Up next: 2020 ways to rebuild the West

In a few days 2019 ends and it is a good opportunity to reflect what has happened and what did not happen. I think there is only one big topic (and it will not go away soon):

• The rivalry between China and the US and in general the rivalry between “Asia” and the “West”

Ray Dalio has made some excellent statements on the topic:

• https://www.youtube.com/watch?v=Mh0vEaac78U
• https://www.youtube.com/watch?v=9ShGk-CYEoI
• https://www.linkedin.com/pulse/beyond-china-us-trade-war-ray-dalio
• https://www.linkedin.com/wukong-web/articleShare/6486598388778311680
• https://www.linkedin.com/pulse/threat-limit-capital-flows-china-pending-impeachment-conflict-dalio

Ray has diagnosed the challenge in detail and has pointed out the incompatibility between a “top-down” and a “bottom-up” approach. This is correct but I think the much deeper problem is that nobody in China or the US has developed some good vision how these two “systems” can coexist peacefully together.

If the US and the “West” would be doing well, i.e. if they would see a bright future for themselves and if they would not have any noticeable internal conflicts, there would be no reason to fear China. But the US and the “West” in general is in turmoil because their “system” is showing the limits of success.

• There has been a blind belief that everything should be “bottom-up”. Western governments have been corrupted by the idea that there need be no top-down projects. Remember: the Manhattan project, the Apollo project et cetera were all top-down. In many places the infrastructure is crumbling, and it IS the responsibility of the government to fix it.
• There is also a wrong belief that private investors should do all the risk financing. Early startups face the “valley of death” and the best risk taker is the government — it is the only institution which really can take a long-term view. New antibiotics and new cancer drugs are simply too risky and too cost intensive for most investors. Also, the threat of climate change cannot be overcome by private initiative alone. There must be some central planning to align actions of all stakeholders.
• Governments were naive to believe that “Globalization” is win-win. There has been a lot of collateral damage which is one factor contributing to extreme political polarization.
• The idea of “equal opportunities” and “rags-to-riches” does not really work anymore. The promises made for health-care and retirement seem unfinanceable. “Democracy” has been sold as a reliable method to “solve” problems of this kind, but it is not. Democracy cannot solve illiteracy, it cannot solve lack of research and development, it cannot solve lack of risk financing and resources, it cannot solve the strains coming from an aging society, …
• There has been a stupid belief that “Democracy” is the cure to all problems and that there cannot be other systems which will be more successful. When you visit China’s big cities today you will understand that almost nobody will take western criticism seriously. People there can literally feel how a bright future is growing.
• …

Abstractly speaking, the “West” has lost its ambition and ability to solve its internal problems. It is in denial of its own weaknesses. Preaching the virtues of “Democracy” has become a hollow exercise, a lip-service to something which does not work anymore, like asking ancient rainmakers to make rain. This does not mean that “Democracy” is “wrong”. It can be a factor for success, and it is a legitimate basis to organize a society. But there are limits. It is not a swiss-army knife to solve all problems. It is not a contradiction if a democratic government starts top-down initiatives to some urgent challenges.

A deeper root cause may also be that the “West” is lacking some free lunch. People didn’t emigrate to the US because it was such a “nice” country but because they saw a lot of opportunities there. Is it that the free lunch has been consumed and the simple truth is that we are starving to death?

The threat is not China but the inability of the “West” to re-create a solid foundation of growth, to re-invent itself, to find a new free lunch, to eliminate its internal weaknesses. The real threat is that western governments hope that problems will magically go away, fix themselves or will disappear by private initiative alone.

The short-term election cycles in the “West” cannot compete with long-term strategists sitting in Moscow or Beijing. Leaders in Washington and Paris must understand that there is a global competition and that one cannot naively insist on principles which have become a competitive disadvantage. The “West” cannot rely on cheap labor and natural resources for exploitation anymore.

Ray Dalio did not yet make any specific proposals how to fix the weaknesses he had diagnosed. Nassim Taleb has talked a lot about the virtues of localism. First and foremost, I think there has to be a disciplined removal of weaknesses. Building a resilient and robust state. There must be a portfolio approach for innovation and reengineering. Nobody knows in advance what works and what doesn’t work. There must be a strategy how to compete with other systems. In a nutshell: only success counts and you have to work hard to achieve it.