The new American age

What comes to mind when thinking of ancient civilizations? Yes, that’s right. It’s the Romans or classical Greece with its many city-states. But what was ancient to the old Romans? What do they see when they look far back? 

The fall of Nineveh ended the Assyrian domination of the Middle East. This was to Julius Caesar like the fall of Constantinople is to us. The lands of Sumer are what ancient history is to us to those people. Or the great pyramids?

Civilization started in Egypt and Sumer more than 6000 years ago. But if you look at the place today, you see eternal warfare, dictatorships, and constant strife. Hard to believe that this was the cradle of civilization.

When one ancient culture eclipsed others, it often took hundreds of years to do so. And there were quite some stumbles on the way. In our nanosecond times, we don’t have the patience for slow but steady developments. Yet, those gradual but inescapable developments have not disappeared. They still do their work. In stealth mode, beneath the surface of bluster and politics. 

In the old times, asymmetric advantages made one city, one state, and one ruler eclipse all others. Most big empires fell because living big made them fat and weak. They always started with their innovative spirits sharp.  But the good life has brought down even the hardest men. 

Steely, wild-eyed, innovative nomads became well-fed and well-entertained city dwellers. Until new, innovative, hard people came and replaced those that have grown fat and lazy.

We can see this cycle repeat in recent history. The almighty British Empire was reduced to a small nation-state. Their former subject, the US, holds sway over the globe today. It was the lean colonists that overpowered the red-coated colossus. Some are quick to predict that the age of US hegemony is itself coming to an end. They say that China will eclipse it as the dominant power.

The established power often retains a fundamental lead over its peers. In ancient history, this was often due to organizational innovation. Yet. the US stages a very different sort of comeback – or let’s call it rejuvenation cycle. It rediscovers its entrepreneurial roots. By doing so it kicks the greatest energy revolution of recent history into overdrive. 

For decades, the Western world has suffered from the scourge of de-industrialization. All the manufacturing went to countries with much lower wages. Less stringent social protections and laxer environmental rules added fuel to the fire. Many thought that we would be able to replace the blue collars with white collars. So we pushed IT, financial wizardry, and the service sector as a whole in our mature economies. 

But we were wrong. Countries that shed their industrial base put their economic fortunes in other people’s hands. And the jobs that go with it.

We need our industries back. But that’s easier said than done. Many new industrializing countries still enjoy hefty wage advantages. They also offer very generous incentives to get the money flowing. Never mind that many of those same incentives start to disappear once the investment is safe.

But this is also the Achilles heel of those developing countries. They need to sell out people and country to attract money. Money that they will feed into their administrative overheads and military machines. Organizations that are not known for efficiency and transparency. The populations keep going along as long as the promise of a better life, later on, is believable.

They all intend to transform into a consumer economy. Yet, they are not ready to go for the real deep and painful reforms such a development would entail. 

Reforms that the United States has started implementing with the American Revolution. That was more than 200 years ago. It has hardened Americans through endless cycles of legislative innovation and social strife. Add in the judicial probing applied to every nook and cranny that opens up in such an environment. 

Principles such as the absolute protection of life, and liberty. The freedom to pursue one’s destiny and happiness. The guarantee that your property will encounter respect and protection. And above all the supremacy of the individual before the state. 

OK, you will tell me now that those principles have suffered a lot in the US as well – and they have. But they have also evolved and their spirit is unblunted. Show me anything that comes close to the protections that the US affords its citizens in one of the “fast-growth” nations. They attract investment by enslaving their people and destroying their environment. All while exploiting every international agreement for what it’s worth. Pretty much always so in bad faith.

This means that in the end, they all run into a dilemma. Either they become much more like the reviled Western world or their growth stories come to an end.

But look at China for the last 30 years. It’s easy to think that US economic and cultural dominance has come to an end. And that on top, there is a new dogma that will drive our economies. The truth is – it all hinges on the capacity of consuming economies to gobble up all the cheap stuff. The stuff that’s cranked out by the new superstar economies.

In the end, the market is the sole determinant. The market won’t care a bit where anything it consumes comes from. Be it a “rapid-growth” economy or any other place.

Could this other place even be the US? With its high wages and its stringent rules on environmental protection, it does not look like an obvious choice.

Yet:

Wages go up in many rapid-growth economies. Those countries also started to find out that blowing everything into the air and the water has a cost that might not be suitable for them in the long run.

So, the relative cost base in rapid-growth countries goes up. Add the cost of corruption. Don’t forget all the other things such as a biased justice system. And very poor protection for foreign investors. This cost base starts to look unattractive. High energy cost makes fizzy the bottle pop.

We see the cost advantage of rapid-growth countries evaporate. All the while, the competitive position of the US starts to improve by leaps and bounds. Shale oil and gas gave the US a cheap and reliable energy source. Natural Gas seems to flow out of their ears. And it has been so dirt cheap for so long that even the craziest business models seem to make sense today. If only energy cost is an important factor.

Is your production business very energy-intensive? Does it not depend on ultra-cheap manpower? You might want to consider relocating back to the US. But wait, even the manpower part takes care of itself. More sophisticated robotization cuts the edge of high salary costs. Companies in rapid-growth countries have little incentive to use robots. Their manpower is cheap.

If this is what you need, you deal with the transport cost. Oh yes, add the cost of operating in an uncertain legal environment. Don’t forget the cost of technology transfer. There is also the cost of industrial espionage. How about the cost of corruption? Tell me where the end of the long tail is.

When those costs go above a certain threshold, you will think again. Is your business in the tension field between energy cost and wages? Lower energy costs on one side and an unattractive cost stack abroad on the other might seal the deal for you.

Add in:

• mounting nationalism in some rapidly growing countries;
• the resulting legal and commercial instability;
•  and of course tariffs and sanctions;

and you have a brew that does not look that healthy anymore for many companies. 

Do you produce in a rapid growth economy for the US market? What happens in your sales market rather than in their place of production will always have a bigger impact on you. Production can move, if the market fails you, you are toast. That’s an incentive to move back where the customers are.

But it goes much further. Cheap shale gas will lead to a mobility revolution. More transport companies will switch to Natural Gas (LNG and CNG) as a fuel for their transport needs. This allows them to brush up on their green credentials. NG has made its proofs in operations over the years. And gas fueling infrastructural bottlenecks are being dealt with.

This also drives an enormous equipment market and spurs innovation. When the market grows, companies will jump on the opportunity. They produce new vehicles, engines, and equipment for the value chain. Don’t forget that there will be plenty of new business models and operational modes. Some of them will prove to be nothing short of revolutionary.

There will be lots of trying, lots of failing but also lots of learning. It mimics the shale experience. US companies will rise to the challenge and spawn a unique skill set. This expertise and this uniqueness will be worth more than the value of the commodity today. Because one day, the rest of the world will wake up to the advantages of a methane-based economy. 

The US might well be the first real Methanopolis. This is a metaphorical country that has adopted methane gas as its core energy carrier. This society then develops the next generation of urban technology and logistics. 

The USA is not an empire in a classical sense. It’s a covenant of and for the people. It’s designed to evolve and to self-correct whenever evolution carries it too far. 

Without knowing it, the roughnecks in the shale fields have used the tools the founding fathers have bestowed upon the country. They made American drilling great again. In turn, they have sowed the seeds for the next cycle of American excellence. 

It’s a new iteration of the industrial economy. And it’s this that makes it a role model others will seek to emulate once more.