Two megatrends have shaped American life since the 1980s: the rise of China and the collapse of American industry.
China’s economic boom has given rise to a thousand predictions: it will soon overtake us as an economic power, the 21st century will be a Chinese century, America is an aging and decadent nation doomed to second place.
The collapse of American industry has fueled the feeling that capitalism is betraying the middle class. America has a parasitic financial sector, but we don’t do anything anymore. Manufacturing jobs have moved to China and Mexico, and wages have stagnated.
Both of these trends have contributed to the feeling that America is in decline – to the veil of anger and sadness that has settled over political life.
But it seems that these two megatrends are reversing.
China does not look like a growing dynamic power, but a troubled and stagnant power. Growth rates are declining. The unemployment rate for 16 to 24 year olds in urban areas is a demoralizing 21 percent. Private investment is slowing down. According to a forecast by Bloomberg Economics, the size of the Chinese economy will fail to surpass that of the US economy, despite having a much larger population.
The causes of China’s stagnation are multiple and profound: overinvestment in real estate, the decline of foreign investment as the state becomes more threatening, the decline of exports, the catastrophic demographic spiral. Since 2016, the actual number of births in China has fallen by almost 50%.
But the fundamental problems are endemic to the regime: centralized authoritarian control is incompatible with a largely open, innovative and fluid modern economy. Industrial policy may look good for a short time, but it freezes. China now has a plethora of zombie companies, which aspire to subsidies but fail to compete in the market. The open flow of information is crucial for any nation; when the state suppresses information unflattering to the regime, then everything is doomed to sink into mediocrity.
As the Chinese economy deflates, American industry seems less hollow. America has seen a net gain of 530,000 manufacturing jobs since January 2017. The manufacturing boom has been torrid lately. Since the end of 2021, investments in the construction of manufacturing facilities have more than doubled.
Much of this boom is happening in the Western Mountains, Upper Midwest and parts of the Southeast. Chips, electric vehicles, renewable energy sources and batteries are made in places like Michigan, Kentucky, Minnesota and Arizona.
Over the past few years, for example, many tech companies have moved to invest in manufacturing plants in Ohio, once the Rust Belt: Intel ($20 billion), Amazon ($7.8 billion dollars), Google ($3.7 billion). According to a study by the Hoover Institution, Ohio attracted nearly 14 times more new investment projects per capita in 2020 than California.
In short, capital, construction and manufacturing are returning to many places that have been hit hard. Since 2011, according to the San Francisco Federal Reserve, wage growth “has accelerated more for high school graduates than for college graduates.”
What lessons can be learned from these two ongoing reversals? The first is that there is a great deal of resilience and dynamism in the American model of largely free market capitalism. As I have already noted, in 1990 European and American gross domestic products per capita were almost neck and neck. Since then, America has forged ahead. Labor productivity in the United States grew by 67 percent between 1990 and 2022, compared to 55 percent in Europe and 51 percent in Japan.
In 2012, I heard a keynote speech by Dr. Atul Gawande who introduced me to the phrase “rescue failure”. He reported on a study that the best hospitals don’t necessarily prevent bad things from happening, but they are very good at saving people when they have a complication to prevent breakdowns from escalating. in disasters.
The US economy, especially in the Midwest, looks a bit like this. Many of these places have experienced economic decline, but governments and people have changed and adapted, and they are bouncing back.
The second lesson I take from this is that bidenomics works – wonderfully. President Biden has promised to help America compete with authoritarian China and bridge some domestic economic divides. These two objectives are being achieved.
According to the Treasury Department, more than 80 percent of investments made under the Inflation Reduction Act will go to counties with college graduation rates below the national average. Nearly 90 percent of investments are made in counties where weekly wages are below average.
I know many of you think Biden is too old, but I would vote for a centenarian who could continue to produce such results.
The third lesson I draw is that right-wing populists are hopelessly overwhelmed. Take, for example, the writer Sohrab Ahmari, who argues that “the state must also play a much more active role in coordinating economic activity for the good of the whole community”. But China’s industrial policy illustrates the classic drawbacks of excessive state interference. Even the much-vaunted German model, one of the great success stories of the 20th century, is showing its age. German manufacturing output and gross domestic product have stagnated since 2018.
American politics is dysfunctional, our social fabric is in tatters, but somehow our economy is among the strongest in the world. Our economic competitors stumble and fall; we stumble and bounce one way or another.