Global Leadership

“It is absolutely essential and imperative that the United States of America take the responsibility to lead the world to free enterprise and adhere to the principles of our foreign policy mandate which is: due process, rule of law, free and independent courts, freedom of press, and transparency.”

Recently China announced its intention to launch the Asian Infrastructure Investment Bank (AIIB) as a new Asian development bank. This bank will perform many of the same services provided by the current World Bank and International Monetary Fund (IMF). The United States opposed the establishment of this bank. In spite of U.S. opposition, 46 nations joined as prospective founding members including Brazil, France, Germany and Great Britain. What’s going on?

In 2010, Congress passed the Dodd-Frank bill, a piece of legislation designed to regulate banks for the proposed purpose of consumer protection. What in fact it has done is to increase the cost of banking in the United States to the point that it is difficult for specific foreign banks to compete in a U.S. marketplace. Further, the Obama administration has attempted to extend Dodd-Frank U.S. banking regulatory authority to foreign chartered banks. Many foreign banks cannot comply with the regulatory requirements imposed by Dodd-Frank.

China is not our enemy, but they are not necessarily our friend. Let me explain. China is still a communist country attempting to co-exist in a free enterprise capitalist world. Deng Xiaoping in the 1970s made the decision that communism did not work economically, but that it was still a viable form of government for the rule of society. Then China was not part of the world’s banking system, nor were they part of the World Trade Organization. Deng decided to implement three economic imperatives. First, establish a currency that, on the world market, allowed for a peasant family to buy the basic food staple (in this situation, rice) at the same price as the world price. He tied the Yuan to the Taiwan dollar. Second, establish a federal banking system wherein money could be wired in and out of China for investment and other purposes. Third, reestablish the Shanghai Stock Exchange as a medium of liquidity. The world didn’t know until the 1990s that China had made this decision. It took them 15 years to implement the three conditions. The Soviet Union made different decisions that turned out to be fatal. They relied upon their gold reserves, implemented no reforms, depleted their resources, and the union failed. It is important to note that the Soviet Union was based upon an expansionist philosophy and required ongoing infrastructure costs not present in China. China historically has been inward looking. The Great Wall was built to keep foreigners out.

What I will call the Deng Policy has worked to a certain extent. However, there is one critical flaw in their system that, in my opinion, cannot be sustained. They tax from the top down rather than from the bottom up. The Politburo still meets today and sets a federal budget. The budget is divided up and shared by the provinces pursuant to a ratio calculation. These provinces roughly mirror the boundaries and authority of the old war lord system. Each regional leader has a goal of annual payments to the federal government, like a lease payment. This is a classic communist command model. What they should be doing is allowing for free enterprise to create products, services and jobs at the local level. As profits are generated, taxes render cash flow on those profits. If the economy fails to meet the expectations of the budget, money is then borrowed by the federal government through the issuance of treasury bills. In the Chinese system, the provinces are left to their own means to collect revenue at the local level to meet their payments. When everything is state-owned, corruption then enters into the equation to determine who gets to make what money for what purpose in partnership with the state to meet the state’s needs. There is little or no transparency.

Free enterprise and individuals making personal decisions will always determine with greater efficiency what the marketplace desires. A group of individuals meeting behind closed doors will always miss the mark on what the marketplace wants.

The Chinese federal government is trying to survive in a free enterprise world by holding on to the communist illusion that society can be controlled through a five-year plan of goals and objectives. Russia, on the other hand, does directly compete with the United States for leadership. As a culture, Russia is philosophically opposed to the United States on principles of individual liberty. Neither China nor Russia can comply with the reporting and disclosure requirements of Dodd-Frank. Therefore, they resort to establishing a non-Western banking system based upon their own government dictates.

By implementing Dodd-Frank, the United States has forced the world’s banking system into three categories: 1. the European system of managed progressive socialism; 2. the Asian communistic, imperialistic system of government dictated goals; and 3. The U.S.-Western free enterprise system burdened with over regulation and control. These three systems are incompatible with each other and cannot ultimately co-exist.  As the three systems struggle for survival and superiority, currencies will be impacted, trade will be jeopardized, and liquidity of investment will be obfuscated.

None of these systems are correct in their philosophical projections. It has been a stated purpose of the Obama administration to limit or even eliminate small local banks in the United States. This administration has adopted the concept of the Canadian system. That is a system of a few large banks, regulated in partnership with the U.S. government, for the purpose of providing loans and capital for individuals and businesses in the United States. This is in opposition to the principle of free enterprise and will ultimately devastate local communities. Further, the United States is providing no global financial leadership for the sovereign nations of the world in reference to a world banking and financial system in which all nations can participate. Great Britain joined the Chinese as a prospective founding member of the AIIB to maintain a business connection because of the uncertainty resulting in lack of leadership from the United States.

The Chinese effort to establish a world bank to facilitate their management of a communist system will not work in the long run. Free enterprise will always win in competition with a communist system. Communism rations freedom. Free enterprise relies on unfettered freedom.

It is absolutely essential and imperative that the United States of America take the responsibility to lead the world to free enterprise and adhere to the principles of our foreign policy mandate which is: due process, rule of law, free and independent courts, freedom of press, and transparency. The communist system cannot adhere to any of these principles. The Deng policy on economics may have worked in the short run, but it will not work in the long run. And communism is not the best system for the governance of society.

The United States should base its economic and foreign policy protocol on principles. Policy should be determined through the prism of those principles. Politics should be addressed through the communication of principles and policy to the American public so that each citizen will understand the short and long term objectives of the United States of America and our desire for the prosperity and freedom of all individuals in the world.

My name is Marc Nuttle and this is what I believe.

What do you believe?