China

David Barboza of the New York Times has one of those pieces today which just catches your eye, and makes you think.  He writes:

China has begun transforming itself from a global font of low-priced goods fueled by cheap labor into a much more diverse and complex economic power.

But it is the incredible chart the Times has produced tracking China's growth that I strong urge you to review.  You can find it here.

Two stats really stuck out for me:

- In 2000, the US had 180 of the Fortune 500 largest companies by revenue.  China had 8.  This year the US had 140 of the 500 largest global companies.  China had 37, an almost five fold increase. 

- In 2000 the US had 29 of the top 50 companies of the world by market capitalization.  China had 1.  This year the US had 21 of these top 50 market cap companies.  China had 9. 

These charts, and this trip by the President to Asia this week, reminds us how fundamentally the global economy is changing.  We really are entering a completely different economic era, one characterized by the "rise of the rest" as Fareed Zakaria calls it.   A significant part of the rise of the rest is not just the growing geo-political and economic power of these rising powers, but the emergence of globally competitive corporations from these countries which are challenging the hegemony of American and European global brands, making it much harder for our corporations to make money.  The global corporate playing field is getting much more crowded, global competition is getting much more virulent, reducing the pricing leverage of our companies, which Rob Shapiro and I have been arguing is at the core of why it is has been so hard to get wages and incomes up here in the US this last decade.

This new dynamic of this new era of globalization is one we simply have to talk about much more - global competition has grown permanently more competitive.  As these rising power economies mature we will see global competition get ever more intense, as they produce not just low-wage low-quality companies, but the unimagined and yet unbuilt Microsofts, Intels and Nokias of the new century, and new much more global economy.

"Recovery," or returning to the old American economy, is not just impossible, but it is a dangerous illusion, preventing us from recognizing and addressing the underlying structural changes happening in the American economy today.  There is no going back now, there is only the fashioning of a new economic strategy for America, one which takes into account these historic and game-changing developments and begins to strategically transition America and its people successfully into this new era.  

Of the many things President Obama is taking from his trip this week I hope a deeper understanding of this dynamic - and a commitment to address it forthrightly when he returns - is at the core of his takeaways.  For preparing America, our workers and our students for this new much more competitive global economy may just be the most important domestic responsibility of our leaders today.

Writing in the Financial Times about the four things that stood out to him about the G-20 Summit, Philip Stephens points first to "China’s, albeit reluctant, embrace of multilateralism:"

Beijing is at last owning up to the fact that it is a leading actor on the global stage. A year or so ago, China was still clinging on to an essentially passive role in international affairs. Western injunctions for it to act as a responsible stakeholder in the multilateral system were met with protestations that such demands were premature: China was still a developing country, and it prized non-interference above western concepts of mutual dependence.

The global economic crisis upended that strategy by showing that Beijing cannot detach its domestic from its international interests. True, China has had a good crisis, demonstrating that it can continue to grow while the west is in recession. But the collapse of its exports has served as a potent reminder of the inextricable ties woven by globalisation.

This interdependence is taken for granted in western capitals. For Beijing it carries the uncomfortable implication that states have a legitimate interest in the framing of others' domestic policies.

This interdependence led to, as Stephens points out, China's headline grabbing climate change announcement, an important marker on the road to Copenhagen. Frankly though, that work by China, in the interplay between domestic and international politics, was a fairly easy calculation. China has already made a strategic decision to develop a home-grown renewable energy industry, this was a logical move.

Rather, the heavy lift for China will come in the commitment to balanced growth from the G-20. China’s consumers are notoriously reticent to, well, consume. And it's virtually entirely due to policy. As Michael Pettis, a professor at Peking University, writes in the New York Times:

The Chinese save such a high fraction of their income largely because of long-standing policies aimed at promoting and subsidizing domestic investment and manufacturing.

These policies inevitably require households to foot the bill, primarily through sluggish wage growth, low interest rates on their bank deposits, an undervalued currency and a weak social safety net. Since total savings is just the difference between what is produced and what is consumed, subsidizing producers at the expense of household consumers necessarily causes savings to rise.

Since, as NDN's Rob Shapiro writes, there is little chance of the U.S. bailing the world out of the great recession, there is, as Pettis says, a scary possible outcome to rebalancing:

As the U.S. rebalances its economy toward higher savings rates, China has no choice but to rebalance toward higher consumption rates. This can happen either because of a sharp pick-up in consumption growth or, more likely, a sharp slowdown in GDP growth. I worry that China will find it difficult to generate the kind of consumption growth that will take up some of the American slack, and we may be locked into a period during which the world adjusts by growing more slowly.

This G-20 seems to have been more successful than many would have thought, but the real crux of the global economic recovery may lie in getting the world's rising powers to connect their people to the global marketplace. As China adjusts to the responsibilities that come with others having a stake in their domestic economic policies, it will inevitably do what everyone else does: balance that responsibility with domestic politics. (Perhaps Chinese leadership will see fit to develop a social safety net in the form of universal healthcare; all the socialists are doing it these days.)

More from the G-20:

20 heads are better than 7 – NYT: Global Economic Forum to Expand Permanently

FT: World Leaders to Expand G20 Powers:

Rich countries will agree to give up 5 per cent of the total voting shares to be distributed to under-represented countries, including rapidly growing emerging economies such as China. The aim is to increase the legitimacy of these institutions. The leaders have agreed to put aside disagreements over the representation in the governing bodies of these institutions.

Lula – Rising powers doing their part (let them do more by concluding Doha):

Policies adopted by countries in the Global South have created tens of millions of new consumers, who will drive the recovery of the global economy.

WSJ Environmental Capital blog - Fossil-fuel subsidies to be phased out in the "medium run."

Developing countries—many of the same ones that are demanding that rich countries underwrite their transition to a clean-energy economy—spent $310 billion in 2007 to subsidize fossil-fuel consumption, the International Energy Agency says.

Stop spending so much to keep gasoline, diesel, and electricity artificially cheap, in other words, and you’ll have the cash to promote clean energy at home.

From the New York Times:

A World Trade Organization panel ruled on Wednesday that China had violated international free trade rules by limiting imports of books and movies, in a decision that buttresses growing complaints from the United States and Europe about Chinese trade policies.

The W.T.O. decision in Geneva is a victory for the United States at a time when a growing number of business executives and politicians perceive China as becoming increasingly nationalistic in its trade policies.

The restrictions also required foreign financial news services to operate through a government-designated distributor.

Ron Kirk, the United States trade representative, praised the panel’s legal finding. “This decision promises to level the playing field for American companies working to distribute high-quality entertainment products in China,” Mr. Kirk said, “so that legitimate American products can get to market and beat out the pirates.”

The W.T.O. ruling can be found here.

Michael Pettis, a Peking University professor who I had the good fortune to meet as part of a college program in Beijing, writes in the Financial Times that it's time to get ready for lower Chinese growth. Pettis spells out the change that is likely to occur and hints at ramifications for policymaking in China and beyond:

For 20 years, and especially in the past decade, rapidly rising debt has allowed America’s consumption growth to exceed economic growth, with a concomitant rise in the country’s trade deficit. One consequence of this too-rapid growth in American consumption has been that the non-US global economy was able to grow faster than non-US global consumption. This was especially true for Asia, the main beneficiary of the US consumption boom, and for China in particular.

While Chinese consumption was growing at an impressive 9 per cent a year over the past few years, Chinese gross domestic product growth substantially outpaced it, clocking in at 10 per cent to 13 per cent annually. China was able to do this in large part because as it poured resources and cheap financing into manufacturing, and in so doing produced many more goods than Chinese households and businesses were able to consume, the balance was exported abroad, where much of it was absorbed by US consumers.

But everything has changed. Whether America likes it or not, US debt levels will decline over the next several years. As a result American consumption will grow substantially slower than the US economy, and so the trade deficit will decline. For the rest of the world, even ignoring the possibility of a decline in global investment, a contraction in the US trade deficit will bring with it a period in which economic growth will be less than consumption growth.
...

Over the next five years or more Chinese economic growth will necessarily be lower than growth in Chinese consumption. The massive but unsustainable investment in infrastructure and new production facilities that characterises the Chinese fiscal stimulus package will not be able to change this fact. From its dizzying heights during the past two decades, the world needs to prepare itself for a decade during which, if all goes well, China grows at a still respectable but much lower rate of 5-7 per cent. If the current fiscal stimulus package retards China’s adjustment process, as many analysts argue that it does, growth rates may be much lower.

The Council of Economic Advisors, the National Economic Council, and many others have told us that the American economic recovery will export driven. It seems that, for the sake of the economic future of both the U.S. and China, policymakers need to thing about getting as many of China's 1.3 billion people into the (low-carbon, sustainable) consumption game as possible. For more on China and the U.S.-China Strategic and Economic Dialogue, take a look at pieces from Michael Moynihan and Robert Shapiro this week.

Oh, and you should certainly buy the newly released, paperback version of Shapiro's Futurecast, which focuses a great deal on China.

The fault lines in this week's "strategic dialogue" between American and Chinese leaders remained largely unseen, like a low-grade infection that can flare up without warning. Those fault lines matter mightily, however, because the United States and China are the critical players in the globalization process shaping every economy in the world.And despite America's insecurities about China's rising power, the fact is, we retain most of the advantages in a complicated relationship best described by the Financial Times this week as "adversarial symbiosis."

The convergent interests of the United States and China are obvious and a cause for satisfaction at this week's talks. Most important, each is an enormous purchaser of the other's goods, so that domestic demand in one is a source of employment in the other. Nevertheless, the trade relationship will continue to have a sharp political edge so long as China sits on the other side of America's largest bilateral trade deficit. Yet, it really shouldn't be. We import more from China than from anywhere else, because China is both the world's largest producer of many cheap goods that Americans hardly make at all anymore - tee shirts and toys, for example - and a favored place for U.S. multinationals to assemble more complex products for the U.S. and other markets. In fact, nearly half of the high-tech products imported from China - computers, televisions, cell phones, and so on - are goods that U.S. producers merely finish or assemble there, sometimes using advanced parts made in America.And so long as the American economy is three to four times the size of China's, and much more weighted to consumption, no one should be surprised at our importing four to five times as much from China as China imports from us.

The economic truth is that America runs huge trade deficits with the world, because for years we have insisted on consuming much more than we produce, and imports are the only way to make up the difference. The flip side of this high consumption has been our low savings - at least until the current recession decimated so many people's savings and wealth - creating another fault line in the U.S.-Sino relationship. That low savings forces us to borrow abroad to finance some of our consumption, along with our budget deficits and business investment; and China with the largest surplus savings in the world has become our largest creditor. No one thinks of their creditors as their buddies - or the other way around - producing an unfamiliar and unpleasant dependency on an autocratic regime we don't trust. We cannot ignore that if China were to decide to abruptly reduce its lending to us, we would quickly find ourselves in deep economic trouble. But China needs us just as much economically, and not just to keep on buying Chinese goods.Just as important, China has to rely on the U.S. following economic and currency policies that will preserve the value of all the American assets - Treasury securities, stocks, real estate, and companies -- that China buys with the dollars we pay her for her goods.

China is dependent on the United States in other critical ways as well.American companies have been and remain a major source of Chinese modernization, through U.S. foreign direct investments (FDI) that transfer many of the world's most advanced technologies, equipment, and ways of doing business from here to there.China depends on these transfers as the ultimate source of much of its growth, and sustaining strong growth is a central factor for the legitimacy for its leaders' authoritarian regime.

China's reliance on the U.S. is also geopolitical. Chinese leaders desperately want and need peace, especially in Asia and the Middle East, so they can continue to direct most of the country's resources to their gargantuan modernization project. These leaders have long recognized - and said so - that American superpower has become the only force in the world capable of projecting the military and economic might required to contain local conflicts and terrorist threats that could threaten regional or global stability. That's why the last U.S.-Sino military confrontation occurred 13 years ago, when President Clinton sent the Independence carrier battle group into the Taiwan Straits and the Nimitz to the South China Sea, and why we rarely hear Chinese criticism anymore about "American imperialism" or "U.S. warmongering."

In no area is China's dependence on American superpower more important to China than the U.S. Navy's guarantee of the world's sea lanes. These are the routes not only for most of China's exports to the rest of the world, but also for the oil shipments from the Middle East, Africa and Latin America that fuel much of China's economy. Yet, energy also is an increasingly important fault line in the U.S.-Sino relationship. For the last decade, China has aggressively pursued long-term supply relationships with state oil companies across much of the world, including joint ventures, extended leases, and other arrangements. In some cases, China develops another country's oil fields in exchange for sole or heavily-favored access to whatever is found. (In Iran's case, China also sweetened the development deal by building a new Tehran subway system.) China's emerging global network of oil-supply relationships could become a point of conflict in the next global oil crisis.Beyond such a crisis, China's rising economic influence in countries that the United States sees as vital to its own geopolitical plans and interests will almost certainly create new fault lines in future U.S.-Sino relations. But it also could foreshadow a time when China will constructively engage in a number of serious global matters, from climate change and terrorism to intellectual property rights and currency adjustments, where the United States and most of the rest of the world would welcome their contribution.

Yesterday, the US and China concluded high level talks between Secretaries Geithner and Clinton and China's State Councilor Dai Bingguo and Vice Premier Wang Qishan on the relationship that President Obama said, at the outset of meetings, will define the 21st century.  The President is right.  How the US and China manage their relationship will determine the balance of growth and contraction, war and peace and freedom and its opposite in the 21st Century.  This then was an important set of meetings raising the deeper question of what should the US do about China.

China's rocket-like growth over the last decade has been extraordinary. However, beyond the sparkling towers, new roads and designer airports lies the fact that China's rise has inextricably altered the economic and diplomatic balance of power of the 20th century.  According to economist Steven Roach, China's growth alone is likely to keep global growth above zero this year.  China, America's largest creditor, holds about $2 trillion in US dollar debt, an amount growing daily. To put that sum in perspective, the entire balance sheet of the US Federal Reserve prior to the financial crisis was less than $1 trillion.  China is quite simply rocking the global economy.

Rapidly emerging powers, by definition, alter the status quo and in prior epochs success or failure in accommodating that change has proven critical to global stability.  At the end of the 19th century, Europe mismanaged the rise in power of Germany which (with Bismarck's dismissal by the erratic Wilhelm II) contributed to World War I.  Then in the early 20th century, the world failed to recognize Japan's emergence as a major power after she defeated Russia in 1905 and began building airplanes capable of crossing the Pacific.  In contrast, through the post war framework of the Bretton Woods institutions including the GATT, the Bank for International Settlements (designed to lessen exchange rate imbalances), the IMF and the World Bank and the UN as well as the European Union and other organizations, the world did a much better job of accommodating the rise of Japan, the NICs and the peripheral European states at the end of the 20th Century.

Now, with China's emergence, however, the world faces a new rebalancing of political and economic power.  And the task, as President Obama suggested, is to manage it in a way that benefits the US, China and the world.  

Economic theory--in contrast to the popular notion of competing nations--teaches that one country's rise should benefit others.  A richer China should consume more US goods.  It should produce more and through spillovers and the creation of knowledge, contribute to the global commons. 

One country, moreover, cannot succeed as China has without others.  China remains dependent on the US as the major market for its exports.  In some ways the US China relationship is deeply symbiotic.  We design goods.  China makes them cheaply.  We buy them, allowing US consumers to get more for less.  However, to the extent that the Chinese consistently sell more to us than we buy--as a result of the Yuan being kept artificially low, America gets more stuff but loses industry, China gets less stuff but gains industry and China ends up holding US dollar denominated debt.  That is the story of our recent relationship in a nutshell.  Chinese economic officials, waking up their huge exposure to the value of the US dollar, have scolded the US about its deficits which could weaken the dollar and have floated the idea of diversifying into other currencies.  The threat to unseat the dollar as the world's reserve currency is a serious shot across our bow.  Besides these economic issues, other matters on the table in Washington this week included nuclear proliferation and climate change.

In many ways, China in its economic strategy has followed the same trajectory of Japan and the other Asian tigers.  She has pursued a policy of export-oriented growth leveraging her low cost base built on the four pillars of a cheap currency, high savings financed through suppressed consumption, an aggressive state role in the economy, and a policy of securing technology transfer for market access.  The strategy is neo-mercantilist which is to say, its practical effect is to generate a trade surplus and accumulate hard currency.  (The original mercantilism practiced in Europe prized trade surpluses to accumulate gold and silver.) 

However, China's story is qualitatively different than that of Japan and the NICs in certain respects.  First, on the political track, beginning as a Communist country, China has, so far, not followed South Korea and the other NICs toward authoritarian democracy.  China remains a totalitarian police state. And second, she is simply larger in scale and scale changes everything.  Long before China reaches western standards of living, her overall GDP will be the largest in the world.  And, unlike the other Asian NICs, she is so large and her labor supply so abundant that her cost of labor can stay low even as her exchange rate appreciates.

On the political side, China does not appear aggressive in foreign policy.  Like the 19th Century resource-hungry European powers, she has been courting natural resources in Africa to fuel production.  However, she has pursued a commercial as opposed to political strategy.  While she is a nuclear power, she appears more preoccupied with economic growth currently than military objectives.

In many ways, the relationship with the US has proven beneficial for both.  An example of positive symbiosis would be the manufacture of the Apple iPhone.  Designed in the US, it is made in China by a company called Foxconn.  Both the US and China benefit from the success of the iPhone.  As an example of the political and human pitfalls of the relationship, however, one can point to the case of a Foxconn employee recently hounded to the point of defenestration by police and company security after he lost an iPhone prototype. Afterward, Apple issued a statement saying it was awaiting results of an investigation into the employee's death.

The US China meeting this week made no news on the issue of climate change or nuclear proliferation, a complex initiative that will take time.  The principle outcome was that the US pledged to work to lower US budget deficits to protect the value of the dollar and China pledged to increase domestic demand.

With respect to the US concession, the very fact that the US had to apologize for our deficits shows how the balance of power in the relationship has changed.  As for the Chinese concession, it is indeed the right policy for the US and China to pursue.  As a result of the massive stimulus package enacted in China of close to $600 billion, some 88% of China's GDP growth this year will occur in investment, much of it in infrastructure.  Most of the rest of the growth will come from exports.  Virtually none will come from consumption and increased living standards for the Chinese people.  This must change.  By allowing its people to consume more and buy more of the world's products, China can help its own people live better and the rest of world produce more.

For its part, the US has to stop living beyond its means which means borrowing less both to fund government and imports.  That will put the US back on track toward more sustainable growth.

Economically, what remains unresolved is the depressed Yuan which continues to drive the Chinese trade surplus and the US deficit.  Clearly the Yuan has to appreciate to the point where US goods are competitive with Chinese ones.  The US should exert its negotiating leverage sooner rather than later on this point because the more US debt China accumulates, the worse the negotiating position of the US will become. 

The one issue not explicitly on the table--apart from sympathy expressed by the US toward Chinese minorities--but that ultimately must underscore our relationship with China is how Chinese success will impact the US commitment to freedom and democracy.

The strategy not only of the US but of the West in general has been to encourage economic growth in China while hoping this will lead to greater freedoms.  This policy of engagement as opposed to containment is  the right strategy for now because it would be absurd for the US to disengage when China is moving in the right direction. However, China has moved far more slowly than many hoped and the US posture toward China has, all too often lacked even a semblance of muscularity. 

The US has been a poor or non existent negotiator on behalf of US companies in standing up for values we hold dear such as freedom of expression.  The government has left companies such as Google and Yahoo to cut individual deals with the Chinese to gain market access.  Our government has also been missing in action when it comes to allowing companies to negotiate away technology in exchange for access to the Chinese market.  The US could be doing far more to strengthen the negotiating position of US-based companies which ultimately would benefit not only us but the Chinese people by widening their access to goods and information.

President Obama is right that the US China relationship will be critical to shaping the 21st century.  And ultimately, this is about accomodating China's rise without sacrificing America's values or our standard of living.  This week's meeting was a useful first step.  Still problematic, however, are the huge trade imbalances resulting from an exchange rate imbalance and China's negotiating position toward US firms that is far tougher than ours in the opposite direction  As we go forward, we should accelerate action to move the two countries toward a truly sustainable, long term partnership.

A selection of things I found interesting this weekend. From the Economist: 

A SMALL stretch of land, a two-hour drive from end to end, reveals much about the economic transformation of a vast country. This slice of southern China runs from Guangzhou, the old treaty port reserved for foreigners before Mao expelled them, to Shenzhen, the city established after Mao's death as an experiment in private enterprise. Over the past decade it has become one of the world's fastest-whirring economic engines-a global hub in the manufacture of clothing, shoes and electronics-serviced by tens of millions of migrant workers.

Now the region is undergoing an equally remarkable contraction. In the past year thousands of factories, perhaps one-third to one-half of the total, have closed. Reliable statistics are hard to come by, not least because many factories operate in a legal netherworld, but the severity of the slump is plain. The flow of migrants has gone into reverse. Some of the newly unemployed have stuck around (and a few have started a new industry: street crime). The lucky ones have found work at factories that moved inland, although at lower pay.

On the road through Dongguan, a sprawling industrial city roughly halfway between Guangzhou and Shenzhen, building after building-residential as well as industrial-displays red banners advertising its availability. Local agents say there is no interest from buyers. A lack of demand for whatever a factory might make is part of the explanation. So is concern about the quality of properties for sale: a lot of factories were put up in a hurry and have been maintained poorly if at all. And so is the nebulousness of Chinese property laws. Purchasers cannot be sure that what they buy they will truly own.

The rapid collapse of economic activity around Dongguan indicates that China's private companies are being subjected to the same battering as their counterparts in many other countries. Yet it also raises questions about the long-term survival of many of these companies. They have been among the most dynamic components of China's fast rise towards prosperity. Their turmoil may be transient. Then again, there are also worries that it is in fact tied to profound flaws in the Chinese economy.

From a New York Times piece today about lessons from Japan's Lost Decade: 

As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.

The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan's economy.

Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming '80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.....

"Japan is so dependent on exports that when overseas markets slow down, Japan's economy teeters on collapse," said Hideo Kumano, an economist at the Dai-ichi Life Research Institute. "On the surface, Japan looked like it had recovered from its Lost Decade of the 1990s. But Japan in fact entered a second Lost Decade - that of lost consumption."

The Japanese have had some good reasons to scale back spending.

Perhaps most important, the average worker's paycheck has shrunk in recent years, even after companies rebounded and bolstered their profits.

That discrepancy is the result of aggressive cost-cutting on the part of Japanese exporters like Toyota and Sony. They, like American companies now, have sought to fend off cutthroat competition from companies in emerging economies like South Korea and Taiwan, where labor costs are low.

To better compete, companies slashed jobs and wages, replacing much of their work force with temporary workers who had no job security and fewer benefits. Nontraditional workers now make up more than a third of Japan's labor force.

Sounds a little too familiar for my taste.  As I wrote recently in a series of posts about Spend? Save? I still think the economic narrative being used in Washington today does not adequately take into account what happened to the incomes of everyday Americans during the Bush Recovery.  Jake Berliner also posted on this subject last week.  

And finally, Leon Wieseltier, writing in the New Republic: 

Can liberalism still explain itself? Does it remember its concepts and its words? It has been many decades since liberalism could fall back upon the power of platitudes; the platitudinous authority now belongs to the other side. Cliche may represent a failure in literature, but in politics it is the evidence of a philosophy's success. The repudiation of George W. Bush is not in itself a renovation of liberalism, and neither is the apotheosis of Barack Obama. The public has not yet broken the grip of the conservative discourse that has dominated America for a generation. Consider the insane headline on Newsweek's cover, "We Are All Socialists Now": an exclamation of its inner Hannity, as if the president is preparing to abolish private property or expropriate the means of production. All that is happening, comrades, is that our democratically constituted central government is acting to protect the whole of our economy by taking over, for a period, a part of our economy. But second natures, which are made more by culture than by thought, are not easily extinguished. Sean Wilentz was shrewd to contain the Clinton years in his recent study of "the age of Reagan," because Bill Clinton's inglorious role in the history of liberalism was to teach it to sleep with its enemy. Insofar as his renunciation of ideology was the revival of an experimental frame of mind about public policy, the good sense of "best practices," it was a welcome turn; but it was also a lousy defeatism about the war of ideas, a loss of interest, or of nerve, about first principles. On the day that Clinton pragmatically announced that "the era of big government is over," liberalism forgot itself. Pragmatism has a dark side. The allure of pragmatism was lost on the conservatives, of course. They sought power so that they could act on what they believed. And when they got their chance, they ran the republic down in almost all its aspects. We must not draw the wrong conclusion from the rubble. The problem was what they believed, not that they believed. 

Amen to that I say.  

I visited this subject in a recent post, The Utter Bankruptcy of Today's Republican Party and agree with Mr. Wieseltier that the President must make the choice the nation has in front of it much starker.  It is possible for our new President to love the sinner but hate the sin; to work with Republicans but reject their irresponsible and reckless approach to governing.  To accept their failed notions as a price for cooperation is a steep steep price for the nation to pay at this time where our great national project is dig ourselves out of the whole they dug for all of us.

U.S. Sen. Barack Obama's ad that will air during the Olympics is called "Hands" and presents an optimistic vision of the green technologies that will promote economic growth in the coming decades. This is a important vision for America's economic future, and the fact that this vision is taking center state during the Olympics speaks volumes about the significance placed on it by Obama. Take a look:

The ad comes on the same day that The Climate Group, an independent non-profit based in the UK, releases a report on "China's Green Revolution." The report argues that China has become a global leader in renewable energy technology production and is seizing the low-carbon economic opportunity.

From a press release from The Climate Group:

Despite its coal-dependent economy, the report reveals Chinese government and businesses have embarked on a Clean Revolution that has already made it a world leader in the manufacture of solar photo-voltaic technology (Solar PV) where its six biggest solar companies have a combined market value of over USD $15 billion.

China is also set to become the world’s leading manufacturer of wind turbines, with production capacity expected to reach 10GW per year by the end of 2009, and is competing aggressively in other low carbon markets including solar water heaters, energy efficient home appliances, and rechargeable batteries.

Steve Howard, CEO of The Climate Group says: "For too long, many governments, businesses and individuals have been wary of committing to action on climate change because they perceive that China – the world’s largest emitter – is doing little to address the issue. However, the reality is that China’s government is beginning to unleash a low carbon dragon which will power its future growth, development and energy security objectives."

Changhua Wu, China Director, The Climate Group, says: "Far from ignoring climate change, Chinese leaders have already committed to improving energy efficiency and scaling up the growth of low carbon industries. China is beginning to pull its weight on climate change and the targets and policies in place are in line with those being taken by ‘leading’ countries like the UK and Germany."

Investment in renewable energy in China - almost USD $12 billion in 2007 - is almost level with world leader Germany as a percentage of GDP. Stronger policies from the Chinese government are creating increased demand for low carbon investment and China will require a further USD $398 billion (USD $33billion per year) to meet its 2020 renewable energy goals.

Steve Howard says: "China’s current trajectory will ensure it remains a strategic global hub for low carbon investment, innovation and growth over coming decades."

Eight years of ignoring climate change and the economic opportunity presented by creating a low-carbon economy have put America behind Europe and now possibly China. The vision presented in Obama's new ad, mated with good policy, has the potential to take advantage of America's innate economic advantages and help us become a leader, not a laggard, in the 21st century energy economy.

Yesterday, I wrote about the changes in living habits created by Americans responding to high energy prices. Today, FT has a great picture and audio story entitled "Shanghai's suburban rebellion." The story, reported and narrated by Geoff Dyer, describes a developing suburban middle class whose lifestyle - and therefore energy use patterns - will look remarkably familiar to Americans. Gated communities and personal automobile ownership are sought after commodities, consumerism has taken off, and the model of urban living - working near where one works - is no longer the desired norm.

Just as American political behavior change due to lifestyle, so too, does China's. Dyer speaks about a community near Shanghai that does not try to involve itself in politics, but becomes politically active only when a much maligned maglev train is slated to be routed near their luxury apartments and vocally nationalist due to protests abroad in the lead-up to the Olympics. China's economy and politics will be thrown under the microscope over the next two weeks; these four minutes of photos and narration documenting an important trend that will affect the politics, economics, and energy use of the world's most populous nation and largest carbon emitter are worth taking a look at.