Where Have All the Leaders Gone?

by Lee Iacocca

  In recent years, as money has flowed into China, the cash grab has become more feverish. So much for the evils of capitalism! A business associate recently visited China. He told me upon his return, “So much has changed, but one thing hasn’t changed—the corruption.”

  A lot of people dismiss China’s competitive edge as being all about cheap labor. But there’s a lot more to it than that. As New York Times columnist Thomas L. Friedman put it in The World Is Flat, “The biggest mistake any business can make when it comes to China is thinking that it is winning only on wages and not improving quality and productivity.” It’s something to ponder. Wouldn’t we be stunned if China started paying its workers American-style wages, and companies still wanted to do business there?

  And we can’t afford to take our eyes off India. Not too long ago, India was known for its poverty. But today India has become one of the fastest-growing economies in the world. This is in large part due to its dominance in the high technology fields. (If you think Americans are too cell-phone crazy, try walking down a city street in India. Everyone is plugged in all the time.)

  A great key to India’s emerging economy is its rapidly expanding middle class. While the American middle class struggles to stay solvent, India’s has more than tripled in the last twenty years to 250 million—almost the size of the U.S. population.

  LET’S ACT IN OUR OWN SELF-INTEREST, FOR A CHANGE

  There’s only one way to shift the trade balance. The United States has to begin to act in its own self-interest.

  Some years ago, I got a lesson in the rules of self-interest from Dr. Tomito Kubo, the chairman of Mitsubishi Motors. Mitsubishi’s headquarters and main factory are located in the beautiful Japanese shrine city of Kyoto. It always struck me as an odd place to put a factory. I once asked Dr. Kubo why Mitsubishi had selected such a lovely setting for its manufacturing center.

  Dr. Kubo told me that the Kyoto factory had started out as Japan’s major aircraft plant during World War II. It’s where they built the engines for their vaunted Zero Fighter planes. Why there, in the midst of the shrines and gardens? Because Franklin and Eleanor Roosevelt had once visited the city while on vacation, and when the war began, President Roosevelt gave orders that Kyoto was never to be bombed.

  Dr. Kubo told me, “We in Japan look out for our self-interest. What I don’t understand is why your country doesn’t always do the same.”

  Kubo was right. Self-interest is a concept we have some trouble with. It sounds so unfriendly. But I believe every country has an obligation to put its self-interest first. On a global scale that means devising a world trade system that strikes a balance between the two extremes of free trade and protectionism.

  The way free trade operates today, it’s a “win-lose” situation, and the loser is the United States. That’s just nuts. There’s no excuse for it. International trade is nothing more than a business deal, and every good business deal I’ve ever been involved in has been “win-win.” The other guy comes away feeling as good as I do, or we simply don’t do business together for very long. It’s got to be in my self-interest, or I won’t play; it’s got to be in his self-interest or he won’t play. The ultimate example of win-win for me was the time the financier Kirk Kerkorian called me, crowing about a deal he’d made with the developer Steve Wynn. “I bought out your friend Steve today,” he said happily. “I never thought Steve would sell so low.” A couple of days later, Steve Wynn called me, bursting with satisfaction. “I never dreamed your friend Kirk would pay so much,” he gloated. Each of them thought they’d really scored on the other. These two visionaries, who essentially built Las Vegas, were able to make a deal and both come away satisfied. That’s win-win.

  WHERE’S THE LEADERSHIP ON TRADE?

  The Bush administration has got to stop being so cavalier about the trade imbalance. Aren’t we holding a big trump card here? Think about it. The United States is the world’s shopping mall—a giant bazaar where the world sells its goods. This doesn’t benefit us, and in the long run it doesn’t benefit our trading partners, either. The United States can’t tolerate the sky-high levels of public and private debt the trade imbalance brings. The bubble will burst, and when it does those countries that have relied almost entirely on the American market for their profits will be in serious trouble.

  Sometimes I wonder, do we deliberately choose some of the weakest, most submissive people to be our trade negotiators? Because it’s hard to understand why our trade negotiators can’t talk tough. Don’t they realize that the very countries with which we have the highest trade deficits are the ones that need our market the most? What would happen if Japan or China or Korea couldn’t sell their products in America?

  I once asked that question in a speech I gave to the American Chamber of Commerce in Tokyo. I said if Japan was protectionist, it was protecting the wrong market. It was protecting its market in Japan when it should be protecting its market in America.

  I got a lot of publicity for that speech, and even the Japanese seemed to take me seriously for once. But nothing changed. Why? Because we didn’t demand it. If I were in charge of trade policy, I’d propose that we begin to work on freezing the trade deficit. I’d tell the nations that have been gorging at our table for all these years that they have to come up with policies in their own countries to level the playing field. What do you think would happen? Well, as I said, we hold the biggest trump card of all—the American market. Don’t you think it’s time to play it?

  X

  Don’t fence me in…or out

  Whether you’re talking domestic policy or foreign policy, the context for everything we do is global. I think we’ve got to approach that reality with a little humility. My father used to say, “Lee, you’re the head of a big, worldwide corporation. I’ll bet you’ve met a million people. Well, that leaves billions of people you haven’t met. So, keep an open mind. It’s a big universe out there.” My father didn’t live to see the incredible explosion of global interdependence that has occurred in the past twenty years, but I think his advice would have been the same.

  My friend, former astronaut Buzz Aldrin, who knows something about globalization because he’s one of the few people who has seen the whole globe from the moon, sent me this piece that he said was making the rounds on the Internet. It makes the point—vividly:

  Question: What is the truest definition of Globalization?

  Answer: Princess Diana’s death.

  Question: How come?

  Answer: An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car with a Dutch engine, driven by a Belgian who was drunk on Scotch whiskey, followed closely by Italian Paparazzi, on Japanese motorcycles, treated by an American doctor, using Brazilian medicines. This is posted by an American, using Bill Gates’ technology, and you’re probably reading this on a computer that uses Taiwanese chips and a Korean monitor, assembled by Bangladeshi workers in a Singapore plant, transported by Indian lorry-drivers, hijacked by Indonesians, unloaded by Sicilian longshoremen, and trucked to you by Mexican illegals. That, my friend, is Globalization!

  I’m not trying to make light of Princess Diana’s death. But it kind of makes your head spin to consider how interconnected the world has become. Some people are nervous about globalization. And some people are just in denial. But it’s impossible to escape it—the way the world seeps in. You can’t fence the world out, and you can’t fence yourself in. Technology knows no borders. As one of the first computer geeks stated, “Information wants to be free.”

  To fear globalization is to fear change, but like it or not, change is a constant in our lives.

  Now I don’t know about you, but every time in my life I got secure and complacent, God threw me a curve. Looking back, I now see that it wasn’t a curve, it was a challenge. A challenge I needed. I had to shake off my complacency and change. Whenever you hear anyone saying, “Let’s keep doing things exactly the way we’ve been doing them for twenty years,” watch out
. A shake-up is coming.

  The seasons change. Summer follows spring, and night follows day. Life is full of ups and downs. Business cycles go round and round. Events happen that rock your world: People in the family die. You get a divorce. You get fired. Your business goes under. I’ve been through all of these changes, and each time I’ve had to wake up and try something different.

  Before you can deal with change, however, you have to see it. Then you have to accept it. Sometimes that’s the hardest part—acknowledging and then accepting that the way you’ve always done business or lived your life just won’t work anymore.

  This is just a basic life lesson. It’s true of individuals, families, and companies. And of course it’s true of nations. There are plenty of historical examples of nations that got knocked in the head because they resisted change. In fact, you can go back and track the success and failure of any nation in the world by how open it was to change.

  Imperial Spain had tons of gold and silver in the 1600s, but its empire soon collapsed because it didn’t change with the times. The once-great British empire launched the industrial revolution and colonized the world. But it got dragged down by its bureaucracy and today has the lowest per capita income in Europe. The Soviet Union had more land, gold, and oil than anybody in the world. But its rigid Communist system strangled its ability to change with the times.

  Japan, too, was reluctant to change. In the 1960s and early 1970s, the Japanese economy grew 10 percent a year. Some economists predicted that it would surpass the U.S. economy by the year 1998. That didn’t happen. Not even close. Why? Because Japan refused to open its doors to farming, retailing, and finance. The big bust in the 1990s came because Japan had created a bubble economy—basically, an illusion of profit—and had stopped facing reality. You can’t manipulate your currency decade after decade and not eventually face the consequences.

  America hasn’t been immune. We paid a big price for getting too comfortable after World War II. We had a conquerer’s mentality, and as a result we didn’t think the competition from Japan meant much. We got a little arrogant—okay, a lot arrogant—and we started to slide.

  These days everyone is looking toward China. But for hundreds of years China was the sleeping giant. It’s the oldest and most overpowering example of resistance to change.

  Back in the Middle Ages, China was the preeminent nation on earth, and the most technologically advanced. Among its other contributions to civilization, it invented paper, the printing press, the compass, the telescope, and gunpowder. We in the West have benefited from the genius of China for thousands of years. But in the past, some of the really good ideas took a while to get out.

  Take the wheelbarrow. The simple wheelbarrow, invented in China, took almost twelve hundred years to get to Europe. The blast furnace, used to make cast iron, took almost eighteen hundred years to get to the West. And something as simple as the common match was used in China for two thousand years before it reached the West. Since I’m of Italian heritage, the invention I’m most grateful for is noodles, which we now call pasta.

  Today, you wouldn’t be able to keep good ideas like these secret for very long. The world is much smaller and more open. No matter how determined you are to keep it to yourself, it’s going to leak out through e-mails and phone calls and observation. It’s astounding to realize, however, that until President Nixon’s historic engagement with China in the early 1970s, we weren’t even talking, let alone sharing technology. Now we know that ideas and innovation cannot be walled in or walled out.

  It’s instructive to consider how China became so isolated. During the fifteenth century, China suddenly turned inward due to a strong cultural conviction that its society was superior to all others. China closed its doors and refused to allow competing ideas in. Outsiders represented inferiority. Well, you know what happens when any society rests on its laurels. It grows complacent and lazy, and that’s what happened in China. The powerful emperors and bureaucracy stifled innovation. The result was five centuries of stagnation.

  Meanwhile, Europe came out of the Middle Ages with a completely different outlook, and began the long march toward capitalism and democracy. It began colonizing the world. America came into being because of this expansive ideology.

  But today—almost overnight, it seems—we are seeing the stirring of a phenomenal cultural shift in China. It happened in large part because a daring leader stepped forward and forced China to join the twentieth century.

  His name was Deng Xiaoping. For many years, Deng was in Mao Tse-tung’s inner circle. But he was something of a rebel, and Mao exiled him to a tractor repair plant in a remote outpost where he was forced to become a mechanic to support himself. But he didn’t complain. He worked his way back into Mao’s good graces, and he went on to become one of the most influential leaders of the twentieth century.

  After Mao’s death in 1976, Deng took over the leadership, and he tried to bring China into the modern age. Deng saw the advantages of developing China’s economy, and he tried to open up relations with the West. It was Deng who arranged a peaceful transfer of Hong Kong from British control, promising that Hong Kong would remain a capitalist nation. He introduced the idea of the “two Chinas”—one Communist, on the mainland, and one capitalist, in Hong Kong.

  When I did business in China during the late eighties and early nineties, I experienced the strange schizophrenia of a nation trying to maintain Communism in a free market world. It didn’t work so well. I remember on one occasion I had sold a four-cylinder engine line to a village a thousand miles north of Beijing. (By village, I mean an area with a population of about one million people.) Everything was controlled by the local commissar—which would be comparable to having your city council member control your business decisions. When I arrived at the commissar’s office, he said, “Sorry. So sorry. I can’t see you today.”

  I was flabbergasted. “I came all the way to China to help set up an assembly line!”

  He shrugged. “My problem this morning is that I’m short of kindergarten teachers. Our business will have to wait.”

  Can China maintain its Communist system in a free market economy? I don’t think so. Something will have to give. If you ask me, very soon there will be only one China, and it will be capitalist.

  THE MARKET SPEAKS LOUD AND CLEAR

  So let’s start with this premise: First, globalization is inescapable. And second, because globalization is inescapable, it’s good. That’s another way of saying that what we can’t prevent we must embrace.

  I’m a business guy, so my instinct is to ask, How can we benefit from the growing markets of China and India? The population of China alone comprises one fifth of the world. Here in America we’ve tended to view that as an intimidating fact instead of a huge, lucrative market.

  In the next ten years China’s demand for cars will grow at a rate that is almost unthinkable. It is estimated to reach eight to ten million new cars per year. Who is going to build those cars? Today, every major car company is trying to get a foothold in China.

  India is also booming. I’ve never heard so much moaning and groaning about anything as I’ve heard about India. People are burned up about outsourcing. They get annoyed when they have to go through Indian customer service representatives to get help with their American products. But from the standpoint of infusing business with creativity and opportunity, it’s a great thing that India has taken this niche and run with it. What once was a nation identified with its teeming masses and abject poverty is emerging—somewhat chaotically, but legitimately—as a partner in progress. We can welcome it, or we can shut it out. Our call.

  The Las Vegas developer Steve Wynn is a good example of what it means to welcome globalization. Recently I had dinner with Steve and his wife in Las Vegas. Steve was telling me about his new resort in Macau, which is near Hong Kong. He said that since he’s doing business in China, he’s learning to speak mandarin Chinese. Like everything with Steve, he’s totally immersing himse
lf in the effort. He’s got a full-time mandarin teacher who travels with him everywhere he goes. That’s global thinking at its best.

  “MR. BUSH, TEAR DOWN THAT WALL!”

  The first time I visited China, in 1989, I walked along the Great Wall. It was a breathtaking experience. But what really shocked me was that about one hundred soldiers patrolling the wall were calling to me and waving copies of my autobiography, Iacocca. It was a touching scene until I realized they were bootlegged copies. The point is, I was seeing the old ways and the new ways all in one moment. Deng’s son sent me two copies of Iacocca to autograph—one for himself and one for his dad. Who could have imagined it?

  The biggest lesson we’ve learned from the Chinese, and again, from the Communists who built the Berlin Wall, is that no wall is strong enough to hold back the tide of progress or to protect its people. Now Israel is building a barrier on the West Bank. How do you think that’s going to work out? Walls don’t work.

  Which brings us to the United States. Congress was happy to approve the construction of a wall along our border with Mexico to keep the illegals out—which just goes to show that Congress is always ready to respond quickly to fear. It’s not so good at solving real problems. (For example, they forgot to fund the wall.)

  I don’t dispute that security is a legitimate concern. There’s no question about that. We’ve been too lax for too long about devising a workable solution to the problem of illegal immigration. This is what they call a “hot button” issue. It makes politicians nervous. There’s a lot of grandstanding.