Global reset – Economic decoupling (Part 4: US in the 21st century)

Global reset – Economic decoupling (Part 4: US in the 21st century)

Phuah Eng Chye (29 January 2022)

The US is universally considered the greatest nation in the world but there is growing concern it is entering into a phase of decline. In a sense, decoupling is a knee-jerk reaction reflecting American discomfort to its diminishing ability to dominate the world like it used to and that it is a superpower in retreat.

India’s external affairs minister Subrahmanyam Jaishankar[1]’s astute perspective is “that the United States, after years of unrivaled global leadership, is in a state of strategic contraction”. “What our partners see now is a less externally confident, more internally focused United States guided by a sober calculation of its leverage and resources, burdened by public weariness with the cost of international leadership and hobbled by domestic political polarization”. He thinks “the contraction actually helps create a transitional order from the Cold War period of US-Soviet competition through the post-Cold War years of US dominance to the period ahead. Like all periods of change, however, this transition comes with risks as China tests its new muscle, Russia maneuvers to regain lost ground, and the United States comes to terms with a messy, contested world”.

His calculus is the US “will still be the premier power by a large margin but one more realistic and open to working with others…those who argue the United States is withdrawing from the world stage couldn’t have it more wrong. Washington will remain a leading voice on key issues from climate change to nuclear proliferation. In a world that constantly demands our attention and engagement, US isolationism isn’t an option”. “Many of our partners hope the United States once again will play the galvanizing role that was decisive during World War II, did so much to define the post-war period’s world and institutions, and determined the Cold War’s outcome. For now, however, US partners feel they need to navigate the reality they see in front of them: US strategic contraction”.

While the world is comfortable with US leadership, having led the world through decades of progress and prosperity, nonetheless strategic contraction raises new questions on the nature of US global leadership for the future. In particular, whether the US would be able to define its global leadership beyond the context of rivalry with China and other resurgent nations. In this context, though China’s discourse is lacking, its advantage is that it has a clear vision of its path forward in the 21st century. In contrast, the US discourse is the gold standard but the American dream is waning and its vision is clouded by growing anxieties about its future.

Signs of hubris

More clues are appearing affirming the US society is in decline. Its once-robust democracy is becoming increasingly fragile. Tolerance for dissent is vanishing; ideals and debate are being replaced by ideological blindness and frenzied attempts to manipulate public opinion; to the point where even views on science and health are polarised while the wounds on divisive legacy issues such as abortion and minority rights are being re-opened.

Cracks are showing up even in the capitalist system. Failures in market and economic coordination are being exposed by the pandemic and decoupling. Heather Long observes although the US economy is recovering, “what Americans are encountering, though, is almost unrecognizable from just 16 months ago. Prices are up. Housing is scarce. It takes months longer than normal to get furniture, appliances and numerous parts delivered. And there is a great dislocation between millions of unemployed workers and millions of vacant jobs…There’s dispute, among other things, about how many of these changes are temporary and how many are true fundamental shifts that will stick around for years and reshape behaviors…obvious changes, like the realization that working from home is possible for a sizable part of the labor force and the widespread adoption of online ordering for daily necessities like groceries. These will remain significant parts of work and commerce going forward…How all of this will play out remains uncertain”.

The US economy has become anorexic and financialised[2]. Despite possessing the strongest corporations and markets, the US economy is being sustained by huge fiscal and monetary injections. Wolf Richter describes “layers of stimulus” – “$5 trillion by the federal government and $4 trillion by the Federal Reserve…contributed to the historic spike in retail sales and consumer spending…came on top of all the money businesses got, from large corporations to the smallest outfits. And all this money that wasn’t spent on debt payments and rent payments and the money that people and companies got, these huge piles of money, these trillions of dollars started circulating…This is the most ridiculously monstrously over-stimulated economy ever, and markets have gone nuts”. Incurring huge amounts of debts and expenditures is not an issue if the outcomes are significant improvements in infrastructure, business dynamism and living standards, as is visibly the case in China. The problem with large US government spending is that it seems to be just enough to keep the US economy afloat rather than to ensure its advance.

The traditional policy tools and prescriptions are also losing efficacy. David Adler points out “conventional fiscal or monetary policy is no longer working effectively to foster domestic productivity growth or to prevent deindustrialization”. “Mainstream economics is now well aware of the increased inequality in the United States, and is even obsessed with it. But because its models don’t fully capture the developments that have driven it – particularly the problems in the American innovation system – its solutions are at best partial and primarily redistributive. U.S. policymakers have therefore been left with an extremely narrow, and largely worn-out set of economic policy ideas, whether Keynesian or monetarist. There is little focus on the growth possibilities offered by innovation and how to get there beyond funding more basic science research. The current economic system is taken as given, and relies on wealth transfer as the primary mechanism of repair”. He adds “it is also ridiculous to think that the handful of horizontal industrial policies which the U.S. economics establishment deems acceptable – better infrastructure, more education, the right tax incentives, clusters, broadband for all – could on their own have achieved what Warp Speed did, and in just a few months”.

Marc Andreessen attributes the US decline to a “lack of foresight, a failure of imagination…a failure of action, and specifically our widespread inability to build. We see this today with the things we urgently need but don’t have”. Whether it is pandemic medical supplies, therapies, vaccines or the ability to get federal bailout money to the people and businesses that need it, “we could have these things but we chose not to – specifically we chose not to have the mechanisms, the factories, the systems to make these things. We chose not to build”. “You see it in housing and the physical footprint of our cities. We can’t build nearly enough housing in our cities with surging economic potential. You see it in education. We have top-end universities, yes, but with the capacity to teach only a microscopic percentage of the 4 million new 18 year olds in the U.S. each year, or the 120 million new 18 year olds in the world each year. Why not educate every 18 year old? You see it in manufacturing. Contrary to conventional wisdom, American manufacturing output is higher than ever, but why has so much manufacturing been offshored to places with cheaper manual labor? You see it in transportation. Where are the supersonic aircraft? Where are the millions of delivery drones? Where are the high speed trains, the soaring monorails, the hyperloops, and yes, the flying cars?”

Marc Andreessen asks “is the problem money? That seems hard to believe when we have the money to wage endless wars in the Middle East and repeatedly bail out incumbent banks, airlines, and carmakers. The federal government just passed a $2 trillion coronavirus rescue package in two weeks! Is the problem capitalism?…The problem is desire. We need to want these things. The problem is inertia…The problem is regulatory capture. We need to want new companies to build these things, even if incumbents don’t like it, even if only to force the incumbents to build these things…I think building is how we reboot the American dream. The things we build in huge quantities, like computers and TVs, drop rapidly in price. The things we don’t, like housing, schools, and hospitals, skyrocket in price. What’s the American dream? The opportunity to have a home of your own, and a family you can provide for. We need to break the rapidly escalating price curves for housing, education, and healthcare, to make sure that every American can realize the dream, and the only way to do that is to build”. On a similar note, Derek Thompson highlights US’s challenges in terms of COVID tests, houses, immigrants, physicians, or solar panels – and suggests the US needs to shift out of a scarcity paradigm and adopt an abundance agenda.

While large-scale government interventions are justified by the pandemic and geopolitical contest, nonetheless this means that government decisions are over-riding market signals and suppressing the natural instincts of private enterprise. In fact, the US government and public appear increasingly at odds with its largest corporations and platforms for a variety of reasons – for wanting to do business with China, for loss of national competitiveness, for suppressing small business vitality (e.g. shareholder greed and monopolistic practices), and even for failures in democracy (media industry, platforms). National and business interests are diverging and becoming increasingly difficult to reconcile.

The domestic decay is projected outwardly in terms of US’s declining global power. Its economic power is now openly challenged by China and other rising nations. Its once-comprehensive domination of information sphere is being eroded – in terms of control of technology and data, control of multilateral organisations, formulation of law and code and in business, finance, entertainment and content. It still has the most powerful military force – but its military presence is costly and over-extended and ineffective in an information setting. And for possibly the first time, US competency is in question due to its mishandling of the pandemic and frequent policy reversals and mishaps.

Setting the course for the 21st century

The US is likely drifting off-course in the 21st century. It needs a hard and honest stocktake and course correction. In particular, it needs to re-examine closely its policy paradigms for flaws as this could the source of misdirection. The faulty paradigms need to be corrected to set the right strategic direction. The critical areas for re-examination include.

  • Re-industrialisation paradigm

This is the most critical policy paradigm for the remake of the US economy. The recent reindustrialisation policies are largely motivated by the geopolitical conflict with China. A White House administration report highlighted the need to lessen dependence on China by prioritising the building of resilient supply chains. The report examined supply chains weaknesses in semiconductors, large capacity batteries, critical minerals and pharmaceuticals. It recommended rebuilding production and innovation capabilities by expanding funding for manufacturing and R&D; providing consumer rebates and tax incentives; establishing a new Supply Chain Resilience Program; deploying the Defense Production Act to expand production capacity in critical industries; leveraging the government’s role as a purchaser and investor; and strengthening the ecosystem of producers and innovators including SMEs and skilled workers. It also suggested establishing a Supply Chain Disruptions Task Force to monitor near-term supply chain vulnerabilities arising from the pandemic and a US Trade Representative-led trade strike force to address unfair foreign trade practices and to work with allies and partners to decrease vulnerabilities in global supply chains.

However, reindustrialisation initiatives are not new. Nikos Tsafos and Lachlan Carey notes an extensive solar manufacturing strategy including tax credits, federal investments, import tariffs and others is already in place. “The objectives of a national solar strategy are clear enough. Above all is deployment: the United States needs to remain a major market for solar, and it needs to convey a clear signal to private industry that demand will be strong. But U.S. demand for solar has been robust for a decade without translating into domestic manufacturing capacity at scale”. The problem is “general efforts to create demand say little about which technology is used, where it is manufactured, or how much of the benefits accrue to U.S. workers”. Hence, “policies are often disconnected from each other…mere reshuffling of trade flows…shift production…build a parallel industry in Southeast Asia; the benefits to domestic manufacturing were minimal. Singular interventions devoid of a strategic purpose are unlikely to achieve the desired result”.

Scott McLean and Jo Shelley notes the US is attempting to boost domestic PPE production. “In 2020, 90% of gloves, syringes and needles used in the US were sourced from Asia…Washington plans to spend $1.7 billion to spur domestic PPE production, part of $4.5 billion to help expand US manufacturing more broadly…The US is also investing in the domestic production of raw materials for gloves, masks, gowns, drugs, vaccines, medical test kits and other essential medical supplies…Before the Covid-19 pandemic, there was only one company producing single-use nitrile gloves in the United States…The success of American glove producers depends on how much they can automate and whether they’re flexible enough to ramp production up or down to match demand”. “In all, the US government has contracts worth almost $700 million to invest in 11 American companies – enough, it hopes, to produce annually in the United States the equivalent of about 5% of prepandemic global glove production”. Nonetheless, Karl Evers-Hillstrom report “American face mask manufacturers are warning that they will soon go broke without government support” as “private companies and state and local governments favor Chinese masks, which cost just a fraction of American-made face coverings”.

Overall, there tends to be strategic confusion over reindustrialisation policies due to objective overload. Gary Clyde Hufbauer and Euijin Jung points out the goals of industrial policy vary from accelerating growth, assisting declining industries (to save jobs and to rescue firms), offsetting externalities or promoting US leadership in emerging technologies. Most economists contend macroeconomic policy, not industrial policy, is the right tool for creating jobs in a depressed economy; industrial policy essentially provides alternative employment for STEM workers, not for workers lacking a college degree. Finally, economists note that industrial policy may save or create jobs in a particular firm or industry but at the expense of (1) employment in downstream firms that are forced to buy more costly inputs, (2) successful firms that might have employed the workers released by failing firms, or (3) neighboring states that might otherwise have attracted a subsidized firm. They conclude: (1) “Industrial policy can save or create jobs, but often at high cost”; (2) “In most cases, import protection does not create a competitive US industry and it imposes extreme costs on household and business users per job-year saved” except “when actual or threatened barriers prompt a world-class firm to open in the United States”; and (3) “Trade policy concentrated on opening markets abroad is a better bet”.

There are also risks from government micro-management of the supply chain. Robert Dohner notes skyrocketing demand made “semiconductor shortages inevitable, even with perfectly operating supply chains”. “As the semiconductor shortage persisted…the administration’s focus shifted from how to make supply chains more secure and resilient against future shocks “toward allocating the chips that are currently available”. “Without the ability to call forth additional production, the administration has instead shifted to jawboning suppliers. It has said at several points that it wants to ensure the fair allocation of semiconductors, and the US Commerce Department sent a Request for Information to both US and foreign chip producers asking them to identify their major customers and their shares of total orders, changes in inventory levels, and the methods by which firms allocate available semiconductor supply. Secretary of Commerce Gina Raimondo hinted at possible intervention…I don’t know who is over-ordering or who is not supplying at levels expected…The Defense Production Act could be used to dislodge and reallocate chip supplies, but that would be an extraordinary interference in business decisions”.

Robert Dohner describes the interventions on supply allocations as “a zero-sum effort that can only increase disputes and distrust among the United States and its partners and allies, and between governments and the private sector”. “Instead, the administration’s supply-chain policy must return to its original focus on the critical areas where it’s both needed and can be effective: ensuring that supply chains are secure against compromise and resilient to disruptions from natural events or the policies of foreign governments. Central to this effort is identifying vulnerabilities along the entire length of supply chains, and not just in firms’ immediate suppliers. Working cooperatively with its allies and partners, the United States can enhance supply-chain resiliency and security, as well as help create the transparency needed to identify bottlenecks and chokepoints that cause supply chains to break down”.

At the macro level, to my knowledge, there are no precedents for a matured economy to meaningfully reverse the declining manufacturing share of GDP (e.g. to above 30%). Even if it occurs, it would by implication be at the expense of the services sector. In addition, large-scale production reshoring would have to overcome considerable labour, environmental and cost challenges. Would there be sufficient urban employees willing to quit their service jobs to work in factories? If not, would there be a political backlash if immigrant labour were recruited?

Therefore, the US should formulate a reindustrialisation plan with a broad perspective that provides strategic clarity and aligns with a transformative vision. In this sense, the competition with China and employment issues are distractions that can cause resource misallocation, impede creative destruction and divert the US from achieving its ultimate goals. Reindustrialisation should generally refrain from venturing into areas that are low-tech and that result in the manufacture of uncompetitively-priced products. In my view, reindustrialisation policies should emphasis on spurring innovation and growth in areas critical to achieving global technological leadership or be aimed at taking global market share through lower prices or better value. The benchmarks for reindustrialisation should be based on global market share, technology, data, talent, research[3], funding, speed and scale.

Ideas to speed up reindustrialisation include adopting newer organisational forms of coordination to overcome speed and scale barriers. The Defense Advanced Research Projects Agency (DARPA) is frequently cited as the role model for frontier industrial policy. Gary Clyde Hufbauer and Euijin Jung relates DARPA was created in 1957 with the aim of maintaining US military superiority. DARPA has a small staff and its “science and engineering experts who, without political interference, award grants to promising but high-risk R&D… When public R&D strikes gold, private firms step in to commercialize the findings”. It is often argued the DARPA approach of funding multiple firms is superior to designating a single firm to advance technology.

Operation Warp Speed (OWS), modelled on DARPA, was initiated to “accelerate the testing, supply, development, and distribution of safe and effective vaccines, therapeutics, and diagnostics to counter Covid-19”. David Adler argues OWS offers “an entirely new set of economic policies that could be a blueprint for industrial strategy going forward. OWS shows how the United States can reimagine and leapfrog existing manufacturing paradigms to dominate the technologies of the future.” He explains “OWS is a working model of how different government agencies, and the private sector, can cooperate to quickly solve a technological challenge. It illustrates best practices in program design, as well as in government contracting…reindustrialization requires sustained demand – as provided by Warp Speed’s guaranteed contracts. To avoid stagnation, it should involve competition among firms as well”. David Adler argues OWS addresses specific problems plaguing America such as “America’s inability to develop and manufacture at scale the technologies that are invented in the United States…There are few financial mechanisms in the United States to domestically scale up advanced manufacturing start-ups, in contrast to the direct subsidies and infant industry protection policies used by East Asian countries”. In addition, OWS is supported by constant mapping of supply chains to identify and plug supply gaps and to pursue a Made in the USA agenda. “OWS is a case study of how to tie together America’s fragmented innovation system and scale up technological breakthroughs…It shows how the United States can bring to market disruptive, radical technologies that leapfrog existing manufacturing processes. OWS takes away R&D and regulatory risk, and adds in financing, government assistance in tech transfer for manufacturing, support for a robust domestic supply chain, and guaranteed demand”.

The success of DARPA and OWS suggest reindustrialisation plans should favour technological disruption and new business models rather than defend legacy, and highlights the need to restructure administrative oversight of approval processes, corporate incentives, and for continuous mapping and tracking of performance. Nonetheless, these models should not be operated as stop-gaps but should be permanent models operating on a continuous basis.

There is also a need to align policies such as foreign direct investment to support reindustrialisation. Amin Mohseni-Cheraghlou notes “for decades, the United States was the main destination for foreign firms’ investments…the emergence of new markets and players in the global economy means the United States must actively compete with other countries – namely China – to maintain its appeal for foreign direct investment”. However, “the rate of annual FDI inflows into the US economy has been declining over the past five years – a decline of more than 71 percent between 2015 and 2020[4] – while annual FDI inflow into China has grown from around $136 billion in 2015 to $163 in 2020, an increase of 20 percent”. “Considering the substantial involvement of the Chinese state in supporting FDI abroad, US firms who lack government support are not able to compete with the state-backed Chinese firms who are investing heavily in the energy, transport, real estate, minerals, and metals sectors in Sub-Saharan Africa, the Middle East and North Africa, and elsewhere”.

Reversing the trend in foreign direct investment would significantly lessen the burden on the government to drive reindustrialisation. In this context, the US maintains an advantage in terms of its large and wealthy consumer market and deep capital markets, its openness and as a center for talent, education and research. This raises the question of why it isn’t leveraging more on its strengths to attract more inflows. In this context, the US needs to weigh the impact of decoupling policies – sanctions, compliance costs and the exclusion of China firms – on foreign direct investment and possibly make adjustments to its approach.

  • Restoring business dynamism

The loss of business dynamism indicates economic challenges are not solely geopolitical and there are domestic structural elements that need to be addressed. Wim Naudé points to signs that the US economy is becoming “ossified”. The ratio of new firms to total firms declined by around 50% between 1978 and 2011. Job-to-job mobility, within job mobility and geographical mobility – indirect measures of business entry and exit dynamics – have also declined. After 2000, job creation in the US shifted from the creation of high-paying jobs to low-wage (low-skilled) ones while the ratio of patents to GDP declined.

Wim Naudé attributes the loss of business dynamism to symptoms prevalent in matured economies such as aging demographics[5], growing market concentration and rising complexity. Ufuk Akcigit and Sina T. Ates reported similar findings. In tandem with Baumol’s cost disease, financialisation and concentration, market failures occur due to “misaligned incentives and short-termism in private markets…fail to reward firms for investing in quality, sustainability or long-term productivity”[6].

Market failures can be addressed by labour, financial and anti-competition regulations. In this regard, Heather Boushey and Helen Knudsen notes the US administration recognises “the U.S. economy faces a serious market power problem which results in increasing wage inequality and wealth concentration, high prices, and stagnating wages”. “The President’s Executive Order establishes a whole-of-government approach to push back on decades of decline in competition. The Order not only calls on the traditional antitrust agencies – the DOJ and the FTC – to enforce existing laws vigorously and to consider updating their merger guidelines, it also directs all agencies and departments to use their detailed knowledge and expertise to ensure that their work clearly supports competition…directs or encourages roughly a dozen agencies to engage in more than 70 specific actions that will remove barriers to entry and encourage more competition…It requires all agencies to use their procurement and spending powers to avoid entrenching monopolists and to create new business opportunities for small firms. It encourages the FTC to issue rules curtailing noncompete agreements which inhibit labor mobility, preventing workers from switching to jobs that offer better pay and benefits. And, it directs the Department of Agriculture to consider strengthening its enforcement of laws designed to prevent large meat-processing companies from taking advantage of farmers”.

Matt Stoller cites the example of the ocean carrier industry that is “rife with inefficiencies and retaliation. In 2018, the Federal Maritime Commission (FMC) found concerns about poor carrier customer service; carrier delays in correcting bills; lack of uniformity among dispute resolution procedures and free time policies; lack of advance notice or communication from marine terminal operators about closures and terminal ability to receive returned equipment; large demurrage and detention bills related to government cargo examinations; decreased free time; lack of ocean transportation intermediary involvement with shipper and ocean carrier arrangements; and congestion at rail yards … due to drayage trucking and chassis unavailability…A lot of the findings focused on the secrecy of the industry, with fees and availabilities to move cargo kept opaque”. To address this, Ocean Shipping Reform Act of 2021 was introduced…restores the ability of the commission to inhibit unreasonable business practices and pricing and letting the FMC force carriers to have minimum requirements in their service contracts. It also beefs up enforcement tools, creates more transparency in pricing by authorizing the FMC to license shipping exchanges, and imposes a new set of common carrier obligations on ocean carriers (like prohibiting them from unreasonably declining export cargo bookings). There are anti-retaliation provisions and new mechanisms for stakeholders in the supply chain to complain and get awarded damages…the thrust is that ocean carriers will now have to be more transparent and reasonable to everyone else in the supply chain”.

Overall, industrial policies (such as incentives, price regulation, tariffs) need to be carefully reconciled with other policies on competition, securities regulation, monetary policy, income redistribution and national security to identify and manage policy contradictions and to strengthen alignment. Interventions are a useful stopgap but governments should not lose sight of the longer-term need to overhaul the market incentive system and to renew private business dynamism.

  • Re-balancing public and private sector roles

After many years of allowing the private sector and markets to lead in driving economic growth, the US government have recently turned interventionist. But is it intervening for the right reasons and in the right areas? Currently, the US government is responding to challenges posed by the pandemic and geopolitical conflict. It has intervened with large fiscal and monetary stimulus, emphasised on industrial policy and infrastructure development while increasing oversight and enforcement of its policies through regulations, fines and sanctions on the private sector. I agreed there is a need for governments to step up to address the challenges that markets can’t solve in an information society.

At the same time, the drawbacks of government intrusion are well known. If the intervention is too broad and heavy-handed, they will end up damaging market mechanisms and private sector enterprise. In particular, the pandemic and decoupling interventions are situational and may misdirect attention and resources and raise policy risks and compliance costs to prohibitive levels. The US government is also setting itself up for a fall by taking on so much responsibility. With so much micro-management, unsurprisingly MNCs run to the government every time they face a problem and bait the government to offer incentives to relocate production facilities and intervene to overcome “shortages”.

Recently, China’s “whole-of-government” approach seems to have gained favour. But there are grounds for caution. China’s economic system is built on government intervention and it probably does it better than everyone else. The US problem is that during decades of market pre-eminence, government administrations were sidelined and underwent repeated downsizing and restructuring exercises. This has severely weakened the operational capabilities, cultures and prestige of government administrations; undermined the checks and balances that support administrative independence and made it susceptible to interference from politicians and interest groups. The “whole-of-government” approach is an example of situational distraction with potentially harmful effects on the vitality of the US private sector and market discipline.

From a long-term perspective, there is a clear need to re-balance public and private sector roles in the US. I think the US government administration needs to be overhauled. There is a need to strengthen the civil service ethos or sense of purpose, to address staff grievances and repair weaknesses in its capabilities. In tandem with this, there is a need to strengthen administrative independence by increasing the levels of transparency and accountability, and to enhance the social agenda to address existing gaps in public goods.

It is also critical the US government doesn’t lose sight of the strengths of its markets and private enterprise and should calibrate its interventions in revitalise their role in finding market solutions. This becomes critical when the US government is managing the withdrawal of their policy interventions and to ensure the private sector is in a position to generate sufficient activities to sustain an economic recovery.

  • Redefining US global leadership

The reality is that the US can no longer exercise global power as it has done for several decades. The increasingly diverse landscape is diffusing global power and eroding the foundations of global order and stability. In this context, most countries have adopted US (and Western) perspectives on trade, markets, laws and technology. But there has not been much ideological convergence and the ideological map has stayed relatively unchanged since the 1970s despite Western advocacy of universal rights, the use of sanctions and direct military interventions.

The US needs to redefine its global leadership role in a contested geopolitical landscape or risk further deterioration in its global standing. At this time, the US, with its wide support, is in the driver’s seat to set the agenda for a transition to a future global order. It can reassert its leadership differently through new amicable agreements on power-sharing or global governance. If instead the US allows decoupling to take its course towards confrontation and fragmentation, this could be considered a failure of its leadership on the international stage and effectively reduce its sphere of influence and opportunities. The US therefore needs to indicate its preferences in relation to new power-sharing or governance arrangements that would be acceptable to its allies and rivals.

  • Building a vision and values around the information society

It is difficult for the US, which has been at the top for so long, to think about how it can better itself. The reflex action is to concentrate on fixing the parts of the market and economy that isn’t working but this approach is insufficient to cure the ailments of a post-industrial society. The US to develop a vision for a society centred around the datafication of citizens, the automation of rules and the transparency of information for the 21st century.

In this regard, while Western societies generally understand the importance of information in business and national security, there is considerable resistance to using information to achieve social and other public goals. Objections such as privacy or infringement of individual rights (surveillance, discrimination) creates information blindspots while AI restrictions can inadvertently impede effective and efficient monitoring and implementation.

In my view, modern society management face complex information challenges[7] and it is an error to constrain information use because of extreme fear of dystopian paradigms. In an information society, the goals of democracy, equality, human rights, freedom of speech, individual choice, privacy and justice needs to be defined and achieved in a different manner. For example, an information society is inevitably more transparent. But transparency should not be regarded as eroding privacy and individual rights. It is just that we need to define privacy differently and strengthen the ability of individuals to control how their information is displayed and used. Similarly, just because governments acquire more information, it does not necessarily translate into a surveillance dystopia. In this regard, transparency makes the exercise of power (or decisions) highly visible. I also believe that government should have full powers over data and be able to exercise stronger oversight over private (platform) control and use of data. But this should be accompanied by safeguards to ensure “separation of powers” by strengthening public access and rights to information, authenticity, and the ability of individuals to control access to their information. In tandem with this, the legal system should be streamlined to facilitate greater use of algorithms and improve transparency, accountability and due process for dispute resolution.

The controversies over social media impact on political debate is evidence that democracy works differently in an information society. If before, the US was regarded as the gold standard for democracy, today’s highly polarised environment in the US – with fake news, cancel cultures and national security team dynamics – makes it looks like US democracy is messed up. What conclusions should one draw on a country where private platforms can block an ex-president from expressing his views. This looks more like a fight to control democracy rather than to strengthen it. The looming challenge for the US is to redefine its notions of democracy for the 21st century. Benchmarks could include assessing the level of good content[8], disclosure, authenticity, transparency, accountabilities and the level of community participation in democratic processes.


Decoupling and the pandemic are the two major forces currently reshaping US policies for this decade. But both overlook America’s domestic challenges and also do not seem to refresh the American dream to sustain US greatness into the 21st century. In my view, policymakers need to focus more attention on factors critical to making the US a success rather than one distracted by threats. This includes assessing areas where there are signs of backsliding rather than advancement and designing long-term growth strategies for improvement. Possible benchmarks for the 21st century include openness, entrepreneurship, foreign investment, education, infrastructure, equality, use of information, innovation and a range of indicators for the strength of its democracy (e.g. free speech, rule of law and freedom of individual choice). In this regard, America’s vision for the 21st century should not be about holding onto its global leadership but being a model that the rest of the world would want to emulate. In tandem with this, the US would need to address how it would handle competing visions of the global order and how decoupling is putting its MNCs on a collision course with the government.


Amin Mohseni-Cheraghlou (5 August 2021) “Foreign direct investment: A new strategy for the United States”. Atlantic Council Blog Post.

David Adler (Summer 2021) “Inside Operation Warp Speed: A new model for industrial policy”. American Affairs Journal.

Derek Thompson (12 January 2022) “A simple plan to solve all of America’s problems”.

Frederick Kempe (21 November 2021) “With the US in strategic contraction, allies take a new approach to partnership”. Originally published on

Gary Clyde Hufbauer, Euijin Jung (November 2021) “Scoring 50 years of US industrial policy, 1970–2020”. The Peterson Institute for International Economics (PIIE).

Gregory Arcuri (14 January 2022) “U.S. competitiveness provision: Securing American manufacturing of critical technologies or hindering innovation?” Center for Strategic & International Studies (CSIS).

Heather Boushey, Helen Knudsen (9 July 2021) “The importance of competition for the American economy”. The White House.

Heather Long (22 June 2021) “The economy isn’t going back to February 2020. Fundamental shifts have occurred”. The Washington Post.

Jesús A. del Alamo, Dimitri A. Antoniadis, Robert G. Atkins, Marc A. Baldo, Vladimir Bulović, Mark A. Gouker, Craig L. Keast, Hae-Seung Lee, William D. Oliver, Tomás Palacios, Max M. Shulaker, Carl V. Thompson (September 2021) “Reasserting U.S. leadership in microelectronics – A white paper on the role of universities”. Massachusetts Institute of Technology.

Karl Evers-Hillstrom (3 August 2021) “US mask makers say they’re in danger of going broke”. The Hill.

James Galbraith (25 June 2021) “China and supply chains – The White House review’s focus on US dependence”. Originally published at the Institute for New Economic Thinking website.

Marc Andreessen (18 April 2020) “It’s time to build”. Andrewssen Horowitz

Matt Stoller    (19 December 2021) “The world’s most profitable traffic jam”. BIG.

Nikos Tsafos, Lachlan Carey (12 August 2021) “The United States needs a solar manufacturing strategy”. Center for Strategic & International Studies (CSIS).

Phuah Eng Chye (2015) Policy paradigms for the anorexic and financialised economy: Managing the transition to an information society.

Phuah Eng Chye (31 March 2018) “Organisation of households: Aging, secular stagnation and population policies”.

Phuah Eng Chye (7 April 2018) “Organisation of households: Aging, depopulation and welfare costs”.

Phuah Eng Chye (14 April 2018) “Organisation of households: Aging and financial cycles”.

Phuah Eng Chye (21 April 2018) “Organisation of households: Aging, savings and financialisation”.

Phuah Eng Chye (29 February 2020) “The journey from privacy to transparency”.

Phuah Eng Chye (14 March 2020) “The features of transparency”.

Phuah Eng Chye (28 March 2020) “The transparency paradigm”.

Phuah Eng Chye (23 May 2020) “Public and private roles in managing data (Part 3: Evolving roles)”.

Phuah Eng Chye (4 July 2020) “Government of the data (Part 3: The future of government platforms)”.

Phuah Eng Chye (7 November 2020) “Information rules (Part 1: Law, code and changing rules of the game)”.

Phuah Eng Chye (21 November 2020) “Information rules (Part 2: Capitalism, democracy and the path forward)”.

Phuah Eng Chye (16 January 2021) “Information rules (Part 6: Disinformation, transparency and democracy)”.

Phuah Eng Chye (30 January 2021) “Information rules (Part 7: Regulating the politics of content)”.

Phuah Eng Chye (13 March 2021) “Information rules (Part 10: Reimagining the news industry for an information society)”.

Phuah Eng Chye (5 June 2021) “Global reset – Two whales in a pond”.

Phuah Eng Chye (18 December 2021) “Global reset – Economic decoupling (Part 1: China’s socialism big bang)”.

Phuah Eng Chye (1 January 2022) “Global reset – Economic decoupling (Part 2: China’s global discourse for the 21st century)”.

Phuah Eng Chye (15 January 2022) “Global reset – Economic decoupling (Part 3: US decoupling – Costs, flaws and revising the strategies)”.

Robert Dohner (3 January 2022) “The United States must ensure semiconductor supply-chain resilience – not allocate short supplies”. New Atlanticist.

Scott McLean, Jo Shelley (30 December 2021) “Here’s what it’s like inside the Chicago-area factory aiming to end US overreliance on Asia’s PPE production”. CNN.

Ufuk Akcigit, Sina T. Ates (14 February 2020) “What happened to U.S. business dynamism?” Federal Reserve.

White House (June 2021) “Building resilient supply chains, revitalizing American manufacturing, and fostering broad-based growth”.

Wim Naudé (8 October 2019) “The surprising decline of entrepreneurship and innovation in the West”. The Conversation.

Wim Naudé (September 2019) “The decline in entrepreneurship in the West: Is complexity ossifying the economy?” IZA Institute of Labour Economics.

Wolf Richter (26 August 2021) “The most monstrously overstimulated economy & markets ever”. Wolf Street.

[1] See Frederick Kempe

[2] See Policy paradigms for the anorexic and financialised economy: Managing the transition to an information society.

[3] See Massachusetts Institute of Technology (MIT) white paper on “Reasserting U.S. leadership in microelectronics – A white paper on the role of universities”.

[4] The US received $134 billion in FDI in 2020. See Amin Mohseni-Cheraghlou.

[5] See articles on “Organisation of households” covering various aspects of the economic effects of aging.

[6] White House report on “Building resilient supply chains, revitalizing American manufacturing, and fostering broad-based growth”.

[7] See my earlier articles on information issues.

[8] See articles on information rules.