David Brooks: The two economies
As Tyler Cowen reports ina fantastic article in The American Interest called "What Export-Oriented America Means," American exports are surging.
Cowen argues that America's export strength will only build in the years ahead. He points to three trends that will boost the nation's economic performance. First, smart machines. China and other low-wage countries have a huge advantage when factory floors are crowded with workers. But we are moving to an age of quiet factories, with more robots and better software. That reduces the importance of wage rates. It boosts American companies that make software and smart machines.
Then there is the shale oil and gas revolution. In the past year, fracking, a technology pioneered in the United States, has given us access to vast amounts of U.S. energy that can be sold abroad. Europe and Asian nations have much less capacity. As long as fracking can be done responsibly, U.S. exports should surge.
Finally, there is the growth of the global middle class. When China, India and such places were first climbing the income ladder, they imported a lot of raw materials from places like Canada, Australia and Chile to fuel the early stages of their economic growth. But, in the coming decades, as their consumers get richer, they will be importing more pharmaceuticals, semiconductors, planes and entertainment, important American products.
If Cowen's case is right, the U.S. is not a nation in decline. We may be in the early days of an export boom that will eventually power an economic revival, including a manufacturing revival. But, as Cowen emphasizes, this does not mean nirvana is at hand.
His work leaves the impression that there are two interrelated American economies. On the one hand, there is the globalized tradable sector - companies that have to compete with everybody everywhere. These companies, with the sword of foreign competition hanging over them, have become relentlessly dynamic and very (sometimes brutally) efficient.
On the other hand, there is a large sector of the economy that does not face this global competition - health care, education and government. Leaders in this economy try to improve productivity and use new technologies, but they are not compelled by do-or-die pressure, and their pace of change is slower.
A rift is opening up. The first, globalized sector is producing a lot of the productivity gains, but it is not producing a lot of the jobs. The second more protected sector is producing more jobs, but not as many productivity gains. The hypercompetitive globalized economy generates enormous profits, while the second, less tradable economy is where more Americans actually live.
David Fuller's view The highly successful,
globalised sector consists mainly of the Autonomies that Fullermoney has written
about on so many occasions. They have grown beyond their home countries and
are quasi autonomous, thus the name. An increasing number of the Autonomies
are now wealthier, in terms of revenue and earning relative to GDP, than some
smaller economies in the developing world.
The Autonomies are not just from the US, although America spawned more of them than any other country to date. For investors, I believe the Autonomies will remain competitive with any other asset class, provided we remain alert.
Poor management decisions can undermine any iconic name, as we well know. Obsolescence in the global economy and an accelerating rate of technological innovation hasten both success and failure, especially in the tech sector. Think of Apple, which nearly went bankrupt in 1997 before Steve Jobs returned and turned it into the world's most successful company, for now. IBM had a tough time from the mid-1980s through the mid-1990s. Hewlett-Packard and especially Research in Motion dazzled for a number of years and then fell from grace even more quickly. Eastman Kodak (no longer in the Library) and Fujifilm are victims of obsolescence as is Polaroid which is no longer quoted. Toyota seemed unstoppable only six years ago. I am sure you can think of many other examples from various sectors.
For perspective we should assume that all of today's outstanding Autonomies not only can fall from grace, but probably will at some point. It is not bear markets which create the greatest risk, although it would be nice to avoid those significant downturns if we can identify them in time. We know that successful Autonomies will recover from bear markets and often relatively quickly because we have seen it in recent years. The potentially fatal problems, as I mention above, are poor management decisions and obsolescence, which may go hand in hand. Meanwhile, new Autonomies will emerge, probably at a faster pace than before as economies develop.