of course, a very good thing. Monopolies of power are always unwise, even Chinese ministers being capable of colossal error. But whether it’s a good thing or a bad thing, it’s how things are. Given that reality, we need to find ways of competing that are true to ourselves.
How many gunners?
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