To remain a superpower, the US must become inclusive and generous — Gita Rao

MIT Sloan Senior Lecturer  Gita Rao

MIT Sloan Senior Lecturer Gita Rao

From Quartz 

In his new book, Superpower, Eurasia Group’s Ian Bremmer suggests three strategic options for America to remain a global superpower. But while many lawmakers appear to be taking his preferred option of an “Independent America” to heart, we believe it’s the wrong choice. In fact, Bremmer leaves out a fourth approach that we feel is the best strategy for America to win not only on the current global chessboard, but on the next one as well.

With the US reluctantly being drawn back into putting out fires in the Middle East, warily watching Russian aggression, facing a stop-and-start “Asia pivot,” and on the sidelines the Greek crisis unfolds or Chinese stock markets go through turmoil, reviewing these options is timely for President Obama; they may be even more important for his successor.

Bremmer outlines three alternatives:

Indispensable America: American values must be spread worldwide and the world’s gravest crises must ultimately be dealt with through predominant military power.

  1. Moneyball America: The US invests where its commercial interests lie and divests where there are no or diminishing commercial interests
  1. Independent America: The US applies its values and creativity to solving problems at home.

While Bremmer—and many lawmakers—have a preference for Independent America, we believe that approach would be the wrong choice in today’s world.

For one, adopting it means America would forgo playing a stewardship role in the regions where two-thirds of the future growth of the global economy will be, i.e. in the emerging markets. The U.S. is already lagging in these markets; its multinationals derive less than 10 percent of their revenues from the emerging markets, which generate 40% of the world’s output. In comparison, European companies get closer to that “true” 40% share.

Already, there have been serious concerns voiced across Asia—the single-most important economic region—about the US as an economic ally after the tortured approval process for fast-tracking the Trans Pacific Partnership. Geopolitically, the US is no longer considered the reliable go-to power; with political will for direct intervention waning at home, crises in Syria, Iraq and elsewhere have simply been allowed to fester and grow. In essence, Independent America would only increase America’s disengagement with globalization and global affairs.

Moreover, it is crucial to remember that the US is not making its choice in a vacuum. Others are on the move. China, in particular, has picked its own Moneyball strategy. The relatively rapid growth of outbound direct investment by China grew by 14% in 2014 to a record $102.9 billion; by 2016, investments by Chinese enterprises and the government overseas would surpass inbound investment, a trend further reinforced by the slowing of investment opportunities within China. In the absence of a deliberate strategy for greater participation in global markets, the US economy would fall even further behind and its political standing would suffer even more. America simply cannot afford to pick Independent over Moneyball.

Meanwhile, China’s Moneyball strategy makes emerging centers of global growth less economically dependent on the US. With China’s stewardship of the disruptive trends in development banking, most recently through the formation of the Asian Infrastructure Investment Bank and the New Silk Road initiative, its record of investing in sub-Saharan Africa and more recent moves to fund gigantic infrastructure development in Latin America, large parts of the developing world see less of a perceived need for a US role.

While the younger populations of the world embrace American culture, technology and soft power, they can always get these goodies delivered over the Internet or on their mobile phones. To them, the US is economically irrelevant and yet is a preserver of the geopolitical status quo. This, in turn, creates an incentive to defy and disrupt the status quo—and the U.S. is the incumbent to be defied and disrupted.

Meanwhile, the US cannot escape its 20th century legacy choice of being Indispensable America. Thanks to persistent threats posed by the forces of disruption primarily in the Middle East and episodic eruptions in other regions, such as in Ukraine, the US is trapped in the inevitable position of defender of a sticky status quo. Every turn of the political cycle within the US leads to calls to pull back its global geopolitical obligations and strive for Independent America, but external circumstances—whether it is the rise of ISIS or of Vladimir Putin’s aggressiveness or the increased frequency of cyber-attacks—pull the US back into its default Indispensable stance.

As our leaders attempt to find ways to break the cycle, we propose a fourth strategic option, with an eye towards winning the long-game:Inclusive America, centered around creating opportunities and creative problem-solving, both at home and abroad.

This “new” American superpower strategy would make it indispensable through its capital, innovations and business-building spirit and displace the military, aid and crisis missions as its prime levers.

US companies, its intellectual sector and its investors along with its public policy would all have roles to play in creating an Inclusive America.

US companies would have to get better at “going native.” They would do a better job of customizing products to local tastes, conditions, and usage contexts across the developing world. Four key principles can act as guides: appropriateness to the context, affordability, adaptability, and accessibility. This requires a departure from the norm of building businesses at scale based on standardized products and business models.

US investors lead the world in spotting and nurturing startups and in producing innovative technologies and products. American models inspire many emerging-market entrepreneurs. A concerted effort to facilitate funding and transfer of technology and expertise can help grow a global ecosystem of entrepreneurs.

US universities and companies are world leaders in developing human capital. A human capital shortage is a critical challenge across all the emerging markets. Whether it is through MOOCs and other online programs or by other innovative means U.S. institutions can serve as a powerful tool to help a larger proportion of the world’s population become productive and active citizens.

All of these initiatives would be complemented by public policy. The US is in prime position to set global standards for democratic institutions, transparency, the rule of law, and human rights. The US can be a counter-balance to autocratic regimes or countries that have an insufficient respect for the rule of law and just institutions.

Simultaneously it would be important for the U.S. to internationalize its own education and reform its immigration systems. Coming generations of Americans must prepare to engage with countries outside the Western hemisphere, speak their languages, understand their dreams and constraints. An Inclusive America would have more sensible and consistent policies for immigration—and in that process invite parts of these countries to become part of America itself.

Critics will say an Inclusive America will not pay off right away, that Moneyball brings in money much sooner or that bad actors abroad require American indispensability. But as the 21st century matures and its unique challenges deepen, Inclusive America as the long-tem strategy will trump both Moneyball America and Indispensable America. Also, it trumps Moneyball China.

View the full article at Quartz.

Gita R. Rao is a Senior Lecturer in Finance and Associate Faculty Director of the Master of Finance program at the MIT Sloan School of Management.

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