Another forgettable name at Commerce

Have you ever heard of John Bryson? No? That’s what I thought. Neither had I until yesterday when President Obama named him the new Secretary of Commerce to replace the outgoing Gary Locke whose name I’ll wager you didn’t recall. I’ll bet further that you won’t recall Bryson’s when it comes time for him to go to the land of unmemorable Commerce Secretaries as well.

Don’t get me wrong, I have nothing personally or professionally against either Locke or Bryson. As far as I can tell they are both intelligent, successful, honest, hard working men with the good of the country at heart. I applaud their willingness to serve the public at a time when such service can be personally painful and not much appreciated by the public.

It’s just that they are the wrong men in the wrong place at the wrong time. It’s like recruiting a center for the football team when you need a quarterback. Let me explain.

U.S. official unemployment is hanging stubbornly at around 9 percent, but that jumps to 15-16 percent when you include discouraged workers who have just stopped looking for work and those working part time who would like to work full time. New data released today ( June 1, 2011), show virtually no job creation, a continuing decline in house prices, rising foreclosure rates, and slowing production, especially in manufacturing. Recent government statistics also show the U.S. trade deficit rising rapidly, particularly in manufactures. Rounding out the picture is an abysmally low rate of business investment despite the fact that U.S. corporations as swimming in money.

This performance comes at the end of over a half century of running the U.S. economy in line with might be called the Consumption Laissez-Faire Doctrine. Under this philosophy, consumption was considered the primary driver of economic growth and was subsidized while saving and investment were taxed and constrained. The market was thought to be self optimizing and self adjusting with no need for regulation and oversight. Indeed, any kind of government intervention in the market was harshly condemned as a matter of bureaucrats "picking winners and losers" and as tantamount to socialism. What the economy produced was considered unimportant. The quip, "potato chips, computer chips, what’s the difference they’re all chips" which a number of economists have denied making nevertheless accurately captures the spirit of the laissez faire doctrine. In the international arena, free trade and globalization were embraced and were thought to be always win-win propositions even when they were unilateral and even though the key elements of globalization, namely cross border flows of capital and technology, were and are assumed not to occur under free trade theory.

As the unemployment, housing, production, and trade numbers demonstrate, however, that paradigm is not working now, if it ever did.

There is, however, a model that is working just fine. Call it the Chinese model or the German, or the Swiss, or the South Korean, or the Singaporean model. Of course, these countries all differ in various ways in their economic policies. But what they share is a focus on saving, investment, and production rather than consumption. They also don’t believe in laissez faire. Rather they embrace economic strategy. Indeed, they see economic strategy as akin to national security strategy because they accept the words of former Japanese Finance Minister Korekiyo Takahashi that "an economic defeat is much more difficult to reverse than a military defeat." They care about the structure of their economies and what they make and engage in careful analysis of industries to determine what set of regulatory, tax, investment, and R&D policies and practices will encourage the optimal production and services base. These countries believe in open trade but not in free trade in the unilateral sense in which Americans define it. They pursue aggressive export led economic growth strategies that often involve aggressive investment subsidies and currency undervaluation policies on behalf of export industries. As a matter of policy, they strive to achieve continuing trade surpluses. In short, this paradigm is the opposite of the American model.

Of great importance at this moment is the fact that virtually the entire world has adopted this model. Under the pressure of Germany and of the difficulty of several European countries to engage in sovereign borrowing, the entire EU has adopted the Strategic Economy Export Led Growth Model. Japan, the Asian Tigers, and now China have also long been devotees of this model and so now also are Brazil, Mexico, Australia, and others. In effect, these countries are all saying to the United States that they need to create growth and jobs and that they are going to do so by exporting, primarily to America.

So the big question — maybe really the only question — for the United States then is how to respond. How to create American jobs in the face of the export drives of America’s economic partners, and, given America’s rising debt problems, how to do this without increasing the already dangerously high domestic and international debt levels.

The problem with Bryson, as it was with Locke before him, is that he has no clue about how to answer this question. Indeed, he doesn’t even know the question exists. He is yesterday’s man — a good man to be sure, but of the past not the future. A domestic energy company executive who has been a government energy regulator, an advocate of green energy, and a member of the boards of Boeing and Walt Disney, he has little experience or understanding of what makes Germany or Asia tick. He doesn’t have a grasp of China’s industry/government relationships or of Singapore’s ultra-sophisticated inward investment inducement programs.

In short, he’s a babe in the woods when what America needs in the global jungle is a tiger.