Honeywell CEO: How America can compete with China by David Cote @FortuneMagazine June 2, 2014, 5:50 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons During the mid 1800’s, we eclipsed the UK economically because of population growth and dynamism. We encouraged business, a strong working ethic, and innovation (some stolen from the UK). During this century, China may eclipse the US as the world’s biggest economy. While some might point to the unsustainability of China’s political system, it is very different than it was 50 years ago or 20 years ago. China may have more issues to deal with (corruption, wealth disparity, state owned enterprises, pollution, and ghost cities to name a few), but they have shown tremendous capability to evolve their system and address their issues. We are standing still. This is not a case of is China “good” or is China “bad,” rather it’s a case of China “is.” At current growth rates, in about 25 years China will be the world’s largest economy and will still have a lower GDP per capita, meaning more growth is possible. This is not to say China’s growth will continue uninterrupted. Something could go awry. It also doesn’t mean we should stop objecting to issues like cyber security, territorial disputes and intellectual property issues. We need to accomplish two goals. The first is to develop a strong commercial relationship with China similar to what we’ve been able to do with the UK in the 200 years since we last fought them in a war and the 150 years since we worked to keep them neutral during the U.S. Civil War. It’s never easy. The second (which supports the first) is to have our own American competitiveness agenda. Economic size represents population times productivity (defined as GDP per capita). We will never have more people than China so we need to focus on always being the most innovative and productive country on Earth. There is an Economic Olympics going on now and we can’t just focus on beating the other Americans on our team. We need Republicans and Democrats working together. There is truth to arguments on both sides of each issue. We need to find that common ground and act. Government doesn’t just regulate business, it enables it. Business is the source of productivity and our standard of living. We have a lot of strengths to build upon. Good, smart regulation is important to set minimum standards and enabling is important to foster that dynamism essential to a growing economy that provides the jobs and opportunities we all want to see. There are eight areas the U.S.government should enable now. First is resolving our debt. We can’t successfully compete with a bad balance sheet. We have a bad balance sheet that is getting worse, not better. The estimates don’t forecast any recessions, which will of course make them worse. Using current forecasts, at about the same time China’s GDP eclipses the U.S., our debt will exceed 100% of our GDP. Is that the legacy we want to leave our kids and grandkids? Second is rebuilding our crumbling infrastructure. Third is more math and science education at all levels. We need more engineers, not more lawyers and financial engineers. Fourth is immigration reform. Fifth is tort reform. The tort system is important to address social inequities, but it also needs to be fair to the companies that provide investment and jobs. Sixth is a well-funded, patent system with faster acknowledgment of patents and resolution of disputes. Seventh is an energy policy that encourages efficiency and production of more energy (traditional and economically viable renewables). Eighth is Free and Fair Trade. The President needs Trade Promotion Authority (TPA) to foster trade agreements that support U.S. jobs. Trade agreements are unlikely to move forward without it, and both opponents and proponents of trade know that. About 75% of world GDP and 95% of the world’s population are outside the US. Trading nations have benefitted for centuries. Composition of world GDP is changing significantly and we need to position our country to benefit. Twenty years ago the U.S. was 27% of world GDP; in 2010 it was 26%; and by 2030, it will be 24% according to Global Insight. Other developed countries were 50% in 1990, 41% in 2010, and will be 29% by 2030. Developing countries (in large part led by China) have grown from 23% in 1990 to 33% in 2010 and will be 47% by 2030. In other words, developing economies will be about half of world GDP in 20 years. We have to be in there forging relationship now. The choice is simple … and stark. Are we so focused on our entitlements and our arguments that we’ve forgotten what made us great – that is, hard work, math and science, technical skills, a dynamic economy, a sense of purpose, relying on ourselves and not blaming others, taking personal ownership of our future, and being able to individually act in our self interest while not forgetting our collective purpose. Some people in the world, and some countries even, believe our time has passed. That a once great economic and military power has taken the first steps on the path to decline; that we cannot resolve our internal differences to make the difficult choices needed as a society; that having achieved greatness, we’ve forgotten what got us here … and can no longer act. I do believe our form of government is the best there is. It has proven over 200 years to be the most sustainable and responsive to change, appealing to the basic need for freedom and inclusion that resides in every person. We must never forget though, that the long-term stability of our system and our belief in the enduring strength of our system cannot be an excuse to not act when confronted by great changes in the world. We shouldn’t wait for the crisis to focus on our collective purpose. We need to start acting now. We need government that pulls together, rather than one that pullsapart. David Cote is chairman and CEO of Honeywell.