The United States needs to revamp and reinvent its current economic policies to compete with Chinese state-run capitalism and the massive job shift from west to east, according to Tuck School of Business professor Richard D'Aveni. In his new book, "Strategic Capitalism: The New Economic Strategy for Winning the Capitalist Cold War," D'Aveni argues that the Chinese economy undermines the role of the United States as the world leader and weakens democracy.
China uses American democracy against itself by taking advantage of its relative inefficiency and relying on its $3.2 trillion in reserves to finance its state-owned enterprises, D'Aveni said. Because the Chinese government is authoritarian, it does not need to mind the needs of its people in the same way that the United States does.
"We have high voter safety nets voted in by the electorate, and in China they don't provide a safety net, and no one has a say," he said. "As a consequence, we're constantly out-pricing our labor."
China has a system of government that can enforce changes very quickly in its own economy, whereas the United States does not have the power nor the speed to do so, D'Aveni said. China also has the ability to grant subsidies to different state-owned endeavors, which undermines American firms that are unable to garner the same governmental support.
"It takes 10 years to get the approval to build a new power plant," he said. "In China, the government snaps their fingers and people execute the order or they execute you."
China has created a cycle in which countries sell it raw materials and then buy the commodities that China produces with borrowed Chinese money, thus bringing other countries deeper into debt, D'Aveni said. D'Aveni said he believes that the United States must become more financially stable and less dependent on China by decreasing borrowing in order to lower national debt to a level at which the country is not susceptible to Chinese control.
"We don't want China acting toward us the way Germany and France are determining the budget of Greece, Italy or Spain," he said. "If that happens, the creditors will step in and either decrease our military spending which works to the Chinese advantage or destabilize our democracy, which again works to the Chinese advantage."
D'Aveni said that it is essential for the United States to reinvent its form of free-market capitalism by scaling back on "safety net programs" such as Social Security, Medicare and Medicaid and by creating an industrial policy board and manufacturing research support, which could lead to the creation of new industries. He said he advises the United States to look more carefully at the state of trade with China and to reevaluate its policies.
The United States must become more proactive regarding China's actions in order to deliberately undercut the Chinese economy, D'Aveni said.
"We need to push China in the marketplace by trying to use some old-fashioned Cold War tactics like figuring out how to undermine the leadership of the Chinese Communist Party," D'Aveni said.
D'Aveni said he does not believe that such actions would have many repercussions for the United States, as China has thus far escaped serious condemnation for its own transgressions.
Post-World War II organizations such as the World Trade Organization, the International Monetary Fund and the World Bank are failing the global economy in a world with a rising China, D'Aveni said. These institutions must also be reformed to reflect the new landscape of power.
D'Aveni said he believes that the United States is not currently equipped or ready to undertake such changes. As the economic crisis grows, however, people will be open to more radical change.
"It's a matter of national will," he said. "Right now, politically, our leaders on both sides of the aisle are not capable of doing this, but in the future I have faith in the democratic system to realign, and I hope that democracy will turn into something more radical."
D'Aveni said that his stance on United States-China economic relations is controversial and his views will likely attract criticism.
Economics professor Meir Kohn said that there is no evidence of a centralized economy ever being truly successful and that he does not believe that state-led capitalism is a viable solution for the United States
"There's a fallacy that's quite common in comparing economies economy A succeeds, economy A has X, thus X must be the reason for success," Kohn said. "However, often it is that A succeeds despite X, and this is the case here."
Kohn said that China's huge growth potential stems from the fact that its economy has been held back so significantly in the past and does not think that action needs to be taken by the United States to destabilize the country's development.
"I think the Chinese are taking all the efforts necessary to undermine their economy," he said. "State-led capitalism is nonsense."
Kohn said he thinks that job loss in the United States has largely been the result of automation, not foreign competition. He said that China's economic advantages are also being offset by problems such as rising wages and increased automation. Economically, the United States and China are "not enemies," he said.
Economics major John Ceremsak '13 said that D'Aveni's stance should be considered among those who believe that China will become a leader in the 21st century, although neither political party will take the initiative to act on D'Aveni's ideas at present.
"Right now everything is so polarized politically that it's way easier for our leaders to treat China as a trade partner than a true adversary," he said. "This short-term perspective has to have to have long-term consequences, it's just a matter of time until we have to face them."
Ming Koh '15 said he is skeptical of the comparison between the success of China's managed capitalism and the recent lackluster performance of the United States economy.
"China is a developing, middle-income country, and the economic challenges facing China probably warrant a different kind and level of government intervention than those facing the United States," Koh said. "I'm kind of uneasy about D'Aveni's argument."
Cirrus Foroughi '13 said he is also somewhat skeptical of the United States-China comparison and of D'Aveni's views.
"China has a national agenda that United States doesn't," Foroughi said. "I don't think a structured capitalist system would particularly work because there is no end goal for the United States like there is for China."
Since China is attempting to produce over one million patents per year double that of the United States intellectual property theft is rampant, he said. China's sheer size allows it access to a global market that the United States does not have.
"Ultimately, United States companies will end up hurting, and we will slowly pull out of China in terms of how much business we give to them to outsource," he said. "I believe this is going to happen in the next couple of years."
