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Big Government Prevents Recovery

There is a consensus among bankers in China that Chinese CEO’s are more cautious than their western peers.  Many Chinese CEO’s seem reluctant to embrace new ventures, take chances, and encourage innovation.  Despite efforts by the Chinese government to develop an innovative economy, progress has been slow as business leaders are reluctant to take risks necessary to take full advantage of China’s vibrant market.

It’s no mystery why older Chinese CEO’s move carefully.  The first generation of them lived through the turmoil of the post WWII period.  At that time, the rule of law was non-existent, and a strong central government carried out its will arbitrarily.   

Fast forward to present day where China’s government has stabilized the economy and unleashed the capitalist spirit.  Since Deng Xiaoping’s reform began in 1978, China’s GDP has grown at an average rate of 9.3 percent, thanks in part to relatively steady and incremental government policies which above all favor stability. 

The older Chinese CEO’s still have their concerns.  At worst, they fear a return to the volatility of the past.  At best, they fear even the current government could, with a single regulation, wipe out their hard-fought gains.  And so they embrace caution, believing that once they have carved a safe haven for their fortunes, there is no need to invest in unnecessary risks. 

Sadly, in the U.S. an overactive central government has given rise to the same concerns.  As policymakers try to determine why the stimulus has failed to revive the economy, some are wondering why—given the reported reserves of cash in the nation’s companies—CEO’s are not using their resources to pull the economy back.  Why aren’t they investing and putting people back to work?  Fareed Zakaria wonders the same thing.

So why are (businesses) reluctant (to invest), despite having mounds of cash lying around? I put this question to a series of business leaders, all of whom were expansive on the topic yet did not want to be quoted by name, for fear of offending people in Washington.

Economic uncertainty was the primary cause of their caution. "We've just been through a tsunami and that produces caution," one told me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes. Some have even begun to speak out publicly . . .

One CEO told me, "Almost every agency we deal with has announced some expansion of its authority, which naturally makes me concerned about what's in store for us for the future." Another pointed out that between the health-care bill, financial reform and possibly cap-and-trade, his company had lawyers working day and night to figure out the implications of all these new regulations . . .

Despite Democratic assertions, government meddling does not produce jobs.  Government may borrow from our grandchildren to install temporary positions, but only the private sector can produce the wealth needed for real jobs and a sustainable recovery. 

Only when the wealthy (that’s right, the evil rich) come to believe the market is stable will the economy recover.  Unfortunately, only Obama can put their minds at ease and the great interventionist-in-chief has shown no sign of pulling back on his Big Government agenda.   Until he does—or the voters force him to—expect the economy to fall even farther.