Summary of the Core Content
This article examines the rise and fall of Venice, the Netherlands, the United Kingdom, and the United States over a five-hundred-year period of industrialization, revealing a cyclical pattern: "prosperous trade → rise of manufacturing → development of finance → finance becoming detached from the real economy → hollowing out of manufacturing → decline of the nation." It analyzes the logic behind the divergence of finance from its role in serving the real economy and compares the successful experiences of Germany and Japan in maintaining their manufacturing sectors. The article also distinguishes between "creative bubbles" (such as technology bubbles) and "parasitic bubbles" (such as real estate bubbles) and offers a warning to China: it is essential to preserve the foundation of manufacturing and ensure that finance serves the real economy to avoid repeating the mistakes of former global powers.
The Common Fate of Five-Hundred Years of Dominants: From "Manufacturing Powers" to "Financial Hollowing Out"
Since modern times, all four major world powers have followed the same path from prosperity to decline:
- Venice: Accumulated capital through trade with the East and developed its manufacturing industry, with the rise of finance. However, wealthy merchants withdrew funds from manufacturing to invest in real estate and foreign bonds, leading to the decline of its shipping industry and the loss of its central position of power.
- Netherlands: Known as the "maritime empire," it possessed the strongest fleet and manufacturing capabilities but was defeated by the British due to the Tulip Bubble (the world's first major financial bubble) and the outflow of capital to the UK.
- United Kingdom: Became the "world's factory" through mercantilism, but later, entrepreneurs shifted to finance (as manufacturing became less profitable), with half of its savings flowing overseas, allowing the UK to be surpassed by the US and Germany.
- United States: Manufacturing once accounted for nearly 30% of its GDP, but after financial liberalization in the 1970s, the proportion of manufacturing profits dropped to 20%, while the finance sector grew. Boeing was influenced by financial logic, and outsourcing software contributed to air accidents, reducing the manufacturing sector's share of GDP to below 10%.
In simple terms: It's like a person who initially makes money by running a factory, then decides it's easier to invest in stocks and lending, withdraws the factory's funds, and eventually, both the factory and the money become worthless.
How Finance "Deviates from Its Purpose": From "Lifeblood" to "Vampire"
The purpose of finance is to serve the real economy—for example, providing loans for factories to purchase raw materials (earning interest). However, the profit-driven nature of capital has led to its gradual divergence:
- Marx's logic: The process should be "commodity → money → commodity," but it has evolved into "money → commodity → more money" (money generating more money without involving production).
- Real-world divergence: From simple lending to the securitization of assets (such as turning mortgage loans into bonds for sale), and then to further complex packaging and slicing of assets, with no one knowing the underlying nature of the investments (as seen in the 2008 subprime mortgage crisis).
- Consequences: Financial bubbles drive up prices and wages, increasing manufacturing costs and allowing foreign countries to compete. Financial oligarchs profit immensely, while the costs are borne by the general public (e.g., when the US bailed out banks in 2008, the oligarchs received bailout funds).
The "Firewalls" of Germany and Japan: Another Path to a Strong Manufacturing Base
Not all countries have followed the path of decline. Germany and Japan have maintained their manufacturing sectors through institutional design:
- Germany: Banks and companies work together for the long term, and companies do not worry about short-term stock prices. Over 2,700 "hidden champions" (family-owned businesses leading in niche markets) remain private, focusing on refining their technologies, with manufacturing accounting for around 20% of GDP.
- Japan: Major banks and companies hold mutual shares, preventing hostile takeovers and enabling long-term research and development (e.g., Toyota's decades of investment in lean production, Sony's continuous innovation in semiconductors).
However, these "firewalls" are weakening: German banks are beginning to sell company shares, and Japan's major banking system is weakening, indicating that financial logic is pervasive and requires continuous maintenance.
Are Bubbles a Problem? Distinguishing between "Good" and "Bad" Bubbles
The article argues that bubbles cannot be simply condemned; the key is to understand their nature:
- Creative bubbles: Such as the internet and new energy bubbles. Although many companies failed, they led to the emergence of Google, Amazon, Tesla, and CATL—these companies invested in research and development, leaving behind valuable technologies.
- Parasitic bubbles: Like real estate bubbles, which focus on land and housing speculation, with funds not flowing into production, enriching only those who own property and leaving others poorer. When the bubbles burst, they result in abandoned buildings and bad debts without any technological gains.
Judgment criteria: Does the money flow into research and development? Does it support real innovation? Can it generate new productivity?
In simple terms: Good bubbles are like "trial and error"—they may waste some money but lead to useful technologies. Bad bubbles are like gambling—money is merely moved from one hand to another without creating anything new.
A Warning for China: Preserve Manufacturing, Use Finance Wisely, and Guard Against Illusions
China has not yet fallen into this cycle, but it must be cautious:
- Four risk factors: Financial capital dominating power, free capital movement, wealth disparity, and a country willing to take over manufacturing (e.g., India, with a large and young population). China's socialist system has mitigated the first two factors, but it must prevent India from becoming the successor.
- Action steps: 1. Regulate pure speculative finance (e.g., complex financial products). 2. Develop capital markets that support technology companies. 3. Be wary of real estate bubbles (prevent funds from being invested in housing). 4. Strengthen the manufacturing base—manufacturing is the foundation of finance; without it, financial prosperity is unsustainable.
The core message of this article is that finance is a tool, not an end in itself. Manufacturing is the foundation of a nation; without it, all financial prosperity is illusory. Understanding this logic helps us understand why countries emphasize the importance of shifting from speculative to productive activities. After all, without manufacturing, even abundant money is worthless.