American competitiveness and the global economy

Can the United States remain competitive as 3 billion people in Asia rapidly enter the global economy? It's a question asked by many people across market segments, including IT personnel who worry about offshore outsourcing and the jobs threat that poses.

Fareed Zakaria, editor of Newsweek International and probably the smartest guy in punditry that I wish I knew, recently asked that question in an article titled "How long will America lead the world?". He doesn't pull any punches.

Zakaria begins by noting the erosion of science and technology education in the United States.

The national academies' report points out that China and India combined graduate 950,000 engineers every year, compared with 70,000 in America; that for the cost of one chemist or engineer in the U.S. a company could hire five chemists in China or 11 engineers in India; that of the 120 $1 billion-plus chemical plants being built around the world one is in the United States and 50 are in China.

Given that America's economic leadership has traditionally rested on its lead in the sciences and its skills in the realm of high technology, this is cause for concern, one that has lead Intel's Andy Grove to state that "America ... [is going] down the tubes, and the worst part is nobody knows it. They're all in denial, patting themselves on the back, as the Titanic heads for the iceberg full speed ahead."

As Zakaria points out, however, those trends have existed for quite awhile, and that hasn't dramatically affected GDP growth. We've averaged 3% growth a year over the past 20 years, a full percentange point higher than Germany and France, while productivity growth has been around 2.5%. Even more interesting was America's share of world output. In 1980, it was 22%. Today, that figure is 29%.

The list of beneficial American attributes is long (including the fact that 18 of the world's top 20 universities are in America), and include high rankings in technological readiness and levels of corporate R&D. Serving as the soft center of the American technology jelly donut (don't know where that analogy came from), however, is a unique cultural ability to apply technology to products people want to buy. Quoting Zakaria:

All the advanced industrial countries had access to the Web, but Google and the iPod were invented in America. It is this skill, as much as raw technological brain power, that has distinguished the American economy from its competitors'.

Culture is one of those underestimated items in the recipe of success that is EXTREMELY hard to replicate. A culture of law and order which values entrepreneurship is better suited to economic growth than one with a history of rampant corruption or where success is viewed as suspect activity, a fact which partly explains why developing economies have trouble maintaining decent growth rates. It helps to explain why mountainous, land-locked nations such as Switzerland with geographies not normally conducive to economic development become sources of high technology (Logitech is a Swiss company) and locations for international banks. The Swiss meticulous attention to detail can be almost frightening. The same impulse that makes 1000 year old castles look like Disney amusement park rides because they look so new leads them to create products whose attention to detail and quality standards make them highly competitive.

Americans are good at catering to the needs of customers. Anyone who has compared the service in Swiss restaurants to American ones, or seen an American band light up the club after a technically interesting but visually boring Swiss band finished their set can see that customer orientation is an ingrained American tendency. Combine that with the best universities, a culture that values entrepreneurship and an economic systems that protects innovation, and you have all the tools that America needs to compete credibly with three billion people, however motivated by a desire to escape poverty they may be.

We do have serious issues with which to contend. Global telecommunications networks and the way poverty can concentrate minds means America faces real competition from the rest of the world in ways it hasn't in the past. Mr. Zakaria's prescription is for America to get scared enough that it pulls itself up by its bootstraps in much the same way it did when the Soviets launched Sputnik. We also need politicians who are willing to champion solutions to American problems that may result in real pain - such as a reduction in American farm subsidies so that the money can be applied to real areas of American growth, solutions to America's health care problem, figuring out what we are going to do about an insolvent social security system, convincing Americans to save more and spend less (which certainly may have something to do with America's high trade imbalance), etc.

I'll leave you to read page 3 of Zakaria's analysis, which should be essential reading to Americans wishing to deal with global realities, but I'll close with the punchline, because it certainly got me thinking:

Our greatest danger is that when the American public does begin to get scared, they will try to shut down the very features of the country that have made it so successful. They will want to shut out foreign companies, be less welcoming to immigrants and close themselves off from competition and collaboration. Over the past year there have already been growing paranoia on all these fronts. If we go down this path, we will remain a rich country and a stable one. We will be less troubled by the jarring changes that the new world is pushing forward. But like Britain after Queen Victoria's reign, it will be a future of slow, steady national decline. History will happen to us after all.