How U.S. Businesses Can Compete with China in Emerging Markets: Transitioning from a ‘Death Economy’ to a ‘Life Economy’
The world is in the midst of a difficult transition, moving from a degenerative “death economy” to a regenerative “life economy.”
The death economy is an economic system based on maximizing short-term profits, regardless of the social and environmental costs. It is characterized by a rapid depletion of resources and a disregard for the negative impacts of business activities, leading to extreme pollution and income inequality, and driving climate change, environmental destruction and other crises. Ending it has become a major global goal — particularly in low- and middle-income countries, where these crises often have an especially harsh impact.
Leaders in these markets realize that their countries’ well-being will depend on how successful they are in making the transition to a life economy. Based on maximizing long-term benefits for people and nature, the life economy is driven by companies that minimize and clean up pollution, regenerate destroyed environments, recycle, and pay workers a true living wage. Like these forward-thinking businesses, government officials, financial institutions and development agencies also recognize the need for enterprises that have the social consciousness, creativity and leadership required to help facilitate this transition.
My career has provided me with a unique view into this profound shift in the global business sector. As chief economist at a major international consulting firm beginning in 1972, my job was to help U.S. corporations maximize profits from emerging markets. We had a tongue-in-cheek name for ourselves: economic hit men (EHMs). We exploited human and natural resources — and we were extremely successful. After the demise of the Soviet Union in 1991, which spelled the end of the main alternative to U.S.-style capitalism in emerging markets, our EHM approach went largely unchallenged in these countries for more than three decades. However, in the process, we created the death economy, as U.S. businesses working in developing markets prioritized deregulation and profit maximization at all costs.
Then along came China.
The Reasons for China’s Rise in Emerging Markets
Learning from the successes and failures of American EHMs, China created its own EHM approach — one often characterized by the same core focus on profit and national self-interest as America’s, but packaged in the language of sustainable development. This strategy has turned it into the number one investor and trading partner in countries on every continent. Its loans to lower-income countries total nearly as much as those of all other governments combined, according to the World Bank.
A major cause of China’s meteoric rise in emerging markets is that its EHM strategy promotes the ideal of a life economy. Though the reality of its strategy may not always live up to this ideal, this approach reflects a real move toward sustainability in Chinese society. Since China began to reform its economy in the late 1970s, it has brought roughly 800 million of its people out of dire poverty — accounting for almost three-quarters of the global reduction in extreme poverty and generating almost 10% annual economic growth. As the country experienced increasing social benefits from its embrace of what it refers to as “a free market economy with socialist aspects,” it began to take steps to amplify those benefits by also protecting and enhancing natural capital — a strategy that started in 2007, and has since become firmly embedded in Chinese society. By 2018, the government had enshrined the goal of creating an “ecological civilization” — essentially a global life economy — into China’s constitution. This strategy has generated impressive results: To take one example, from 2013 to 2020, as reported in Bloomberg, China reduced air pollution nearly as much as the U.S. did in three decades.
This goal has become a key element of China’s approach to both domestic and international business. When I lectured at Shanghai’s China Europe International Business School, an MBA program that is consistently ranked among the top 10 in the world by the Financial Times, I often heard Chinese students lament the terrible pollution they’ve experienced for most of their lives. They repeatedly voiced their commitment to ending pollution, and they and their colleagues are promoting the life economy across the planet. And whatever the truth behind Beijing’s motives and claims regarding this strategy, the fact is that it appeals to emerging markets too.
Understanding Emerging Countries’ Views of Chinese and U.S. Businesses
I was traveling in Latin America when the January 2023 World Economic Forum convened in Davos, Switzerland. People there were proud of Latin America’s role in developing the kinds of sustainability efforts that are hallmarks of the life economy — something that was also reflected in the conversation at the Forum. At Davos, Colombian President Gustavo Petro and his Mines and Energy Minister Irene Vélez spoke passionately about greening their county’s economy, and they committed to ending oil and gas drilling. Brazil’s Environment Minister Marina Silva reiterated the Lula administration’s commitment to net-zero deforestation by 2030. And Brazil’s Finance Minister Fernando Haddad pointed out that more than 25% of the continent’s energy needs are met with renewables — twice the global average — and emphasized that the region is ideal for companies that want to guarantee their products are made with green energy. Other Latin American countries have made similar progress: In Costa Rica, for instance, nearly 100% of the electricity comes from renewables (though most of its other energy use still comes from fossil fuels).
When I travel to emerging countries like these, people ask me why U.S. corporations are not competing with China in the areas of non-fossil fuel transportation systems, water and wastewater treatment plants, inexpensive electric cars, and solar, wind and other renewable technologies. “What’s wrong with U.S. corporations?” the head of transportation for Quito, Ecuador asked me during a meeting in his office, where a Chinese team had presented a plan for electrifying the city’s public transportation systems. “We used to look to America as the leader in innovative technology. Not anymore.”
However, I also hear a lot of negatives about China. On that same visit, Ecuadorian officials expressed deep concern over Chinese gold and copper mines being constructed deep in the fragile Amazon rainforest. They are especially worried about two dams that will retain mercury, arsenic and other toxic byproducts. One is 63 meters high and the other 260 meters high, and they are liable to collapse because they are not designed to withstand the earthquakes that frequent the region. A breach would send poisonous chemicals into the Amazon River and out to the Atlantic Ocean. Furthermore, China’s companies are resented for importing Chinese workers instead of hiring locals, for selling products that require made-in-China replacement parts, and for bribing government officials.
12 Ways U.S. Companies Can Compete with China by Embracing the ‘Life Economy’
I like to think of China as the catalyst that can stimulate enterprising businesspeople to win over countries that desperately need support in developing their resources and lifting their people to higher levels of prosperity. The key factor here is to recognize the importance of committing to the long-term development of a life economy — one that goes beyond platitudes to promote truly sustainable solutions that benefit both businesses and their host countries. Needless to say, this is not only good for emerging markets, but also for future generations everywhere.
Here are a few suggestions for how businesses in the U.S. can succeed in emerging markets, while also advancing the development of a global life economy:
- Develop and/or market products that are grown or produced locally.
- Hire and train local people in management and sales, as well as more labor-intensive activities.
- Hire local workers in management, and offer training programs whenever appropriate.
- Reject products that use toxic, non-recyclable materials, including insecticides and fertilizers.
- If involved in activities that disturb the environment, including any forms of extraction or agriculture, implement the most advanced protection and mitigation techniques.
- Commit to buying carbon offsets for 100% of any pollution generated by the business.
- Start projects that decrease CO2 emissions and other pollution.
- Invest in poverty-reducing enterprises, including value-added processes that utilize locally grown fruits, flowers, nuts and vegetables.
- Develop the market, locally as well as internationally, for microchips and other high-tech products.
- Make sure to pay for the services and infrastructure the business uses, including water, sewage, medical and educational services.
- Avoid black market money exchanges and all forms of corruption; be a model of fair competitive practices.
- Be a good citizen: Support local sports events, recreational facilities, institutions and organizations that serve the community where the business operates.
By taking these steps, U.S. businesses can truly begin to compete with China in emerging countries. The guiding principle for gaining traction in these markets is to recognize that people around the world are becoming more and more conscious that ways of doing business must change. Companies that commit to transforming the death economy into a life economy will not only earn the support of customers and strengthen ties with governmental and other partners in emerging markets, they also will position themselves to be the success stories of tomorrow. And most importantly, they will help drive the movement toward a sustainable global economy that works for everyone.
John Perkins is an author, speaker and former economist.
Photo courtesy of GovernmentZA.