Category Archives: Business and Economy

China’s Belt and Road Initiative: Far More Than the Old Silk Road

Suzanne, my wife, and I have been on the old silk road in Kazakhstan.  If there is a “middle of nowhere” this had to be it!  The photo below is a caravansary which was a welcome place to stay on the way to and from China to the Middle East on the old silk road.  Its origins dated to the second century BCE and was an important trade route until the end of the 14th century.  While it was known for the transport of silk, it had other purposes as well.

As important and exotic it may have been, China’s Belt and Road Initiative is much more sweeping in its purposes and connections.  As the map here shows, its Belts (actually the roads) and the Roads (actually the sea routes) connect multiple cultures and nations, 71 by recent count.  It encompasses over half of the world’s population and a quarter of the global BDP.  It meets China’s needs for markets to its excess capacity while open for trade from many nations.  China has already invested $210 billion in it, chiefly construction of infrastructure and will amount to at least $340 billion for those purposes.

Art and Suzanne Pitz on a Caravansari on the Old Silk Road

It has proved controversial since a number of the impacted nations now owe half of their foreign debt to China.  The list includes Djibouti, Kyrgystan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan.  This “debt trap diplomacy” understandably worries many about Chinese economic imperialism.  In response, China has forgiven substantial amounts of that debt perhaps to curry favor.  There have also been concerns that the belts for trade could also be belts for the Chinese military though China has yet to exhibit much interest in doing so outside of developing a port/base at Djibouti.

So, what is China up to?  Much of it is Xi’s vision for China. He has been heavily influenced by studies of the rise and fall of the Qing Dynasty.  Its crises came to a bloody height in the 1860s rather like the U.S. has been so influenced by its own Civil War.   That era included a series of “unequal” treaties begun with Great Britain’s successful efforts to force China to accept the importation of opium.  China had a huge army and a decent sized navy with cannon, but the British cannon outranged the Chinese.

Gunboat diplomacy worked and China paid the price.  Xi is not about to have China give in to any more unequal treaties.  Instead, his vision for China’s return to greatness is hinged on the Belt and Road Initiative.  It is more than about hard infrastructure.  It includes China setting up international courts to resolve commercial disputes relating to this Initiative based on models established by Dubai and Singapore that have been accepted.  Will those courts indeed be independent of Beijing?

As an example of its importance, the map makes clear that Iran is essential for the initiative’s success.  Hence, China has become Iran’s main weapons provider and co-conspirator in finding ways to evade Trump’s sanctions on Iran.  It does not appear that President Trump is sufficiently aware of Xi’s motivations and goals.  How should the U.S. deal with this Initiative in your view?

Is Political Ideology Responsible for Detroit’s Woes?

Despite the attempts in last night’s GOP debate in Detroit to politicize Detroit’s problems, the history is quite diferent. Detroit’s decline was the result of business decisions going back to the 1950’s. A utomakers ignored threats on the horizon and continued business as usual. Japan climbed from the ashes partly by applying Edward Deming’s quality concepts. By the 1980’s, Detroit woke up, but its market share had already plummeted. During part of that time, Michigan had a solid conservative Governor, George Romney. Add to that the fact that Detroit never fully recovered from race riots following the assasination of Martin Luther King Jr. and the impact of Ralph Nader, who pointed out that some of the cars being produced were “not safe at any speed,” and it becomes clear that much more is at work than political ideology. This ideological obsession really keeps us in the dark as far as solving the problems American cities face. That’s my opinion. What do you think?

Financial Crisis in Illinois: Any Precedents?

With State of Illinois finances at a new level of dysfunction, I’m re-publishing this post from August of 2009. Unfortunately, not much has changed.

The current financial crisis in Illinois is multifaceted and obviously connected to national and international trends. Nonetheless, the state has faced at least one occasion where it had promised more than it could deliver financially.

The year was 1837. The nation was involved in a mania of internal improvements inspired by the huge success of New York’s Erie Canal. Illinois was no exception to this fever.
Led by the “Long Nine” (a group of very tall Illinois legislators including Abraham Lincoln), the state committed itself to a large vision of internal improvements. This included moving the capital to Springfield (more centrally located) along with building railroads and canals to be greatly subsidized by the state treasury.

There was only one small problem. The proposed expenditures would have run the state’s debt way up beyond the state’s ability to pay.
Sound familiar? We face a similar crisis now. The state’s obligations have expanded beyond the state’s current ability to pay.

The national panic of 1837 soon made it clear that the vision could not be fulfilled unless one of two things or took place. The state could raise revenue to pay for its plans or not carry through on the program of internal improvements. If the state carried through with all of its proposals, it would face bankruptcy (which did happen to other states).

Illinois faces the same kind of choice today that it faced in 1837. Then, the state’s leaders elected to not carry through on most of the internal improvements. The capital was moved. However, only one railroad was completed and it had to be auctioned off within a relatively short time at a huge loss. The Illinois and Michigan Canal was not completed until 1848 and never achieved the lofty goals set for it mainly because of the development of vastly improved transportation technology—the railroad. The state did avoid bankruptcy—barely.

Today, the state can either scale back its budgetary commitments or raise taxes or opt for some combination of both. There isn’t any other long term choice. What should the state do? I look forward to receiving your comments.