The Solarium

President Obama and Chinese leader Hu Jintao at the Great Hall of the People, Beijing. White House photo by Pete Souza.

The connections between three seemingly unrelated stories caught my attention this weekend. One, that Secretary of the Treasury Tim Geithner is pulling together a package of reforms for Fannie Mae, another that Lindsay Graham pulled his support from the climate Change legislation that he and Senators Kerry and Lieberman have been negotiating, and third, that the Chinese Navy is stretching its sea legs and protecting its interests as far away as the Persian Gulf. 

Of course, they are not unrelated. 

As I wrote in CNN last week, America needs to put sustainability and economic inclusion at the center of its global strategy, powered by a new economic engine here at home that can use our considerable leverage to avoid a strategic collision with rising global powers like India and China. For that economic engine to take off in the midst of a recession, we need to put Americans back to work and the best way to do that is to rebuild America with smart growth as our template. To do that, Washington has to end its subsidies for dysfunctional suburban sprawl and incentivize the market to build and rebuild smarter communities around smarter transportation and energy systems. Fannie Mae is the fulcrum for that effort. 

Lying at the center of a system of subsidies for Cold War-era sprawl, Fannie Mae was also at the heart of the financial crisis that ground the banking system to a halt in 2008 and toppled Lehman, AIG, and Washington Mutual, to name a few. But Fannie Mae prioritizes backward-looking sprawl, not forward-looking sustainability. Fannie guarantees single family housing in residential subdivisions--the suburbs. Ironically, Fannie Mae today is even more involved in the housing markets since the bubble burst. Ninety percent of American mortgages are run through Fannie Mae, meaning we're just digging the hole deeper, reinforcing a model of development that is today too inefficient and resource intensive for America to sustain.

If all new housing starts were part of smart growth developments, America would reduce its carbon emissions by 10 percent in ten years, a lot more people could afford them, communities would be stronger, and our nation more resilient. The bill by Kerry, Lieberman and Graham seeks only a 17 percent reduction in carbon emissions over 20 years, would put a lot fewer Americans back to work and at the end, America would still be stuck in the 'burbs' vicious economic cycle. If the Senate was not so focused on the narrow issue of climate change, but on the larger challenge of sustainability, we'd be talking about a comprehensive economic strategy that would be building prosperity, not just limiting emissions.

Graham should get this. Back in January, speaking on the stage at the World Economic Forum in Davos, Senator Graham said the following as quoted in this article in the New York Times: 

“Six months ago my biggest worry was that an emissions deal would make American business less competitive compared to China,” said Senator Lindsay Graham, a Republican from South Carolina who has been deeply involved in climate change issues in Congress. “Now my concern is that every day that we delay trying to find a price for carbon is a day that China uses to dominate the green economy.” ... He added: “China has made a long-term strategic decision and they are going gang-busters.”

He should get it because China's long-term strategic decision is about full-spectrum sustainability, not just climate change. As the McKinsey Global Institute reported in 2009, China's facing shortages of building materials, food, freshwater, and clean air. That's one of the two big reasons why we're not successful in negotiating a climate deal: First, Washington is not serious about carbon. The cap-and-trade legislation does not put American on the trajectory necessary to stabilize atmospheric carbon levels and will simultaneously authorize more oil drilling along our shoreline. Second, our singular focus on carbon demonstrates we are not seriously examining the challenges of a nation that is set to move 700 million people from the countryside to the cities by 2030. That's like moving 2.3 Americas off the farms. America's last great rural-urban migration was in World War II and our total population at the time was only 150 million.

It is in our interest to make that process go as smoothly as possible, while positioning America to be the provider of world-class sustainable products and services. That means we have to be sustainable ourselves. But for the first twenty years after the end of the Cold War, America was blind to this dynamic. So blind that we did not wake up to the trap of cheap credit coming from China's economic rise, until it was too late and our credit markets collapsed. Indeed, Washington's behavior in the last decade was more about trying to secure strategic influence over critical resources and regions, like the Persian Gulf, rather than looking to create space in the global economy for the billions of people about to enter it. 

That's where the Chinese Navy comes in. Reading the signal of American strategic competition from Washington, China realized it needed to secure its own future on its own terms. Gold-plated supply contracts for coal, oil and other commodities are part of this, as is China's "string of pearls," a series of Chinese-built ports along the sea lanes from China to the Persian Gulf. Increasingly, however, China's economic strategy is being backed by military muscle. This weekend's article about the expanding capabilities and range of the Chinese military are a reminder that economic interests are strategic interests for great powers. 

Of course, when thinking about China's strategic moves, one needs to keep in mind the fallacy of the monolithic state. The Chinese political leadership are led by engineers, like Hu Jintao, a hydraulic engineer by training. These leaders are focused on making sure that the Chinese economy can meet the Chinese people's rising expectations and focus on China's "peaceful rise." The People's Liberation Army approaches international engagement less diplomatically and not always in a way consistent with Beijing's civilian government, according to sources who frequently engage both sets of leaders.  

This should make the United States even more motivated to adopt sustainability as the centerpiece of American strategy. It will be very difficult for China, and India for that matter, to manage the urbanization of close to one billion people in twenty years. Shocks will occur that will test both nations' ability to remain peaceful. Indeed, Taiwan and Pakistan loom as large wildcards in this regard. The smoother the economic rise for these two economic giants, the more resilient to internal and external shocks all our societies will become.

Undersecretary of State Robert Hormats gets this. In an interview with Josh Rogin of Foreign Policy's blog, The Cable, Hormats said it's the integration of large emerging economies that is at the top of his list of challenges. He continues:

We all have a role in ensuring that zero-sum competition for markets, energy, food, or capital does not emerge. Instead, the U.S. seeks, in partnership with emerging economies and traditional allies, greater access for all people to the benefits of global trade, investment and information networks, and cooperation to address any disruptions in the global economy or threats to our nation's, or international, economic growth and stability. Shaping the global system of the 21st Century to meet American interests will require U.S. leadership, vision, and creative partnerships with these economies.

The trick though, is that the zero-sum competition emerged more than a decade ago. Today the challenge is to make sure that strategic conflict does not emerge, and that requires a new national strategy.