When we think of ancient civilizations, we think of the Romans or the ancient Greek city-states. But when those guys looked back in order to see what’s ancient to them, they looked beyond the Assyrians into the lands of Sumer.
Civilization started over there more than 6000 years ago. But if you look at the place today, you see eternal warfare, dictatorships, and constant strife. Hard to believe that this was the cradle of civilization.
And yet, every time when one ancient culture eclipsed others, they often took hundreds of years and quite some stumbles on the way to do so. In our nanosecond smartphone totting times we don’t have the patience for slow but steady developments anymore. However, they are not gone. They still do their work, silently, beneath the surface of bluster and politics.
And whenever one city, one state, one ruler eclipsed all other as happened quite a number of times, it was because a new fundamental advantage over the others deployed its effects over time. Most big empires fell because their innovative spirits were blunted by decades or even centuries of living big. Steely, wild-eyed, innovative nomads became well-fed and well-entertained city dwellers in such a development. Until a new, innovative, hard people came and replaced those that have grown fat and lazy.
We can see this cycle repeat itself in recent history. The almighty British Empire has been reduced to a small nation-state and the US holds sway over the globe today. It was the lean colonist that overpowered the red-coated colossus. Some are quick to predict that the age of US hegemony is itself coming to an end as it will be replaced by China as the dominant power.
But as in ancient history, and as so very often, the established power still holds fundamental advantages over its peers. In ancient history, this was often due to organizational innovation. The US – on the other hand – stages a very different sort of comeback – or let’s call it rejuvenation cycle. It rediscovers its entrepreneurial roots as it kicks the greatest energy revolution of recent history into overdrive.
For decades, the Western world has suffered from the scourge of de-industrialization. All the manufacturing went to countries with much lower wages, much less stringent social protections and also much laxer environmental rules. Many thought – erroneously so – that we would be able to replace the blue collars with white collars by pushing IT, financial wizardry and the service sector as a whole in our own mature economies.
But we were wrong. A country that has shed its industrial base towards others also puts its own economic fortunes in those peoples hands. And the jobs that go with it.
So, we need our industries back. But that’s easier said than done. Many newly industrializing countries still enjoy hefty wage advantages and will offer very generous incentives just to get the money flowing. Never mind that many of those same incentives gradually start to disappear once the money is spent.
But this is also their Achilles heel. They need to sell out people and country in order to attract money. Money that they will feed into their inefficient, corrupt administrative overheads and military machines. The people keep going along as long as the promise of a better life, later on, is believable.
They all intend to eventually make the transformation to a consumer economy, but they are not ready to go for the real deep and painful reforms such a development would entail.
Reforms that the United States has started implementing with the American Revolution more than 200 years ago and has hardened through endless cycles of legislative innovation, social strife and judicial probing out of every nook and cranny that opens up in such processes.
Principles such as the absolute protection of life, liberty and the freedom to pursue one’s own destiny and happiness, the guarantee that your property will be respected and protected and the supremacy of the individual in face of the state.
OK, you will tell me now that those principles have suffered a lot in the US as well – and they have. But they have also evolved and their spirit is still there. Show me anything that comes close to the protections that the US affords it citizens in one of the newly industrialized nations that attract investment by enslaving their people and destroying their environment while exploiting every international agreement for what its worth – and that often in bad faith.
Which means that in the end, they all run into a dilemma. Either they become much more like the reviled Western world or their growth stories come to an end.
But looking at China for the last 30 years, one is excused to think that US economic and cultural dominance has come to an end and there is a new dogma that will drive our economies. When – in fact – it all hinges on the capacity of consuming economies to gobble up all the cheap stuff that’s cranked out by the new superstar economies.
Which means that in the end, the market is the sole determinant and the market won’t care a bit if whatever it consumes comes from a newly industrialized country or any other place.
Could his other place be the US with its high wages and its stringent rules on environmental protection?
Wages go up in many newly industrialized countries, the countries also start to find out that just shooting everything into the air and the water has a cost that might not be suitable to them anymore. So, the relative cost base in newly industrialized countries goes up. Add the cost of corruption plus all the other things that most of all China is known for such as an extremely biased justice system and very poor protection for foreign investors and this cost base starts to look unattractive. High energy cost might just make the bottle pop.
While we see the cost advantage of newly industrialized countries evaporate, the competitive position of the US starts to improve by leaps and bounds. Shale oil and gas gave the US a cheap and reliable energy source. Natural Gas seems to flow literally out of their ears. And it has been so dirt cheap for so long that even the craziest business models seem to make sense today.
If your production business is very energy-intensive and does not depend so much on manpower, you might want to consider relocating back into the US. But wait, even the manpower part takes a beating as increasing robotization cuts the edge off high salary costs. Asian companies have little incentive to use robots as their manpower is cheap.
If this is what you need, you simply deal with the transport cost, the cost of operating in an uncertain legal environment, the cost of technology transfer, the cost of industrial espionage, the cost of corruption, …
But when those costs go above a certain threshold, you will think again and if your business is in the tension field between energy cost and wages, sinking energy cost on one side and rising workforce cost plus the cost of operating in a foreign country on the other side might just seal the deal for you.
Add in mounting nationalism in some newly industrialized countries, the resulting legal and commercial instability and of course tariffs and sanctions and you have a brew that just does not look that healthy anymore for many companies. Big producing companies that are present in newly industrialized countries but produce for the US market will always be more swayed about what happens in their market rather than in their place of production. Production can be moved, if the market fails you, you are toast. That’s an incentive to move back where the customers are.
But it goes much further. Cheap shale gas will ultimately lead to a mobility revolution as more transport companies will switch to Natural Gas (LNG and CNG) as a fuel for their transport needs. They can brush up on their green credentials, it has made its proofs of operations over the years and gas fueling infrastructural bottlenecks are being dealt with. This drives an enormous equipment market and spurs innovation. When the market grows, companies will jump on the opportunity, produce new vehicles, engines, equipment for the value chain and of course plenty of new business models and operational modes.
There will be lots of trying, lots of failing but also lots of learning. Just like in shale and US companies will build up expertise that’s unique. This expertise and this uniqueness will be worth more than the value of the commodity today when the rest of the world wakes up to the advantages of a methane-based economy.
The US might well be the first real Methanopolis – a country that runs mainly on methane gas and develops the next generation of urban technology and logistics.
The USA is not an empire in a classical sense. Its a covenant of and for the people, designed to evolve and to self-correct whenever evolution carried it too far.
The roughnecks in the shale fields have unwittingly used the tools the founding fathers have bestowed upon the country to make American drilling great again. In turn, they have sowed the seeds for the next cycle of American excellence.
It’s a new iteration of the industrial economy that makes it a role model that others will seek to emulate once again.