America Underestimates - and Misunderstands - Its Economic Strengths

The brief column below appears in the December 11 issue of a National Journal supplement on The Next Economy, which includes a variety of articles on the longer-term challenges to U.S. economic strength. This summarizes themes I've gone into over the years, notably here and here and in various reports from China. But the lesson of modern life is that if a point is worth making once, it's worth making more than once. And I do think these points are worth making as often as anyone will listen, so that Americans appreciate the strengths they have and don't lightly or thoughtlessly dissipate them.


I have spent much of the past quarter-century among people in other countries who want America's best jobs.

In the 1980s, I met the designers and industrial engineers in Japan who dreamed that someday Toyota would overtake General Motors as the world's No. 1 carmaker--as it now has done. In the 1990s, I interviewed computer and mobile-phone makers in Singapore, South Korea, and Taiwan who aspired to move from their role as subcontractors to develop their own premium brands--which the likes of Samsung and LG have achieved. Over the past four years, I have visited companies in China that make everything from electric cars to electric airplanes and hope to create the high-paying, high-skill job opportunities that come with future technologies and industries. And then there's India ...

How can Americans respond?

We have a serious structural handicap. But we also have some offsetting advantages that, if properly understood, could open significant possibilities.

The United States' primary disadvantage is in misunderstanding the origins of today's best-paying, high-tech industries. Many an enterprise arose from a foundation laid by public-private research partnerships: Apple, Google, and their competitors in the info-tech and Internet businesses; Genentech, Pfizer, and others in the biotech, genomics, and pharmaceutical fields; America's leading exporter, Boeing, and others in the aerospace and geo-information industries. Federal funding-- mainly from the Pentagon and the National Institutes of Health--helped to create the basic technologies upon which entrepreneurs later started new businesses. Led by China, competitors around the world are now applying this same model in the race to build clean-energy, nanotech, and health care industries and other industries of the future. U.S. research funding, by contrast, has become sporadic and stop-start, and is likely to suffer under acute budget pressures.

But the United States has even more important structural advantages. Three stand out, particularly in contrast with China. The public and private research-university network, apart from producing an educated, high-end workforce and drawing talent from around the world, has been the incubator for most high-value technologies. U.S. universities are under intense economic pressure, but the gap between the best of them and those in the rest of the world is still enormous. Unless we thoughtlessly dissipate this asset, it should remain a significant wealth generator.

Another advantage is the continued attractiveness of the United States to people who believe that their energies, education, and ambition will go further here than anywhere else. Throughout American history, immigration has always been controversial and socially disruptive; by historical standards, it is less disturbing now than it was in the 1850s (Germans and Irish on the East Coast, Chinese on the West), the 1910s (Italians and Greeks, as well as Poles and other Eastern Europeans), and many other times, too.

Because 95 percent of the world's population lives outside U.S. borders, the majority of the world's talent will also start out residing abroad. But immigration has brought in a disproportionate share of the nation's creative talent. Half of the members of the National Academy of Sciences are foreign-born. America benefits from attracting more than our "fair" share. China has never won a Nobel Prize in the sciences; the Chinese-born scientists who received prizes were honored for work they did overseas, largely in the United States.

The third U.S. structural advantage is our much-maligned legal and financial framework, which fosters the creation of new enterprises that can put discoveries to productive use. Like the United States of the mid-19th century, China of the early 21st century has taken a shortcut to development through lax intellectual-property laws that permit the copying of others' ideas. Many other countries have done so to a less flagrant extent. But that puts a low ceiling on a country's ability to develop its own high-value industries. I have interviewed Chinese entrepreneurs who plan to incorporate their companies in California's Silicon Valley for fear of intellectual-property theft if they were based in their own country.

Identifying these advantages does not solve America's competitive problems, match individuals with jobs, or offset the increasing polarization of the U.S. economy. But it suggests the landscape for opportunity.