Agile Economics and the Collapse of the USA

There is a popular software project management trend called "Agile". Agile is heavily focused on having an end goal, but getting there in small chunks, constantly reevaluating the end goal and responding rapidly to changing market conditions.

Older project management styles, often called "waterfall", tended to spend months or years of careful planning and evaluating what users need and then handing developers a huge document to work from. When the developers finally deliver, it may not work. If it does, it may reflect older business needs which are no longer relevant.

For some projects (space shuttle navigation software, for instance), the older style of software management can work because you have very clear, rigid, unchanging requirements. For developing a new piece of Web software, finding out that a competitor has just trumped your killer feature means that you have to have the flexibility to respond now. A 300 page design document which you must not deviate from simply doesn't work in the fast changing world of Web software development.

Agile and waterfall project management techniques are loosely analogous to capitalism and Soviet-style "command economies". Having a five year plan for grain production doesn't make much sense when you can't control the weather, crop diseases, poor access to cultivating materials, international market conditions, etc. You have to be able to respond rapidly to changes. This is the major reason why capitalism is so successful vis-a-vis command economies.

During the Cold War, the US spent a lot of money on its military to counter the Soviet threat. The Soviets returned the favor. Since the US was so strong economically, it's clear in retrospect that the Soviets were at a disadvantage economically. Ultimately, a variety of factors, including spending too much on their military, led to the collapse of the Soviet Union.

In thinking about this, I started wondering: can we learn from this or is it a historical curiosity? I think the US can and should learn from this because there is a very real possibility that we could, in effect, become the next Soviet Union.

There's been some talk recently about China opening military bases in Pakistan. What is often being ignored in these articles is that this is not a new development. In May 2001, China started talks with Pakistan about creating a deep sea port in Gwadar, a Pakistani province bordering Afghanistan and Iran. In short, China wants in on the game.

Superficially, while we might view this as a threat, we might also naïvely think that we can simply outspend the Chinese like we did the Soviets and disrupt the Chinese economy. China, I expect, would welcome this.

There are several problems with this approach. First, the Chinese are not nearly as belligerent as the USSR. Their relations with friendly states are generally better than the Soviets enjoyed. Second, the Chinese have nothing near the internal dissent that the Soviets had, thus allowing them to be more outward facing with less of a feeling of insecurity.

The third problem is the serious one. The former leader of the Chinese Communist party, Deng Xiaoping, stated:

There is no fundamental contradiction between socialism and a market economy. The problem is how to develop the productive forces more effectively. We used to have a planned economy, but our experience over the years has proved that having a totally planned economy hampers the development of the productive forces to a certain extent. If we combine a planned economy with a market economy, we shall be in a better position to liberate the productive forces and speed up economic growth.

China is clearly following this path today. Though there are some who sharply dissent on this view, even a quick search on Google reveals plenty of evidence that China is, in fact, embracing capitalism while still retaining many elements of socialism and maintaining a firm single party state and stifling dissent. They're like the Soviet Union, but with McDonalds. In short, while there are many areas the US strongly disagrees with China on, the reality is that China is developing a powerful, robust economy which lacks the fragility of the Soviet "command economy" model.

Americans who think we can outspend China are sadly mistaken. No matter who does the counting, China is rapidly becoming a world economic powerhouse and they're doing it with their own unique version of capitalism. The US, meanwhile, sees the US credit rating at risk due to financial industry collapse and runaway spending on military and health costs.

We've already seen the US financial industry collapse. Even the US Republicans admit that something must be done about runaway health care costs (their proposed solutions are simply more market-based than Democratic ones) and the cost of the Iraq and Afghanistan wars are acknowledged by all. The US simply doesn't have a lot of room to maneuver here. China, however, does.

China is rich and getting richer. Many countries see China's (relative) lack of military adventurism in a very positive light. China is defying conventional wisdom by investing heavily in Africa. The world is souring on US behavior. We've clearly lost the support of much of the Middle East.

So from a Chinese perspective, what would be a rational response? They don't have the inherent economic weakness of the Soviet Union. If they want to expand their military might and dare the US to keep up with them, it might very well be a winning strategy for them. Either the US struggles to keep up and is forced to divert funds to military expenditures which have questionable economic benefit (an argument bolstered by the benefits of Soviet military spending) or they retract their military presence and let the Chinese start contesting US world dominance.

The shoe's on the other foot. The US, presently, cannot afford to maintain its military position and China has a perfect opportunity to assert theirs. The US is in serious trouble right now and many countries want them to pull out of this mess as their futures are intertwined. If China wants to exploit this position, now is the time to do it. If they continue on this route, it's going to be to exploit the US's poor economic position. The US might revel in their economic defeat of the USSR, but the Chinese have done one better: they've learned from it.
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cogent analysis
Thanks for the thoughtful post.

I agree that China may "pull a Reagan" on the U.S. The current batch of conservatives in this country are stupid enough to take the bait while the liberals seem to be unable to govern. As you can see, I subscribe to American Declinism.

The U.S. got addicted to military adventurism in the late nineteenth. I don't know if it can kick that habit. Rome never did. The level of xenophobia here is nothing short of amazing. War produces huge profits for industrial and media forces. You'd think the whole country was full of poorly educated swamp-folk.

I do not know what the U.S. needs to do economically. Wall street coerces public companies into thinking only in quarterly results. This shortsighted planning cannot counter a well-planned and coordinated economy like China might have (again, let's not go overboard in thinking China has a monopoly of economic strategists).

Post the WWII American economy saw significant input from government sources (I'm thinking about the education system particularly here, but through in the interstate highway system and the Internet for Teabagger-baiting fun). These were largely successful in producing the industrial and technological juggernaut of the twentieth century.

I suppose if the U.S. depended only on me to fix the economy, I'd start with restoring the Glass-Steagall act that isolates banks from exotic financial vehicles. I'd launch a witchhunt on Wall Street to scare the living poo out of everyone there to make it clear that even the rumor of malfeasance will not be tolerated any longer. I'd ensure that the SEC is staffed with people that have finance degrees who can spot Ponzi schemes easily. I would heavily regulate Credit Default Swaps so that all such agreements must be public and forbid third parties without a "dog in the race" from participating in them. That is, CDS would be treated as insurance only, not a gambling vehicle.

These are short-term tactical fixes for the economy, but there is a larger and harder question to answer: on what is the U.S. economy to be based? We have moved from an industrial economy to a service-oriented one, but is that sustainable? We are on the very bleeding edge of economic evolution. No other examples of this transition come to mind.

It is fair to ask: was this transition fundamentally a bad idea? No one questions the utility and power of information processing, but it is really a replacement for manufacturing? Do a million web pages contribute to the national economy more than one car?

If you agree that money is a valuation of time (and skill, opportunity and labor), then we can ask if the U.S. is spending its time creating information that the world values. I think that the answer is probably "no." That's not to say that what the U.S. produces isn't valuable, but that there isn't a sufficiently large enough market of other information product consumers current available. There is still a tremendous market for low-tech stuff and China is exploiting that ably.

(Afterthought: It could well be that the American economy is tied to cheap and ubiquitous electrical power. In a world that, in the main, ties electrical power generation to oil, there will never be another market for the kinds of information products the U.S. is currently producing. The reign of oil is nearly over and no clear successor has yet emerged.)
Re: cogent analysis
I do not know what the U.S. needs to do economically. Wall street coerces public companies into thinking only in quarterly results. This shortsighted planning cannot counter a well-planned and coordinated economy like China might have (again, let's not go overboard in thinking China has a monopoly of economic strategists).

China has no need of brilliant economic strategy here. First, I can't see the US getting over its ideological "slogans, not actions" attitude any time soon. This means that no real progress is likely to be made (I hope I'm wrong). Second, there's an old saying in chess that applies here: "the player with the bad plan will beat the player with no plan." In short, even if your plan is not the best, if you follow it coherently and doggedly, you can achieve results. China can do this due to their political structure. The US can sort of of do this since there's very little difference between Democrats and Republicans (though most Americans seem oblivious to this), but I'm not sure that they will because the US is in such deep trouble that the major parties must work closely together to pull out. I don't see that happening. Still, even if America finds and adopts a coherent, financially responsible way of addressing their current crisis, it may be too late.

As for the US transitioning to an information economy, I think that would make some sense if the US had a better information security policy. As it stands, it's a fragile market for the US. Still, the diversification of US enterprise is good for the US. As markets shift, they have more to fall back on. It's the deregulation of enterprise which concerns me (and you too, as I see).