In the latest installment of his “Breaking Through the Jobless Recovery” series, economist William Lazonick explains how the US needs to take a lesson from China and align the interest of its multinational corporations with the interests of the country.

If you want to talk job creation, let's talk China. While the United States suffers through a prolonged jobless recovery, with another recession on the horizon, the Chinese economy has continued to boom. In the second quarter of 2011 the China's GDP growth rate slowed to 9.5% year-on-year, down from 9.7% in the previous quarter and 11.9% a year earlier.

Double-digit growth rates are nothing new for China. Since launching  game-changing economic reforms in 1978, China's GDP has grown at an average of almost 10 percent per year. One driver of that growth has been vast additions to China's productive capacity. For example, in 1979 China accounted for 4.6% of world crude steel production compared with 16.6% for the United States and 15.0% for Japan. China surpassed the United States in steel production in 1993 and Japan in 1996. In 2010 China's crude steel production was 6.6 times its level 15 years earlier, and represented 44.3% of the world total, compared with 7.7% for Japan and 5.7% for the United States.

China's growth has been also been sparked by technology transfer from the advanced economies. A prime objective of the 1978 economic reforms was to build the nation's science and technology infrastructure, which was especially in need of modernization after the tribulations of the Cultural Revolution (1966-1976). In addition to launching a massive educational effort to increase the supply of scientists and engineers, from 1985 the Chinese government invited multinational corporations to invest in joint ventures with Chinese state-owned enterprises under the policy of "trading markets for technology" (TMFT). As the phrase suggests, the lure for multinationals was the potential to gain access to burgeoning product markets in a rapidly growing nation with one-sixth of the world's population.

Quick to grasp the opportunity was the German automaker Volkswagen, which entered China in a joint venture with Shanghai Automotive International Company in 1985, followed by another one with First Automotive Works in 1987. By 2000 Volkswagen produced 52% of the passenger cars in China, most of them for government and taxi fleets. At the time, however, China's car production represented only 1.5% of world production, and China ranked a distant 13th among all national car industries.

The past decade has changed all that. In 2010 China produced 13.9 million cars, 23.8% of the world total, about 37,000 cars greater than the combined production of Japan (8.3 million) as number two and Germany (5.6 million) as number three. Volkswagen produced 1.7 million cars in China in 2010, 2.8 times its production a decade earlier but now representing only 2.9% of total Chinese production. In the Chinese market Volkswagen was now second to (guess who?) the much maligned General Motors.

Back in 2000 GM produced just 30,000 cars in China, one-tenth of Volkswagen's China output, and just one-third of one percent of GM's worldwide production. By 2006 GM had surpassed VW in China, and in 2008 produced just over one million cars there, 17% of its worldwide total. Then in 2009 came GM's bankruptcy, with its worldwide car production falling by 17%, even though its Chinese production rose by 69%! In 2010 GM boosted its worldwide car production up to 6.3 million, about a quarter of a million more than in 2008, before it went bankrupt. The 2010 total now included 2.2 million cars produced in China, 1.2 million more than in 2008 and 35% of GM's worldwide production.

Bottom line: Without China, GM would still be in bankruptcy, and maybe even out of business.

At the same time, GM, VW, and other multinational corporations face lots of indigenous competition in the Chinese car industry. In 2010 no indigenous Chinese companies were represented among the top 15 car producers in the world, although combined the top 15 companies (six Japanese, three German, two each American and French, and one each South Korean and Italian) produced 8.6 million cars in China. Of the next 25 largest car producers in the world, however, 17 were Chinese, with a total output of 5.9 million cars, or 42% of China's car production. (Note: There is some double-counting between foreign and indigenous producers because of joint ventures.)

These indigenous Chinese companies are the ones to watch. According to research by Kaidong Feng in his recent Sussex University Ph.D. dissertation on indigenous innovation in China, it is the indigenous Chinese car companies, and in particular nongovernmental enterprises such as Geely, Chery, and Brilliance, that have not been involved in joint ventures with multinational corporations, that are the most innovative in the industry, particularly in product innovation. Why?  In joint ventures, domestic companies give up strategic control to multinationals. While under TMFT, multinationals are supposed to transfer technology to the Chinese, but they tend to keep the latest developments to themselves. When, as has typically been the case in joint ventures, the Chinese partners are state owned enterprises, the strategic mandate from the government has been to expand production capacity (stressing process innovation) rather than generate higher quality products.

It’s free! Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

In contrast, the nongovernmental enterprises can tap into the state-funded science and technology infrastructure for knowledge and people. They can access the national banking system for finance capital while maintaining their strategic autonomy from the government in the allocation of resources and returns. These indigenous companies, some of which succeed and many of which fail, seek to set themselves apart from the competition through innovation.

Dr. Feng has found similar results for the communications equipment industry, in which Huawei Technologies and ZTE are the most prominent examples, as well as, in collaboration with Qunhong Shen of Tsinghua University, for the electric power industry. A just completed study on the development of the Chinese semiconductor industry by UMass student Yin Li shows similar results. This recent research builds on and confirms the pioneering work of the late Qiwen Lu. In his book, China's Leap into the Information Age, published in 2000, Lu documented and analyzed indigenous innovation in the rise of China's first successful computer electronics companies during the 1980s and 1990s, including Legend (now Lenovo) and Founder (for a summary of Lu's findings, see my paper, "Indigenous Innovation and Economic Development"). Going forward, state-of-the-art work on the subject will be the focus of a workshop on "Chinese ways of innovation" in Los Angeles in October.

As both response and encouragement to these developments in China's technological capability, in 2006 the Chinese government made the promotion of indigenous innovation central to its Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020). China's progress in indigenous innovation is apparent in its advanced technology product trade with the United States. In 2000, 5.5% of US advanced technology product imports came from China, while 17.8% came from Japan and 10.4% from Canada. A decade later China's share of US advanced technology imports had ballooned to 32.6%, compared with 6.6% from Japan and 3.6% from Canada. Among the ten advanced technology product categories, US imports from China are highly concentrated in information and communication technology (88%  in 2010). China alone accounted for 50% of all US information and communications technology imports. Over the past decade China has also become much more important in US advanced technology product exports, rising from a share of 2.4% in 2000 to 7.9% in 2010.

These advanced technology product imports and exports reflect the globalization of production since they include international trade in value-added components and work-in-progress along the global value chain. Through these production relationships, the economies of China and the United States are tightly intertwined, although with very different impacts on national economic performance. While China is leaping ahead, the United States is falling badly behind.

As William Greider warned in his best-selling book of 1998 on "the manic logic of global capitalism", we live in "One World, Ready or Not". In 2011 China's innovative trajectory is ascendant, while the United States faces tough times. And don't wait for China to implode: it won't for a long time. Instead Americans should be thinking about how the United States can respond to the new competitive challenge.  For a start, we need to invest the massive profits from globalization of US multinationals back in the United States.

That means not only policies for the repatriation of a substantial proportion of the foreign profits of US corporations, but also a coordinated and concerted national strategy for how these profits can be invested in innovation and job creation to get the United States back on track. The United States needs a national program of business-government cooperation to recreate what Harvard Business School professors Gary Pisano and Willy Shih have called the "industrial commons". Or to echo Ralph Gomory, former president of the Sloan Foundation and head scientist at IBM, America's response to the Chinese challenge requires an alignment of the interests of its companies with the interest of the country.

William Lazonick is director of the UMass Center for Industrial Competitiveness and president of The Academic-Industry Research Network. His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) was awarded the 2010 Schumpeter Prize.

In the first part of a two-part series, Reese Neader reports back from a recent trip to Egypt training opposition leaders on how they must engage and assist all Egyptians if they hope to succeed.

Stepping into Tahrir Square at night, the citizen guards who block the entrances showed me through. These men stand by to check for weapons being smuggled into the square. Despite the conflicting political groups that are vying for control of the country, and how much is at stake, the citizens of Egypt refuse to let the scene of their greatest victory be degraded by violence. Tahrir Square is a place of peace that honors the spirit of the revolution of the Egyptian people.

In mid-July I visited Egypt as the guest of a US State Department grant program and a representative of the Roosevelt Institute Campus Network. My mission was to train youth opposition leaders in grassroots policy campaigning, political communications, and civic engagement. My status as an independent member of U.S. civil society afforded me the ability to have open, one-on-one exchanges with Egyptians who might otherwise be distrustful of American-sourced information. Over the course of a week, I traveled through Cairo and Alexandria, giving trainings to groups that included members of Egyptian political parties, activist groups, and advocacy organizations.

The faces of the revolution are young, tech savvy activists who are college educated and have traveled abroad. But their "Facebook and Twitter Revolution" is a myth perpetuated by U.S. media. The reason that the Egyptian revolution (and the Arab Spring) has frozen is as much about a communication gap between protesters and the working class as much as it is the result of the interim government dragging its feet with reforms and prosecution of the former leadership. The poor Egyptian economy and its lack of social services are important drivers of revolution. But ultimately, what happened in Egypt, and what is happening across the Arab world, is about dignity. The people of Egypt want control over their own lives. To create a functioning democracy, the elites shaping the course of the new political system will have to engage and empower the working class.

The Muslim Brotherhood has been providing social services in the streets of Egypt for the past 60 years. They have handed out bread and provided education and medical care to desperate populations. This is how extremism in the developing world wins the game. This is how Hamas, Hezbollah, and the Taliban gain supporters. They provide social services in places where governments do not and therefore gain support where democratic governments should.

To defeat the Muslim Brotherhood, and to defeat extremist groups across the developing world, citizens of failing states will have to beat them at their own game. To build political support, parties need to engage in grassroots political campaigns much deeper than the lip service that we pay the term in the United States. Secular elites, the Facebook and Twitter generation that we celebrate in the media, will have to engage the constituencies they want to represent in the new government: the rural poor, the people in the slums, and middle class professionals who have protested for human rights. They will have to build local policy programs block by block, using existing resources from the community and including citizens and civil society in the decision-making process to provide social services. There are already two shining examples from the Egyptian Revolution: the street cleaning that was organized by protestors in Tahrir Square, and the neighborhood security groups that organized locally during the breakdown of the rule of law. Instead of giving someone food for a vote, these parties will have to teach someone how to grow food for a vote. That's how real democracy can be built in Egypt.

It’s free! Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

The Campus Network's Think Impact model of engagement is a strong tool for communicating that message to young leaders. Communities that are dislocated from their government know what issues they face and how to solve them; what they don't have is the access to resources that can properly address those issues. Through Think Impact, grassroots policymakers connect these communities to the resources they need to address systemic challenges and blaze a trail towards shared prosperity. Campus Network students are using the Think Impact model to generate progressive change across the U.S., and it's a model that young leaders across the world, especially in emerging democracies, can also use to build responsive political platforms, craft democratic institutions, and cultivate civic engagement.

Social responsibility can only occur when people feel they have ownership over their own lives and are productive members of society. When they grow up with no belief that they will ever get a good job, get a good education, have the opportunity to afford a decent standard of living, or be able to provide for their families, they have no stake or sense of responsibility for what happens in their communities. They do not care and have no reason to. They do not trust their government or the institutions supported by that government to treat them with respect and dignity. To have real democracy, to give a sense of social responsibility to every citizen, Egypt's political parties will have to find a way to include every citizen's voice in their party platforms and policy campaigns.

We are lucky in the U.S. We can argue loudly about tax cuts and raising the debt ceiling, but when we wake up every morning we know our armed forces will not be staging a coup. The brave protesters in Egypt don't have the luxury of a stable democracy. They have their first elections coming up "soon" (still undetermined) and their constitution is going to be rewritten. But by whom? If the protesters cannot find a way to rally together and bring working class Egyptians into their fold, the future of Egypt will look a lot like the past. If the protesters succeed, there is unlimited potential to unlock the economic and social power of the Egyptian people.

The bravery of the protesters in Egypt and across the Arab world is stunning. It was a deeply humbling experience to walk through Tahrir Square and experience a place where revolution is happening. It will serve as an inspiration for the continued advancement of the mission of the Campus Network. Perhaps the young people of Egypt and America have much to learn from each other. And perhaps we can learn from the courage of the Egyptian people, by realizing that when our government refuses to act for us, it is our duty as citizens of a democracy to exercise our rights.

Reese Neader is the Roosevelt Institute | Campus Network’s Policy Director.

Debts are simply commitments. It's time to renegotiate those deals to free up the world economy.

In the wake of the recession, the global economic debate should be about jobs, poverty, and inequality. Nevertheless, as the (seemingly failed) brinksmanship in Europe and S&P's downgrade of the United States have made clear, debt is unmistakably a serious issue. What can be done about the high levels of debt carried by so many countries around the globe?

It sometimes helps to revisit history. In the wake of World War Two, before its golden age of economic growth, Europe was faced with a range of political and economic obstacles. Barry Eichengreen has written an insightful analysis of its predicament. Amid a host of other obstacles, Eichengreen explains that Europe was facing a problem with its balance of payments. To improve it, public deficits, soaring to unprecedented levels due to the war, had to be reduced. Yet in order to avoid choking off growth, an increase in private investment had to offset the decline in aggregate demand.

The Marshall Plan provided a way out of this dilemma by supporting European private investment while facilitating technology transfers from the United States to Europe. This essentially amounted to a foreign aid investment, the size of which has rarely been seen, specifically targeted at the rebuilding of capital goods in Europe such as production machinery. Part of that effort was executed by enticing American companies to share their technologies and management practices with European companies, most notably the introduction of assembly line production all over Europe. Consequently, European countries were able to greatly reduce their public deficits and monetary overhangs without decreasing aggregate demand or slowing growth.

In some senses, the European economy today has strong parallels with that post-World War Two scenario. While the EU in its entirety does not face a problem with balance of payments today, the regional imbalances are enormous, with the PI(I)GS countries at the bottom of the ladder. Of course, because they are all using the euro, PI(I)GS countries cannot devalue their currencies to offset their imbalances, decrease the value of their debt, and export their way out of their trouble. The only way to overcome their debt problems is to increase private investments in the hope of stimulating growth. But the large fiscal deficits throughout the continent, as well as the substantial overhang from the monetary expansion undertaken by the ECB in 2010 and beyond, are strongly limiting economic recovery. These large deficits are crowding out private investment.

In sum, this creates a similar dilemma to what Europe faced after World War Two. Europe has to grow itself out of its debt problems, yet it is the very public debt that is crowding out private investment and holding back growth.

The question is: where is Marshall in 2011? Unfortunately, Marshall -- the United States -- finds itself in a similar predicament as Europe. If there is a new Marshall it would be China, but China doesn't have the same ideological rationale that the U.S. had in 1945 to invest in the United States or Europe. Furthermore, despite the alleged financial power of China, it is nowhere near as economically preponderant as the United States was in the wake of World War Two. Based on 2010 estimates, China's economy comprises around 13.5% of global GDP compared to the staggering 46% of worldwide GDP that the United States economy represented in 1945. It would seem that there is no modern-day Marshall.

It’s free! Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

But there may be an answer: all Western countries are Marshall. The only way to free up Western economies so that they can grow out of this crisis is to organize a Western, if not worldwide, round of debt cancellations. The only bright spot in this whole situation is that all Western countries are facing the same debt problems, though to varying degrees. We are in it together, whether we like it or not. With debts reaching dangerous levels in many Western countries, a global round of debt restructuring and debt cancellations would be by far the best way to reduce crippling and increasing interest payments, free private investment, and restore the confidence of financial markets.

Needless to say, sacrifices would have to be made. The burden of these actions would not be fairly distributed. Different countries are in debt to widely different degrees, with Germany seen as the best situated and Greece as the worst. Many financial institutions would have to accept large losses on their holdings of sovereign debt. And to make matters worse, these institutions are not by any means concentrated equally across all Western countries. In other words, the interests of stakeholders are dispersed and diverse.

The diplomatic effort required to negotiate a multinational round of debt reductions would therefore be unprecedented. It is a seemingly insurmountable challenge. However, despite the fact that the burden would be carried unequally, all would benefit from freeing up global financial markets from a large share of debt and inducing economic growth. More importantly, though: we do not have a choice. The debt of many Western countries, including some of the largest economies like Italy and even the United States, is approaching unsustainable levels. We need to take on the insurmountable challenge now while we still have the time to go through these complicated negotiations. If we begin this process when the global financial system is in an even more unstable state, we may not have the time to bring it to a fruitful end. We may no longer have the choice.

Furthermore, the challenge of organizing a round of debt restructuring can be facilitated by organizing a first round that includes only the United States and European countries. Yes, emerging Asian markets, notably China, own a fair portion of Western debt. However, people forget that another large part is owned by European countries and the United States itself, including their financial institutions. To illustrate that point, Britain already owns over half a trillion dollars in United States public debt. American banks, for example, own 269 billion euros in Italian debt. Overall, in terms of external assets held, the United States (32 trillion), Germany (4.7 trillion), the United Kingdom (4.7 trillion), France (3.8 trillion), and even Italy (3.5 trillion) still rank far higher than China's total external assets (3.4 trillion). While a large amount of those external assets are invested in stocks and other financial products at home, a substantial part of it is also invested in foreign bond markets, leaving ample room for negotiations on global debt reduction.

On the most fundamental level, debt is nothing more than a commitment from one party to another to pay it back at some point in the future. These commitments are never meant to be crippling. As difficult as it may seem, they are nothing but commitments in the end, and can therefore be renegotiated. It is time to initiate a global round of debt negotiations, before it is too late.

Sander Tordoir is a summer research intern from Amsterdam for the Roosevelt Institute. He is involved with the development of a mesoeconomic development foreign aid strategy for the Campus Network's Millenial Grand Strategy Project.

In an interview with the Real News Network on the European crisis, Roosevelt Institute Senior Fellow Rob Johnson explains how austerity policies are crushing Europe and "deforming democracy".

Will the dysfunctional state of affairs lead to a total breakdown and the rise of ultra-nationalist forces? Will the banks be saved? Why does it matter to North America?

Watch the segment to find out:

If you want to see it on The Real News Network press here.