Power Rivals: America and China's Superpower Struggle by Carl Delfeld

Author:Carl Delfeld [Delfeld, Carl]
Language: eng
Format: epub
Published: 2022-01-08T06:00:00+00:00

CHAPTER FIVE

The Great Upheaval

The most important catalyst for America’s upheaval as well as the prime generator of wealth over the last four decades has been the inexorable rise of finance and technology, sometimes referred to as fintech, which is using technology to move money.

This is but part of a century-long massive transformation from an American economy centered on agriculture and land, to industrial production, and now to information, data, technology and finance. This shift has put a premium on intellectual capital and relatively less value on unskilled labor.

The trend is also reflected on the downward pressure on growth of jobs, wages and profits from manufacturing and industry. Finance and technology has become the key driver of the American economy and stock market, as capital now effortlessly moves around the world like a ravenous animal seeking the highest, short-term returns. And top executives and company board members that control much of this capital have every incentive to put a company’s stock price well above all other considerations in developing and executing strategies. The evidence of this evolutionary trend is both stark and plentiful.

The positive trends are unmistakable. An iPad today has the processing power of 5,000 desktop computers from 30 years ago. The storage of 1GB of data costs an average of $0.03 a year compared to $10,000 three decades ago. The flip side of this is that IBM cut 40% of its workforce between 1990 and 1994, abandoning most manufacturing in favor of R&D, software, and patent licensing. A key turning point for the Chinese company Lenovo was its $1.25 billion purchase of IBM’s personal computer business in 2005 that allowed Lenovo to use the ThinkPad brand on its products ever since. This was followed by a string of acquisitions including Motorola and a part of IBM’s server business in 2014. Personal computer sales still account for about 75% of Lenovo’s annual revenue, as it has become the largest personal computer company in the world, selling more than 72 million personal computers in 2020.

In the auto sector, GM and Ford spun out their parts production as Delphi and Visteon in 1999 and 2000, and within the next decade, both Delphi and Visteon had more Mexican than American employees. This outsourcing of manufacturing by American automakers led to a sharp reduction of value added within the companies. For example, GM’s proportion of final value produced in house went from 70%, and Ford from 50%, to roughly 20% for both, as globalization took hold.

The gains to the automakers from a financial viewpoint were clear. Contracting out production to smaller firms that were harder to unionize and assumed both the costs and legal responsibility to provide benefits like health insurance, boosted both the profit margins and share prices of the big automakers. This widespread shifting in the “information age” of the physical work of manufacturing and assembly over the last three decades to Asia is unmistakable. Just consider the share of tangible assets such as buildings and manufacturing equipment compared to intangible assets such as software and patents of all S&P 500 companies.

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