The Comeback (2 page)

Of course this graciousness is the result of a government that is a bit less democratic than ours. I knew those two Chinese passengers would not have given up their seats if we were in America. And for this reason I accepted the Chinese government’s hospitality with a grain of salt.

But in 2008, things changed. For one, in April, Susan and I had a baby. Our healthy baby, Mark, was a delightful surprise, especially thrilling my wife’s parents. My wife was an only child, and her immigrant parents by then were not expecting any grandchildren. I had two adult children from a prior marriage, but this miracle child later in life challenged me to think about the future—in particular, I wondered what kind of future he would have, knowing I probably would not be around for most of his life.

In 2008, the American economy also spiraled downward as the reality of the sub-prime mortgage debacle unfolded. It not only began a series of events affecting millions of Americans and Wall Street, but, as I learned, it also affected the Chinese and how they viewed the United States.

At the July 2008 event, from the moment I arrived in Qingdao, I was responding to questions about the American economy from our hosts and the Chinese press. At each protocol meeting, I was pressed by the Chinese on the issue of American sub-prime mortgages. They
made it clear how unhappy they were with Americans, and they blamed our sub-prime mortgage problems on their reduced growth and sales. Clearly, they had ambitious growth goals, and jobs were on the line.

We had “protocol” meetings where I would sit in a big white chair next to an important Chinese government official or company executive. We would be separated by a coffee table with a huge bouquet of fragrant flowers, and behind us would sit two interpreters, one for each of us. Lined up in chairs by status and seniority on each side were our respective delegations, who had to feign interest as we talked in the time-consuming process of sequential English-to-Chinese and Chinese-to-English translations. Each meeting would begin with the sipping of the hot tea served by hostesses selected for the honor based on beauty and English proficiency. After the niceties, I would introduce our delegation, which included several American business executives interested in selling to or buying from the Chinese.

The final protocol meeting of the day was with a top Communist government leader. Although he was speaking Chinese, when I heard “sub-prime mortgage” I knew where he was heading. As protocol dictates, I listened intently. Despite my outward head-shaking and focus, inwardly I was constructing a different answer than I had been giving earlier. Previously I had responded to the sub-prime mortgage issue by saying that the American economy is the strongest in the world, that this is a minor blip and we will get through this and emerge stronger. I also insisted that the important thing is that trade between our two nations be bilateral. I raised issues of U.S. concern, including unbalanced trade, the environment, working conditions, piracy of intellectual property, restrictions on American exports to China, and the value of the Chinese currency.

But I decided to try a different approach in this final meeting. I told the Chinese government official I had good news. I turned to the American delegation and said that I understood his concerns
about sub-prime mortgages. I then informed him that not one American in our delegation had a sub-prime mortgage. You could tell by their heartfelt laughter which Chinese official understood English. That deflected the situation immediately, at least for the couple of hours before the opening banquet and my transformational interaction with the senior Communist Chinese official.

The banquet began with speeches and toasts, and I was seated next to the head of the entire province. This Communist official seemed particularly grumpy and, in an earlier protocol meeting, had berated me for the U.S. sub-prime problems. As he was the top Chinese official and I was the top American, we were seated in the center of the VIP table with interpreters seated behind us. The speeches had ended, the entertainers had not yet taken the stage, and a moment for conversation had begun. And that’s when it happened.

He turned to me and pointed his thumb up in the air. “China going up,” he said in English. I nodded.

He then turned his thumb down and moved his hand toward the floor. “U.S. going down,” he declared.

I was stunned. I did not immediately respond. I felt my blood boiling. In fact, I wanted to punch him.

I pulled my chair back, excused myself, and walked over to one of my board members, Henry Chiarelli, a wonderful Italian American and former Radio Shack executive. Henry calmed me down, and we shared some choice words about this repugnant idiot.

Every day since then, I have thought about that brief exchange. For a while, I chided myself for not having some immediate comeback. I could have responded by putting my thumb on the floor and showing China’s rise one inch and then standing on my chair and showing the United States going down one inch. Or I could have simply slugged him and suffered the consequences.

But a couple of weeks later in Chicago at a CEA meeting, Henry was kind enough to describe my actions to his board colleagues as
diplomacy under fire. That recognition—that I should not be angry at myself or even care what some coarse Communist official said— transformed my views. My anger over this Chinese insult transformed into a horrible conclusion. It is not that China was going up—that is a fact. Good for them.

Rather, it is the corollary fact: America
is
going down. The truth can hurt.

This appears so harsh in print. It is unfashionable to acknowledge and, some would argue, unpatriotic to declare the decline of one’s country. Politicians don’t get elected and business leaders don’t succeed and books don’t sell by declaring that America is faltering. Such a statement defies our culture of optimism and the sense of greatness that defines America.

But Americans are not stupid, and when presented with the facts, we can deal with them.

The fact of the decline is unmistakable. It stems from our choking debt and is exacerbated by government actions making the situation worse. The sub-prime mortgage debacle of 2008 was our clarion call.

I am as responsible as anyone. I knew about it. I certainly could have done more. I warned about it in our association magazine; I spoke about it when I gave speeches. In a 2007 meeting, I urged a Federal Trade Commissioner to focus on sub-prime mortgages when he summoned me to his office, concerned that Americans did not fully understand the transition to digital television.

Indeed, in 2007 and 2008, when consumer group and government leaders were concerned about the transition to digital television, I was consistent in raising the issue. I would say—even as head of the world’s largest consumer electronics trade association—that losing television service for a few days is of minor importance compared to the fact that millions of Americans would lose their homes because they did not understand the mortgage documents they had signed.

In retrospect, I should have shouted louder. After all, what is more important to the innovation industry than the overall health of the U.S. economy? Or, more crassly, we sell fewer new products and services to nations with struggling economies. And years later, our economy is still struggling from the impact of the sub-prime crisis. In retrospect, what issue was more important than the harsh impact of sub-prime mortgages on the U.S. economy?

I still keep wondering why I have heard not one person in any position of responsibility actually take responsibility. How is it that we faced an easily foreseeable crisis and no one is responsible? What about the executives who headed the mortgage lenders like Countrywide and Washington Mutual? Other than some minor civil fines, they are living nicely thanks to their ill-gotten gains. What about the political leaders who rejected Bush Administration pleas to reform the promiscuous lending entities? Some are still ensconced in Congress and congratulating themselves for passing the 2010 financial “reform” legislation.

What about the Clinton and Bush Administration regulators who did not do their jobs and review these schemes for fraud and ascertain that mortgage applications were being checked and verified? What of the consumer groups advocating for housing ownership by the poor and greater equality of income? They are still encouraging laws that put lower-class Americans in a precarious financial position.

What of the bond-rating agencies who packaged the sub-prime mortgages and rated them safe? Author Michael Lewis in
The Big Short
describes how these agencies relied on borrower credit scores and cleverly included lending to recent immigrants (with no bad credit history and thus high scores) to give high average scores and thus high ratings to sub-prime notes. Yet these agencies and their executives continue to prosper.

What of the investigative journalists who missed this obvious story?

Housing mortgages don’t have much to do with innovation. But the story from beginning to end, when it ends, revealed that our government is wildly ill-suited to manage our economy. Our government’s response to the sub-prime mortgage disaster underscores a blinding incompetence that is hard to fathom. The response was but the latest in a multitude of foolish mistakes that have crippled America’s number one brand: innovation. That Chinese Communist was correct. And unless we accept that, we will never return to our once-unconquerable heights.

My dream is to return to China in ten years and meet with him again. Behind me, I want a strong U.S. economy, building markets and expanding humanity’s technological progress. I want him to envy America, rather than look down his nose at us. I want to return to that Chinese man and extend my thumb, pointing upward.

Almost every week, I experience a tale of two cities as I travel from Washington, D.C., to Detroit to see my wife and toddler son. For Washington, it is the best of times. Today’s U.S. Department of Labor numbers show that the Washington area’s 6.4 percent unemployment is the lowest of any large area in the nation. Washington area home prices are up 9 percent.
¹

The Washington economy is supercharged by the inflow of new federal government spending and the legal and lobbying business generated by the government proposing and issuing new federal laws and regulations. Even the quiet missions of Washington trade associations are growing as the government rushes to legislate and regulate. Americans outside Washington are paying ever more to Washington-based experts to explain massive 2,000-page bills as well as multitudes of proposed rules.

More than 10,000 lobbyists are formally registered to lobby the federal government. Interest groups, including unions, businesses, and the AARP, reported spending $3.5 billion in 2009 to influence the federal government, and likely even more was spent in 2010.

American Bar Association statistics reveal that the number of “active, resident” lawyers in Washington, D.C., jumped from 46,689 in 2008 to 48,456 in 2009. This increase is the second highest in the nation, with only New York adding more lawyers. Washington, D.C. now has one lawyer for every twelve D.C. residents. This is more than ten times the rate of the next most-lawyered state, New York, which has one lawyer for every 127 citizens.

Why the large number and growth in lawyers and lobbyists? The Obama Administration and Congress have been legislating and regulating to a degree unparalleled in our lives. This fuels the Washington metropolitan area economy, making it the nation’s wealthiest area by almost every definition, even as the rest of the national economy struggles. And the Washington boom will continue as the federal government hires thousands of new employees to implement the mandates of the health-care and financial reform bills as well as many little-noticed new bills.

Forbes.com reports that six of the ten wealthiest counties in the nation surround Washington, D.C. Washington, that most unique of American cities, is ever growing, ever expanding.
²
It does not know recessions because it does not produce anything consumers can reject. You must purchase what Washington is selling. You pay for your required purchases with taxes, which feed Washington more than any other city in the country.

Indeed, it is the best of times for our nation’s capital.

For Detroit, it is the worst of times and has been for some time. Over the last fifty years, the city has lost more than half its population. Despite an influx of Washington stimulus cash, the 2010 Census shows that Detroit is still bleeding residents, losing over 1,700 people in 2009, second only to Cleveland.
³
As they say, people vote with their feet, and the flight from Detroit mirrors a larger national trend, with states like Michigan, New York, and Illinois suffering net population losses over the past ten years. People go where there’s opportunity, and there simply isn’t any in Detroit.

What a difference a couple of decades make. In my lifetime, albeit when I was young, Detroit represented the epitome of the American Dream. It was a destination city for entrepreneurs, innovators, executives, blue-collar workers, and thousands of poor African Americans fleeing the bigotry of the Jim Crow South. Now, the children of those dream-seekers can’t wait to leave.

As I leave the Detroit airport to see my family, the anecdotal evidence bears this out. The unprecedented number of “for sale” signs, abandoned buildings, and empty lots tell the story of Detroit’s vast decline. ABC News reported that, in March 2010, more than 33,000 Detroit homes were believed to be vacant.
⁴

Meanwhile, the economic numbers reveal a city struggling with high unemployment and a flaccid business environment. In the summer of 2010, Detroit’s unemployment rate was over 20 percent, twice as high as the national average. And even before the current economic downturn, Detroit led major metropolitan areas in unemployment trauma. Between 2000 and the first quarter of 2010, Detroit lost over 270,000 jobs, making it the worst out of 363 job markets measured by the U.S. Conference of Mayors.