Fortune: Can Americans Compete?

Fortune asks:

"Can America compete?" is the nation’s new No. 1 anxiety, the topic of emotional debate in bars and boardrooms, the title of seminars and speeches offered by the liberal Progressive Policy Institute, the conservative economist Todd Buchholz, and countless schools and Rotary Clubs. The question is almost right, but not quite. We’re wringing our hands over the wrong thing. The problem isn’t Chinese companies threatening U.S. firms. It’s U.S. workers unable to compete with those in China—or India, or South Korea. The real question is, "Can Americans compete?"

The future - OUR future is at stake. Sure, we could shrug it off and say the Japanese didn't knock us down the Chinese won't either. But as Fortune mentions in their article, things are different now.

The stakes are mammoth: Respectable analysts believe it’s possible—not certain, but possible—that the U.S. standard of living, after decades of steady ascent, could stall or even begin to decline. More worrisome is the chance that if the world’s most powerful nation finds itself getting poorer rather than richer, some kind of domestic or even global political crisis could follow.

This seems obvious, since or relative rate of growth is already falling way behind that of China and India. We are not prepared, and it cannot be changed on a dime. The U.S. way of life is at risk. People need to get off their duffs and start moving our society away from its current entertainment centric values. Science and technology must move to the forefront.

We’re not building human capital the way we used to. Our primary and secondary schools are falling behind the rest of the world’s. Our universities are still excellent, but the foreign students who come to them are increasingly taking their educations back home. As other nations multiply their science and engineering graduates—building the foundation for economic progress—ours are declining, in part because those fields are seen as nerdish and simply uncool. And our culture prizes cool.

This has been our undoing. We value entertainment more than accomplishment. We value a sports team more than technological innovation. We value actors more than engineers or scientists.

Many iconic U.S. firms—Coca-Cola, Procter & Gamble, Texas Instruments—already do most of their business and employ most of their workers outside the U.S. Conversely, some of the most American brands you can think of—Hellmann’s mayonnaise, Jeeps, BV California wines—are owned by non-U.S. companies (Unilever, DaimlerChrysler, and Diageo, respectively). To complicate matters further, many products of U.S. companies are made outside the U.S.—Maytag refrigerators are no longer made in Galesburg, Ill., but in Mexico—while many non-U.S. companies make products here—your new Toyota may have come from Kentucky. Now add a few more twists: Your Dell laptop may have been assembled in Malaysia from parts made by American companies in Thailand.

Again our politicians are behind the curve. As I've mentioned before, politicians don't seem to realize that most products sold in the U.S., including our defense products, are made in or have parts from foreign countries. Or if they do, which they may very well, then they pretend they don't when speaking to the media and when making our laws.

The truth is that large companies transcended nationality long ago, and globalization gives them as many opportunities as problems. It increasingly lets them hire, source, and sell wherever they like, and that is basically good news no matter where the incorporation papers are filed.

Ah, yes, but politicians have not. They still pander to multinationals, spending U.S. tax dollars to help companies create jobs in Thailand. In my opinion, U.S. tax dollars should help U.S. taxpayers. The arguement starts with does creating jobs in Thailand help the U.S. taxpayer?

Turning theory into reality is the third factor: Low-cost countries—not just China and India but also Mexico, Malaysia, Brazil, and others—are turning out large numbers of well-educated young people fully qualified to work in an information-based economy. China will produce about 3.3 million college graduates this year, India 3.1 million (all of them English-speaking), the U.S. just 1.3 million. In engineering, China’s graduates will number over 600,000, India’s 350,000, America’s only about 70,000.

This is scary. The numbers speak for themselves. The U.S. no longer values science and engineering. 600,000 to 70,000 - you do the math... We cannot compete. We are falling behind. We must turn these number around. The U.S. must be the preeminate place for science and engineering if we are to keep pace with the rest of the world. Technology advances drive our economy, imagine when China or India are making those advances instead of the U.S. China and India value their technological people, and understand the role technical education plays in their place in the world.

Looking at occupations rather than industries, some fields will never be the same. McKinsey figures that 52% of engineering jobs are amenable to offshoring, as are 31% of accounting jobs.

The world is a changing place. Where will we be in five years? In ten? We must start to make changes now. It is already too late for the next 5-15 years, those years are lost to us. We can only hope to effect changes to our future 15-20 years out, when the next batch of American students graduate...

the mere threat of moving jobs offshore is enough to hold wages down—those growing armies of skilled workers around the world are increasing the labor supply in many occupations, and the immutable law of markets is that when supply goes up, prices come down. It has happened in all kinds of other markets—food, clothing, microchips, appliances. Why not in labor?

Some economists believe they see it happening already. They note that something extremely odd occurred in the U.S. economy last year: Average compensation, including pay and benefits, fell.
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More important, it usually happens in or around recessions or when productivity is going nowhere. But last year wasn’t like that. Productivity rose. The economy grew. The unemployment rate was low and falling. Every indicator pointed to strong wage increases, but just the opposite happened.

This is important to understand. Worker output is increasing but Americans are getting paid less for it.

You might wonder why we’re constantly reading about Chinese graduates in engineering and not in law, medicine, literature, or philosophy. Why this veneration of the pocket-protector set? ... The question—and for America and the West it’s a huge question—is whether there can be economic dominance without technology leadership.

Many economists would say no. "There is no other fundamental mover of economic development than science and technology," Columbia University professor Jeffrey Sachs has said.
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So in a world economy that threatens to pull down American wages, the key to fighting back is maintaining technological superiority—continually creating high-value new jobs that workers in the rest of the world can’t do yet. What are the chances? A worrisome sign is that the brightest students from many Asian countries are staying home to get their Ph.D.s rather than coming to America, as they did in rising numbers until the mid-1990s. Those foreign Ph.D.s have been the driving force in scores of America’s most successful and innovative tech firms, but now we’re getting fewer of them, and other countries are getting more.

Perhaps worse, those who still come to America for their Ph.D.s—arguably the best of the best—are returning home in increasing numbers. In economies like China’s or India’s, growing two or three times faster than America’s, elite students see huge opportunities. Even foreign nationals well established in the U.S. are heading home.
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For the U.S. the loss of technology leadership could be historic. Without that advantage, there would be little to prevent living standards in the world’s interconnected economies from equilibrating. The rest of the world’s living standards would rise, and—at least in the near term—America’s would decline.

Combine all those trends and the picture isn’t encouraging for America.

The No. 1 policy prescription, almost regardless of whom you ask, comes down to one word: education. In an economy where technology leadership determines the winners, education trumps everything.

...the National Defense Education Act, which appropriated federal money for education in math, science, and foreign languages. It worked, along with America’s grass-roots response to the threat. We went to the moon, science and engineering became cool, even glamorous, and we gained a wide technology lead.
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Now we need to revolutionize our schools again. As the world’s richest country, we certainly have the resources, but we seemingly lack the will, while many of our competitors are obsessed with education. In China it’s common for middle-school students to attend school from 7:30 a.m. to noon, then from 2 p.m. until 5, and again from 7 to 8:30 p.m. Contrast that with a nation where millions of parents are happy to let their kids spend hours hanging out at the mall or playing Grand Theft Auto on their Xbox or watching Pimp My Ride on MTV.

This is too true. We are complacent. We allow our kids to think the world is their playground. We never teach them that they will need to work very hard to stay competitive in a world where kids in other countries study much harder than ours do. Our kids are spoiled, no doubt about it, and the parents are making it happen that way.

A prescription urged just as widely is immigration reform. A critical element of America’s economic dominance has been its attraction for the world’s brightest, most ambitious people, but today’s immigration laws favor family reunification far above talent, intelligence, or credentials.

I must admit, many of our laws don't make any sense. Immigration laws are not exempt from this. I would prefer a Ph.D. over a farmer, wouldn't you?

U.S. spending on R&D will also have to increase if the country wants to remain technologically dominant.
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Aggregate R&D spending by six fast-growing economies (China, Ireland, Israel, Singapore, South Korea, Taiwan) is on track to exceed U.S. spending in a few years. Industrial R&D continues to increase, but 71% of that spending is on development, not the kind of basic research that created the transistor and the laser. Federal funding of research in the physical sciences has been declining as a percentage of GDP for 30 years.
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Incredible as it seems, America’s infotech infrastructure is no longer world-class. We rank only 12th globally in the number of broadband connections per 100 inhabitants. Look closer and the situation is even worse. South Korea is not only more wired (No. 1 globally) but its connections are far faster than ours and are available not just through wires but also through virtually every cellphone.

Research money must be spent in the hard sciences. We need to be pouring money into physics, chemistry, and biology research. Only by pouring lots of money into these fields will be have the resources to discover more about our universe and therefore discove useful technologies. Additional money must also be spent on government programs. A new space program, where we build many new vehicles, etc. We must have projects for people to work on, to be inspired by, and to motive people to pursue science and engineering fields in school. Without programs for people to work on, the job demand slows down and people look elsewhere for careers.

It’s time for a massive, urgent American response to the global challenge.

We must recognize the problem and create a plan for a response, and we must act soon. Unfortunatly this is not something our politicians do well.

The Fortune article was written by Geoffrey Colvin (gcolvin@fortunemail.com).

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