Can America summon the will to invest in the future?

November 19, 2010

Surf the web or watch TV and you will probably conclude that American politicians and American pundits don’t agree on much at the moment. But that polarized public discourse obscures the equally important fact that Americans are remarkably united when it comes to determining what the big issues facing the country are.

This isn’t a moment when the nation is divided between isolationists, who want to focus on domestic issues, and expansionists, who want to focus on the rest of the world; nor is this an era when the political debate is about whether social policy—those old standbys like abortion, gay rights and family values—or economic concerns—be they poverty reduction or business growth—should be pre-eminent.

Instead, everyone is pretty much agreed on the big challenges facing America: stimulating economic growth, balancing the budget and finding a place for the United States in the world economy. There is even consensus, at the broadest level, on what the country needs to do to achieve all three: save more and spend less; invest more in social and physical infrastructure and less in personal consumption.

Here’s how Nobel-prize winning economist Michael Spence framed the problem—and the basic solution—when I interviewed him at a recent conference. “Let me describe China thirty years ago,” said Spence, who is advising the Chinese government on the twelfth, and latest, five-year plan. “Thirty years ago China had a per capita income of $400, changed direction, and started saving at 35% and investing at 35%. OK? Now when you have a $400 income and you’re saving at 35%, that means you’re consuming 65% of $400. That is a huge commitment to the future as opposed to the present, right? Now you either make the commitment, as the Chinese did and all the other high-growth developing countries, or you don’t.”

That’s a tough message, but it’s not actually a particularly controversial one. The hard part has been finding a consensus on how to pay for that investment in the future.

No surprise there. ‘Who pays?’, or, as Lenin more forcefully liked to put it, ‘kto kogo’ (‘who whom’) — is a, maybe the, central question politics exists to resolve. What is proving harder for the U.S. to come to terms with is that the battle today is largely a class divide.

Americans are accustomed to framing their political battles around race, region, religion, gender and even sexual orientation. But when it comes to money, the classic dividing line in the politics of so many other nations, Americans get decidedly squeamish. That’s probably because the classless society, or at least one in which wealth depends on achievement rather than birth, is so central to the American idea.

The problem today is that, even if you believe that America is a perfect meritocracy—something the most ardent libertarian is unlikely to assert—you can’t deny that globalization and the technology revolution are enriching the super-elite and hammering everyone else. Unemployment is still hovering close to 10 percent, but CEO compensation, according to a calculation by the Wall Street Journal this week, rose by 3 percent in the latest fiscal year. That continues a thirty year trend, which has seen the top 1 percent rise from taking home 9 percent of the national income in 1976, to 24 percent today.

This yawning class divide—and that is what it is, even if Americans are loathe to call it that—makes investing in the future particularly hard for the country to agree on. Nancy Pelosi’s constituency is too enraged by the gains of the super-elite to consent to cuts to social security or social services.

The super-elite, who regret America’s national economic malaise as a matter of theory, but who are personally doing better than ever, are finding it much easier to back flashy personal philanthropies than to go along with swinging increases in their own tax bills.

Authoritarian regimes, like Communist China, can coerce their people into investing in the future. Democracies need to persuade them. One essential part of that pitch is convincing voters—and taxpayers—that their sacrifice will be shared. In today’s two-speed America, that’s not an argument anyone is yet making.


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I love it when a talking head uses a misleading and inaccurate statistic as justification for a political rant. You assert the official statistics that on a $400 per month income Chinese people save 35% and invest 35%. Most of China’s economy is underground. Our company works in China. All of our staff have an official job, and we are a side job. So yes, it looks like they are saving or investing the majority of their income. And they are dedicated savers. You would be too if you went through the cultural revolution. But they CONSUME with the money they get from their unregistered second and third jobs. Given that this statistic was the premise of your article. Well . . .

Posted by HairyBuddah | Report as abusive

Can America summon the will to invest in the future?
Yes, by investing our Social Security money into renewable energy, efficient/electric vehicles and more eco-manufacturing companies stateside. When a person reaches a certain age, say 45, invest the individual’s money.

Posted by DoctorNo | Report as abusive

If they are suspending people for political contributions. How about investing in Solar and wind.

Posted by Badskpr | Report as abusive

Sometimes Freeland’s posts show her to be a realist. This one shows her to be a dreamer.

Freeland wrote: “This isn’t a moment when the nation is divided between . . . those old standbys like abortion, gay rights”

Clearly you have not been paying attention to Obama. Repealing “Don’t Ask Don’t Tell” is one of his highest priorities, higher than job creation. He even found time to order the US Navy to allow women to serve on submarines, even though our current ones were not designed for a second sex.

Freeland wrote: “everyone is pretty much agreed on the big challenges facing America: stimulating economic growth, balancing the budget and finding a place for the United States in the world economy.”

Yes, but most Republicans and Democrats still believe that free trade and outsourcing are the way to get there. Speaker-elect John Boehner wants to finalize the free trade treaties with Columbia, Panama, and South Korea. Sarah Palin is on record as wanting to increase outsourcing. Representative Danny K. Davis accompanies his friends to China to open factories there. Bill Gates regularly appears before Congress to convince them to import even more H-1B and L-1 visa workers from India and Pakistan. And Obama wants to increase trade with India and China, countries that are not going to buy anything we manufacture, but have become the location for the vast majority of outsourced factories formally located in the USA (just ask Carly Fiorina).

And Tea Party members somehow cannot grasp that their Walmart shopping is responsible for many factories moving to China, with many American jobs going with them.

Freeland wrote: “kto kogo”

If you are going to transliterate Russian, please be consistent. Those words are spelled “kto kogo” but are pronounced “kto kavo” as I think you know.

Posted by saucymugwump | Report as abusive

The suggestion that China’s economic success is rooted in a decision by China to begin saving and investing is ludicrous. China’s success is rooted in America’s decision to grant them most-favored-nation status and open the door to an annual tidal wave of $250 billion in Chinese imports. Contributing to their success is the World Trade Organization’s enforcement of protectionist trade measures in favor of China, while forcing America to lower all its defenses.

There is no cure for the American economy that doesn’t begin with a change in trade policy that restores a balance of trade.

Posted by Pete_Murphy | Report as abusive

None of the comments so far even mention class divide or income disparity.

It seems that working class Americans and they are the only ones to comment, just refuse to acknowledge that they are poor and poorly educated by comparison to the rest of the western world. The US needs Indian engineers and doctors because it is cheaper to import an engineer than educate an American.

The US can’t compete because the majority of US workers just don’t have the skills to make complex products.

Somehow Americans think they are only a generation or step away from becoming an elite.

The reality is in fact the opposite,with 1% of the population getting 25% of the cash and growing. The other 99% due to population increase are on a downward spiral even without the rich taking more each year.

If you want to see what the US will look like in 30 years watch a movie called Idiocracy or go to Mexico.

No the US will not invest in educating the majority of its own people which would be viewed as socialism. Spending the workers money on educating the elites is the capitalist way.

Posted by Sinbad1 | Report as abusive

I think America currently lacks any *mechanism* for investing right now. The capital markets seem to be operating more like a casino than a means for directing capital, and the government is paralyzed by an anti-government ideology.

Posted by bruce1963 | Report as abusive

It certainly looks to me like there’s been a change in the last twenty years from the large middle class which included the vast majority of Americans who pretty much ran the show, to its disappearance and the division of most of that class into the upper class, a very small percentage of the population, and the lower class, the new vast majority. However, due to the extremely poor educational system in all but the most elite areas, most members of the new lower class still think that the very things that caused this division will pull them out of it. What I suspect, but hope is not true because then America is truly dead and gone, is that they want things to remain the same not because they want to restore the vast middle class, but because they hope to make the jump into the upper class themselves.

Posted by lhathaway | Report as abusive

Freeland said in a Democracy the public must be persuaded to invest in its future. In a ‘managed’ economy the public is coerced. What about Germany? It has a Social Market model and its economy is booming and has a bright future. Heavily-laden by bureaucracies, where between these two paradigms, China and the US, is Germany? Can any lessons be drawn from these comparison, or is it preposterous?

Posted by fakosek | Report as abusive

It would be naive to believe China prospers on their savings from $400. How about cash flow from America. Where do you think Enron money is now. Start taxing funds investing to China instead of America.

Posted by whatsup | Report as abusive