Pyramid Theory II

by Frank Li

In a previous post, I published Pyramid Theory I, which is primarily intended for America. In this article, I will expand it into Pyramid Theory II, in the context of the world economy, and spell out its implication for America.

Human beings are earthly global by definition. Isn’t it true that we human beings all originated in Africa many million years ago? Do you know of the existence of the Silk Road a few thousand years ago? What’s the point? We human beings are earthly global by definition!With the advancement of technologies (e.g. Internet and transportation), the globe has become flatter and smaller. For example, today, a U.S. customer may get his tech support phone call answered by someone in India, and the stuff you buy from Wal-Mart is often made in China. Is there anything wrong with this kind of globalization in general? Absolutely not! America itself is a product of globalization, such as the Europeans coming to America in the first place and the import of slavers from Africa (which was very wrong). The challenge is to survive and thrive in this increasingly competitive globe. So here goes my Pyramid Theory II.

Pyramid Theory II

• Wealth and power: There will always be a handful of countries sitting on the top, with more countries filling in the middle and the majority at the bottom.

• Business: The big business must be global, not only for the resources, but also for the markets. The small business must have its own niche.

• Jobs: Jobs of low skills (e.g. assembly work) will be further automated or migrated down the food chain from advanced countries to developing countries, where hundreds of millions of laborers will eagerly compete for these jobs.

What did Pyramid Theory II mean to China and America from 1820 to 1952? Here are some simple stats from this book “How the west was lost” (page 15):

• In 1820, China’s world share of GDP was at 32.2%, while America was at 1.8% and Europe at 26.6%.

• By 1890, China was at 13.8%, while America was at 13.8% and Europe at 40%.

• By 1952, China was down to 5.2%, while America and Europe were both at ~30%.

The exact numbers are not very important, but the trend is: China went from the heaven top to the hell bottom from 1820 to 1952, while America traveled the other way!

What does Pyramid Theory II mean to America and China today? For more recent data on GDP and its share by country, click here. Here is the message: The table is about to turn between China and America! Specifically, here is what’s coming:

• Wealth and power: China will surpass America in GDP by 2030, thus becoming the #1 power in the world, both politically and economically.

• Business: Unless the American government becomes even more anti-business than today, American business will continue to do well, thanks to our deep capitalistic roots. The big companies (e.g. GE and Exxon) will become more global; the new companies (e.g. Apple and Facebook) will become bigger and better; and the small companies (e.g. National Scale Technology and W.E.I.) will become more nimble.

• Jobs: The real unemployment rate in America will remain way above 10% for a long time. How long? One decade at least! Yes, America has forever changed in this sense – Get used to the new reality! Note that it takes ~2.5% growth in GDP just to accommodate our population growth. The forecast is well below that (e.g. 2Q2011 GDP has been revised down to 1%), which means the real unemployment rate will only go up – Simple math, no matter how many more speeches President Obama will give in the future – Actions speak louder than words! Now, what’s beyond the next decade? It depends on what we do today, and we have three clear choices …

Three clear choices for America

Choice #1: 30% of Americans will live “poor”, but 70% of Americans will live fine. This is the best scenario if we become better by metamorphosing now. Specifically, we must change the political system, and restore America as the “Land of Opportunities”. Alarmed by this number of 30%? Read: “more than 1 in 5 children in the U.S. live in poverty” or “altogether, there are now almost 46 million in the U.S. on food stamps, roughly 15% of the population. That is an increase of 74% since 2007”. Still think we are okay without the big changes? Pull your head out of the sand and think again! More profoundly, we may have to largely un-do the 2nd half of the 20th century, from Social Security, to Medicare & Medicaid, to the public-sector unions! Impossible? China largely undid its 2nd half of the 20th century! Why can’t we?

Choice #2: 100% of Americans will live “poor”. This will happen if we continue on the current path of out-of-control government spending. In that sense, democracy, as we know it today, looks more and more like de facto communism (e.g. China under Mao and the Soviet Union), which destroyed capitalism first, and ultimately the country, for the sake of “the people”. The result will be communism too: being dirt poor – Been there, done that!

Choice #3: WWIII! After all, it was WWII that finally got America out of the Great Depression, although Keynesians like to credit the massive government spending, which is the biggest lie of the 20th century. In other words, America did win WWII. But more significantly, America’s competitors either destroyed themselves through the war (e.g. Germany and Japan) or screwed themselves up badly after the war (e.g. China and the Soviet Union). As a result, America was left as the only game in town – It made virtually everything and it named its own prices. This not only got America out of the Great Depression finally, but also created the prosperity in America for the ensuing five decades. Analogously, it may well take WWIII to get America out of the Great Recession. The only difference this time is America may be the culprit, as America has both the capability and incentive to provoke WWIII, especially if the neo-cons get their way! In fact, WWIII might have already begun with the Iraq War.

Closing

Life is a series of choices, which applies not only to individuals, but also to countries. America has been fortunate with the best political and economic systems over the past 200 years. But America’s political system is no longer the best, and that is the real reason behind America’s steep decline now. Yes, it’s the political system, stupid!

To quote John Adams 2: “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.” Is America on a suicidal path now? Yes! Can America still save itself? Maybe, maybe not …

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Articles by Frank Li

About the Author

Frank Li is the Founder & President of W.E.I. (West-East International), a Chicago-based import & export company. Frank received his B.E. from Zhejiang University (China) in 1982, M.E. from the University of Tokyo in 1985, and Ph.D. from Vanderbilt University in 1988, all in Electrical Engineering. He worked for several companies until 2004, when he founded his own company W.E.I. Today, W.E.I. is a leader in the weighing industry not only in products & services, but also in thought and action. Dr. Li writes extensively and uniquely on politics, for which he has been called “a modern-day Thomas Jefferson” (see page 31).