People's Daily thinks China should follow in Pittsburgh's footsteps

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This article in People's Daily, the largest and most authoritative offical newspaper in China, was published Dec. 23 under the headline, "America Moving Forward: Crisis Compelled Transformation." It is mentioned in today's Forum article by Pittsburgh-based China consultant and scholar Louis Schwartz entitled "What China is learning from Pittsburgh."

In this century, the United States has experienced at least two relatively large-scale crisis’s involving production over-capacity.

The first instance, which was at the beginning of this century and principally centered on such high technology industries as computers and electronic equipment, was brought about by the bursting of the Internet bubble, and ultimately was alleviated through enterprise bankruptcy, consolidation and reorganization. The second instance was after 2008 and this was caused by a rare international financial crisis, with excess capacity occurring in a large swath of U.S. industry. U.S. industrial production and capacity utilization statistics issued by the U.S. Federal Reserve reveal that, in 2009, the U.S.’s capacity utilization rate dropped to 66.9% and though recovering to 78.1% by October of last year, still was lower than the historical average----from 1972-2012, of 80.2%.

U.S. capacity oversupply not only has occurred in the industrial sector, it also occurs in agriculture and in the service industry. For example, capacity oversupply in America’s domestic pig breeding and pork processing industries was an important reason for Smithfield Foods to “sell itself” to the Shuanghui Group. At present, excess capacity in the lodging industry also is a topic of discussion among Americans.

At the same time, over-capacity also exists in some new industries. For example, that America’s Lithium Ion battery industry also is facing oversupply, owes to a “contribution” from the Obama Administration. According to reports, in September 2009, while personally attending the opening ceremonies for the Detroit factory of battery manufacturer A123 Systems, Inc., President Obama declared that this factory “represented the birth of an entire new industry in America”. At the time, this company obtained $249.1 million in financial assistance from the Federal government. Two years later, however, A123 Systems, Inc. applied for bankruptcy protection, and some of its assets were purchased by the Wanxiang Group. The reason for A123 Systems’ demise lies in the Obama Administration and American industry -- having overestimated the prospects for the use of Lithium Ion batteries in electric vehicles and plug-in electric hybrid vehicles---engineering a new industry through non-market means, which resulted in severe capacity excesses, and in turn, resulted in enterprises either entering bankruptcy or struggling to.

When facing the problem of excess capacity, America, which advocates for a free market economy, principally undertook market mechanisms to make adjustments and through enterprise bankruptcy and reorganization absorbed excess capacity or scrapped outdated technology, but also did not reject utilizing administrative control, taxation and other such measures involving government intervention, from expanding domestic demand to export trade, industry transformation and other paths to consume or export excess capacity. America possesses a vibrant science and technology innovation system.

Technology innovation plays an important role in giving impetus to American industry’s transformation and development and the substitution of advanced capacity for outdated capacity. Pittsburgh Pennsylvania very much epitomizes this phenomenon.

As of the end of WWII, Pittsburgh was the world’s largest steel making center. After the 1970’s, however, the rise of steel industries in Japan, South Korea and other countries, where cost of production was lower than in the U.S., gradually eroded Pittsburgh’s steel industry. This steel city fell into crisis with enterprises going into bankruptcy and residents steadily leaving the region. In 1985, Pittsburgh’s city government and civic organizations, the University of Pittsburgh and Carnegie-Mellon University together formulated the “Strategy 21: Pittsburgh Economic Development Strategy”. This strategy identified four major objectives. First, strengthen the region’s traditional foundation as a metals industry center and corporate headquarters; Second, deploy land, infrastructure and manpower, which had yet to be effectively utilized, for new uses, particularly in the realm of advanced technology; Third, improve the region’s quality of life so as to attract residents and develop a tourism industry; and Fourth, provide more opportunities for women, minorities and the structurally unemployed.

“Universities and Research and Development are the core of Pittsburgh’s transformation” pointed out a local news organization in summing up Pittsburgh’s experience in transforming itself, and to a large extent the success of Pittsburgh’s transformation is attributed to the investment of tens of billions of dollars by Pittsburgh’s universities, foundations and by the Federal government, to pursue technology.

When interviewed by this reporter, Louis Schwartz, President of China Strategies, LLC and Pittsburgh energy expert, said that Pittsburgh began its transformation beginning in the 1970’s and 1980’s and over 30 years gradually transformed itself from a highly polluted “Steel Town” into a “New Pittsburgh” with health care, high technology, energy and education as its pillar industries. Pittsburgh’s successful transformation is a model for other American cities with traditional manufacturing industries and also is an example, which China can reference for its own industrial transformation and development.

English translation provided by Louis Schwartz

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