China may have won the factory floor. America may be rebuilding the machine around it.
The Long Memory of Civilisation
What comes to mind when we think of ancient civilisations? Yes, quite. The Romans, perhaps, or classical Greece with its quarrelsome constellation of city-states. But what was ancient to the old Romans? What did they see when they turned their gaze towards the distant past?
The fall of Nineveh ended Assyrian domination of the Middle East. To Julius Caesar, that event was roughly what the fall of Constantinople is to us: an echo from an almost impossibly remote age. The lands of Sumer were to those people what the earliest civilisations are to us. Or perhaps the great pyramids.
Civilisation began in Egypt and Sumer more than six thousand years ago. And yet, look at those places today and you find eternal warfare, dictatorships, factionalism and seemingly endless strife. It is almost perverse to contemplate that these were once the cradles of civilisation itself.
When one ancient culture eclipsed another, it often took centuries to accomplish. There were stumbles, reversals, collapses and periods when the supposed victor probably looked anything but victorious. In our nanosecond age, we have little patience for slow but steady developments. We want history to behave like a stock chart: up, down, dramatic, immediate, preferably with someone available to explain the movement on television before the commercial break.
Yet those gradual, almost geological developments have not disappeared. They still do their work. Quietly. Persistently. In stealth mode, beneath the surface noise of political theatre, bluster and fashionable narratives.
In the old world, asymmetric advantages allowed one city, one state or one ruler to eclipse all others. Most great empires eventually fell for a rather mundane reason: living large made them fat, comfortable and weak. They usually began with their innovative spirit sharp and their appetite for risk intact. But prosperity has a peculiar habit of softening even the hardest men.
Steely, wild-eyed and innovative nomads became well-fed, well-entertained citizens of cities. They built monuments, perfected etiquette and discovered the joys of complaining about the newcomers. Then new, innovative and harder people arrived and replaced those who had grown fat and complacent.
We can see the cycle repeating itself in more recent history. The almighty British Empire was reduced to a relatively small nation-state. Its former subject, the United States, holds sway over much of the globe today. The lean colonists eventually overpowered the red-coated colossus.
Some are now quick to predict that the age of American hegemony is itself approaching its end. China, they tell us, will eclipse the United States and become the dominant power of the twenty-first century.
Perhaps. But history is rarely quite that obliging.
The American Rejuvenation
The established power often retains a fundamental lead over its peers. In ancient history, that advantage was frequently rooted in organisational innovation. Yet the United States appears to be undergoing a rather different kind of comeback — or, perhaps more accurately, a rejuvenation cycle.
It is rediscovering some of its entrepreneurial roots. And by doing so, it is pushing one of the greatest energy revolutions of recent history into overdrive.
For decades, the Western world has suffered under the scourge of de-industrialisation. Manufacturing migrated to countries where wages were substantially lower. Less stringent social protections and laxer environmental rules added further fuel to the fire. Many believed that the blue-collar workforce could simply be replaced by white collars. So we promoted IT, financial wizardry and the service sector as the natural future of mature economies.
It sounded elegant.
It was also wrong.
Countries that surrendered their industrial base placed their economic fortunes in other people’s hands. And, naturally enough, they placed the jobs that went with those fortunes there as well.
We need our industries back. But that is considerably easier to announce than to accomplish. Many newly industrialising countries still enjoy substantial wage advantages. They also offer generous incentives designed to make capital feel welcome. Never mind that many of those incentives have a curious tendency to disappear once the investment has safely arrived and the ribbon has been cut.
But this is also the Achilles heel of those developing countries.
They need to sell out people and country to attract money. And that money is then often fed into administrative overheads, political machines and military establishments — organisations not exactly renowned for efficiency, transparency or a touching devotion to the interests of ordinary citizens.
The population keeps going along with the arrangement as long as the promise of a better life tomorrow remains believable.
They all intend to transform themselves into consumer economies. Yet they are not necessarily prepared to undertake the genuinely deep and painful reforms such a transformation requires.
Those are precisely the reforms the United States began implementing with the American Revolution more than two hundred years ago. That process hardened Americans through endless cycles of legislative experimentation and social strife. Add to that the relentless judicial probing applied to practically every nook and cranny that opens up in such an environment.
The result is a peculiar institutional inheritance.
Principles such as the protection of life and liberty. The freedom to pursue one’s destiny and happiness. The guarantee that one’s property will receive respect and protection. And, above all, the supremacy of the individual before the state.
Yes, I know what you are going to say.
Those principles have suffered grievously in the United States as well. And they have. The American record is hardly one uninterrupted procession of virtue. But those principles have also evolved, and their underlying spirit remains remarkably unblunted.
Show me what comes close to the protections afforded to American citizens in one of today’s “fast-growth” nations.
Many of these countries attract investment by effectively enslaving their people and ravaging their environment, while exploiting every international agreement for whatever advantage can be extracted from it. Quite often, they do so in bad faith. It is an arrangement that works beautifully — until it doesn’t.
And this 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 eventually run out of road.
The Market Has No Ideology
But look at China over the last thirty years. It is easy to conclude that American economic and cultural dominance has come to an end. And, on top of that, there is now a new dogma supposedly destined to drive our economies.
The truth is rather less romantic.
It all hinges on the capacity of consuming economies to gobble up the enormous quantities of cheap stuff produced by these new superstar economies.
In the end, the market remains the sole determinant.
The market does not care one bit where something it wants to consume comes from. It does not bow before flags, ideologies or national development plans. If the product is competitive, it buys it. If it isn’t, it doesn’t. The market is remarkably indifferent to our carefully constructed stories about it.
But could that other place eventually be the United States?
With its high wages and stringent environmental protections, it does not initially look like the obvious candidate.
Yet:
Wages are rising in many rapid-growth economies. Those countries are also beginning to discover that blowing everything into the air and water has a cost — one that may not be particularly attractive over the long term.
So the relative cost base of rapid-growth countries rises.
Add the cost of corruption. Add the other little irritations, such as a biased justice system and very poor protection for foreign investors. Suddenly the cost base begins to look considerably less attractive.
Then add high energy costs, and the whole bottle starts to fizz rather ominously.
We are watching the cost advantage of rapid-growth countries evaporate. At the same time, the competitive position of the United States is improving by leaps and bounds.
Shale oil and gas have given the United States a cheap and reliable energy source. Natural gas appears to be flowing out of American ears. And it has been so extraordinarily cheap for so long that even the more deranged business models can begin to look plausible — provided, of course, that energy cost is an important component of the equation.
Is your production business very energy-intensive? Does it not depend upon ultra-cheap manpower?
You might want to consider relocating back to the United States.
But wait.
Even the manpower problem is beginning to take care of itself. Increasingly sophisticated robotisation cuts into the disadvantage created by high American wages. Companies in rapid-growth countries have comparatively little incentive to automate aggressively. Their manpower is cheap.
If you need cheap labour, you use it.
If you need cheap energy and increasingly sophisticated automation, the calculation changes rather dramatically.
And then there is transport.
If your production remains abroad, you have to deal with the cost of moving everything. Oh yes, and add the cost of operating in an uncertain legal environment. Don’t forget technology-transfer costs. There is also industrial espionage. How about corruption?
Tell me where the end of that long tail is.
When those accumulated costs rise above a certain threshold, you start thinking again. Is your business caught in the tension field between energy costs and wages? Lower energy costs on one side and an increasingly unattractive cost stack abroad on the other might just seal the deal.
Add in:
- mounting nationalism in some rapidly growing countries;
- the resulting legal and commercial instability;
- and, of course, tariffs and sanctions;
and you have a brew that no longer looks particularly healthy for many companies.
Do you produce in a rapid-growth economy for the American market?
Then ask yourself what happens in your sales market rather than merely in the place where you manufacture. What happens to demand will always have a greater impact on you than what happens inside the factory. Production can move.
If the market fails you, you are toast.
That is a rather powerful incentive to move production back to where the customers are.
The Methane Revolution
But it goes much further.
Cheap shale gas will lead to a mobility revolution. More transport companies will switch to natural gas — LNG and CNG — as fuel for their transport needs. This also allows them to polish their green credentials without having to pretend that physics has been repealed.
Natural gas has already proved itself operationally over many years. And the infrastructure bottlenecks surrounding gas fuelling are being addressed.
This, in turn, drives an enormous equipment market and spurs innovation.
When the market grows, companies will throw themselves at the opportunity. They will produce new vehicles, engines and equipment for the entire value chain. And there will be plenty of new business models and operational modes. Some of them will prove to be nothing short of revolutionary.
There will be plenty of trying. Plenty of failing. But also plenty of learning.
It mimics the shale experience.
American companies will rise to the challenge and develop a unique skill set. That expertise — and the uniqueness that comes with having acquired it first — will eventually be worth more than the commodity itself is worth today.
Because one day, the rest of the world will wake up to the advantages of a methane-based economy.
The United States might well become the first real Methanopolis.
A Methanopolis is, of course, a metaphorical country that has adopted methane gas as its core energy carrier. From there, society develops the next generation of urban technologies, transportation systems and logistics around that energy foundation.
And once that happens, the advantage is no longer merely that the country has cheap gas.
It has built an entire industrial ecosystem around it.
The Next American Cycle
The United States is not an empire in the classical sense. It is a covenant of and for the people. It is designed to evolve and, when necessary, to self-correct whenever that evolution carries it too far in one direction.
Without knowing it, the roughnecks working the shale fields have been using the very tools the Founding Fathers bestowed upon the country.
They made American drilling great again.
And in doing so, they have sown the seeds of the next cycle of American excellence.
It is a new iteration of the industrial economy.
And it is precisely this — rather than some abstract claim of permanent American superiority — that may make the United States a role model others will once again seek to emulate.
