For most of the past decade the world has been lectured to by Americans who proclaimed the perfection of the US economy: its focus on competition, loose labor regulation and a modest social safety net, all of which supposedly delivered dynamism and high growth rates.
Continental Europeans were told to follow the US model and liberalize their labor markets, so that businesses that want to hire can do so without losing money and so that unemployed workers who find new jobs won't see their wages offset by cuts in welfare-state benefits. Japanese were told to socialize the losses their banking system incurred when Japan's bubble burst, then re-privatize those parts of it that could still succeed as going concerns and liquidate the rest. East Asia's Tigers were told to abandon the German-Japanese financial system based on universal banking and adopt the Anglo-American model based on liquid financial markets. They were also admonished to do a better job at regulating their financial systems.
ILLUSTRATION: MOUNTAIN PEOPLE
Other developing countries were told that their trade barriers, their love of inflationary finance, their failure to curb tax evasion and their lack of governments strong enough to enforce property and contract rights against local notables, organized bandits and -- most important -- their own functionaries were keeping them from participating in the new globalized economic cornucopia.
Now it's pay-back time, when the world lectures America about how to fix its no-longer-perfect economy. But can this criticism be constructive, not a bout of Schadenfreude?
The most obvious piece of advice is that the US' financial system should follow more faithfully the advice its advocates dispensed to others. In some countries, corporate managers are disciplined by the representatives of large universal banks who sit on corporate boards and vote large blocks of shares. In many countries, managers' leashes are also held by families of plutocrats who exercise control through pyramids of companies and special classes of stock. America's model of corporate governance was supposed to rely on the following set of factors:
-- Managerial failures were supposed to trigger hostile takeovers.
-- Even before a takeover occurs, managers were supposed to be disciplined by fears of a revolt by their boards of directors, especially when the directors think that the company might be become a target of a hostile takeover.
-- Managers were to pursue good performance at all costs, because their stock options and other performance-related compensation made their own fortunes tied to that of shareholders and the corporation.
Within those constraints, American managers were supposed to exercise considerably more discretion than their foreign counterparts, so that they could use their business judgment without being shackled and second-guessed.
Combined, all of this was supposed to deliver dynamism. But for this system to work, solid information about under-performing companies must be available to investors and the link between the pay of top managers and company performance must be real.
Instead, what evolved was a lax accounting system and a "heads you win, tails your options will be re-priced and you still win" method of managerial compensation. No surprise, then, that bosses who couldn't legitimately show the market strong profits cooked the books, often with the help of their supposedly independent accountants.
As things stand, it is in no one's short-term interest, certainly not for accounting firms that make more money from consulting contracts than from doing a company's books, to allow accurate information -- if it is bad -- to leak into the market. Other countries must then tell the US that the state can't stand back and let the market do this job: accurate business information is a governmental responsibility. Moreover, the greed of bosses cannot be the sole determinant of managerial remuneration. Unfortunately, the US now has an administration keen to downplay the importance of timely reporting of insider stock sales (President George W. Bush himself failed to do that when he was in business), the timely reporting of changes in the accounting treatment of a company's unrealized revenues (something that happened at Halliburton when it was run by Vice President Dick Cheney), and of executives' duty to know about the fraud committed by their subordinates (unlike what happened when current Army Secretary Thomas White was running Enron's energy trading operations).
Outsiders should also remind the US that its population is aging and that big savings will be needed to pay for the looming retirement of the baby boomers. Two years ago "Save Social Security" (the US state pension system) was a political mantra. The huge federal budget surplus was supposed to provide the means to do that. Bush's tax cut, however, squandered the surplus. Huge deficits reappeared. Outsiders must remind the US that its pension system is a ticking time bomb that must be defused.
Third and last, the past two decades saw America change from a largely middle-class society of the same genus as Europe's social democracies into a creature with extremes of wealth unseen since before World War I. One driving force behind this is the US' retreat from its unique emphasis on education.
Declining public school quality, downward pressure on funding for public higher education and a failure of political will to make higher education affordable for everyone has produced a growing education gap among those who can and cannot afford quality education. So while the economic case for greater private and public investment in education is stronger than ever, most individuals can't save enough to pay for it, and education -- despite all the talk of politicians -- is not the federal priority it should be. After lording it over the world for so long, the US should accept today's rebukes with grace. But if the rest of the world really wants to help, it should lecture the US along the lines I suggest. Some of us might listen.
J. Bradford DeLong is a professor of economics at the University of California at Berkeley, and former assistant US Treasury secretary. Copyright: Project Syndicate
In a stark reminder of China’s persistent territorial overreach, Pema Wangjom Thongdok, a woman from Arunachal Pradesh holding an Indian passport, was detained for 18 hours at Shanghai Pudong Airport on Nov. 24 last year. Chinese immigration officials allegedly informed her that her passport was “invalid” because she was “Chinese,” refusing to recognize her Indian citizenship and claiming Arunachal Pradesh as part of South Tibet. Officials had insisted that Thongdok, an Indian-origin UK resident traveling for a conference, was not Indian despite her valid documents. India lodged a strong diplomatic protest, summoning the Chinese charge d’affaires in Delhi and demanding
The wrap-up press event on Feb. 1 for the new local period suspense film Murder of the Century (世紀血案), adapted from the true story of the Lin family murders (林家血案) in 1980, has sparked waves of condemnation in the past week, as well as a boycott. The film is based on the shocking, unsolved murders that occurred at then-imprisoned provincial councilor and democracy advocate Lin I-hsiung’s (林義雄) residence on Feb. 28, 1980, while Lin was detained for his participation in the Formosa Incident, in which police and protesters clashed during a pro-democracy rally in Kaohsiung organized by Formosa Magazine on Dec.
Watching news footage of Chinese Nationalist Party (KMT) officials shaking hands and exchanging pleasantries with their counterparts across the Taiwan Strait, I could not help but feel a profound sense of temporal displacement. As a member of the generation born after the lifting of martial law and raised under modern civic education, I truly want to ask the KMT: “Do you not see who the true villain is?” In 1949, the Chinese Communist Party used a bloody civil war to drive the KMT into exile in Taiwan. In the decades that followed, it has sought to completely erase the existence
President William Lai (賴清德) on Sunday congratulated Japanese Prime Minister Sanae Takaichi and her Liberal Democratic Party (LDP) on their historic landslide victory in Japan’s general election. The LDP secured the largest single-party majority in post-World War II Japan, winning 316 seats. The win is expected to strengthen ties with Japan’s allies and potentially deter Chinese aggression in the region. American Institute in Taiwan Director Raymond Greene on Monday said that under Takaichi’s leadership, he anticipates deeper coordination among the US, Japan and Taiwan to promote regional stability and prosperity. US President Donald Trump has also shown his strong support for Takaichi,
RSS