Sep 20, 2020

Home of the Brave is going to need courage

written by Lisa Eason

I have enjoyed an extended love affair with America since I first went there 40 years ago. It is not just the world’s richest and most powerful nation; in many respects, it is also the most free and friendly. But I am more fearful about its future than I have ever been.

This has been a terrible year for the entire West, thanks to the pandemic — and thanks to misguided government interventions, such as lockdowns, which have made the damage much worse. Somehow, the US seems to have suffered more turmoil than almost any other big country. This is partly because it has a highly dysfunctional healthcare system, and inevitably its weaknesses have been exposed by Covid-19.

In a way, the US was built as a civilisation of business. Free-market capitalism has always played a more dominant role in its culture than in any other nation. It is easy to forget just how commanding a lead America has enjoyed in business during much of the past century. For example, by 1950, it made 75% of the world’s vehicle output. Now, it is very seriously challenged by the rising economic might of China.

A new book called Lights Out, by Thomas Gryta and Ted Mann, describes the depressing decline of industrial titan General Electric. It doesn’t fill one with confidence about the future of American business. At its peak under chief executive Jack Welch 20 years ago, GE was the most valuable company in the world, capitalised at $600bn. It represented American industrial might, making jet engines, medical equipment, domestic appliances, lighting equipment, power turbines and myriad other products.

It was co-founded in 1892 by two business geniuses: inventor Thomas Edison and banker JP Morgan. General Electric was more than just a corporation — it was almost the only continuous member of the 30-stock Dow Jones Industrial Average from 1907; it employed hundreds of thousands; its stock was the bluest of blue chips; and its management alumni ran many of the US’s biggest firms. It was a cornerstone of commercial America.

After Welch left, he handed the reins to Jeff Immelt. The book places much of the blame for GE’s slump at his door. Immelt made various catastrophic acquisitions — in particular, Alstom for $13bn — and a series of deals costing a total of $14bn for oil and gas equipment suppliers. His timing with both strategies was dire.

The finance arm, GE Capital, was broken up under his watch after its weaknesses became apparent during the 2008-10 financial crisis. A $15bn liability emerged as a legacy from an insurance business sold years before. Immelt also spent more than $108bn buying back its shares at the wrong prices. Today, the stock is 90% lower than it was when Immelt took control.
America faces destructive forces from within and without. The land of the free and the home of the brave is undergoing a titanic struggle to decide whether it really believes in free enterprise and wealth creation, or whether it wants to embrace the big-government, high-welfare models that prevail in Europe.

Culture wars over identity politics, equality and values are threatening to tear the nation apart, and kill what has enabled its success. Meanwhile, China, which exported Covid-19 to the rest of the world, has emerged in better shape than almost any other significant economy.

I spent some weeks this summer looking at an investment prospect in the US but I withdrew after the riots in May and June, which hit 48 of the 50 largest cities across America. The arson and looting were truly shocking — and a stark reminder of the violent history and culture of America. Its prison system holds two million inmates, there are almost 400 million guns in the country, and its murder rate is four times higher than ours. This summer’s riots were partly about troubled race relations, but no doubt also reflected frustration over the pandemic lockdowns.
The looming November presidential election is a scary prospect. One is almost tempted to agree with Henry Kissinger’s verdict on the Iran-Iraq war of the 1980s, when he said: “It’s a pity both sides can’t lose.”

The political division is extreme, and appears to be getting worse. The contest between Donald Trump and Joe Biden is likely to be very close. The losing side is bound to be extremely unhappy — which could spell another bout of civil unrest.

One should never underestimate America’s powers of recovery, but its national debt is now $27 trillion and unemployment is at 10%. This year will truly test the resilience of its citizens.