Archive for June 19th, 2012

Is America’s Decline Really Inevitable?

One of the two “unlikely but possible” scenarios suggested by Peter Feaver in his post below is that of a resurgent United States combined with an implosion of Europe and/or the BRICs. Such an option is not discussed in GT2030, but I would argue that a scenario that challenges the quasi-conventional wisdom in some circles that “the United States’ (and the West’s) relative decline vis-à-vis the rising states is inevitable” (p.82) is well worth discussing in more detail. In this post, I will address some of the factors that might make such a scenario more more probable than the many would expect, and I’ll particularly focus on the US decline side of the equation rather than the possible implosion of the EU or the BRICs.

Several contributors to this blog already highlighted some of the key advantages that the US will continue to have in 2030 relative to China and other emerging powers, and called into serious question the narrative of “decline.”

Among the strategic trends favoring the US, the most often-quoted ones are:

 

1. Demographic trends, where a combination of higher fertility relative to other potential world powers and immigration continues to give the US an advantage over its potential global competitors

 

2. Technological trends, where US advantages in nanotechnology and what The Economist recently called a “Third Industrial Revolution” brought about by digital manufacturing is likely to bring the high-tech manufacturing jobs of the future back to developed countries from developing ones

 

3. Innovation trends, where the uniquely safe and opportunity-rich entrepreneurial environment of the United States continues to remain the breeding ground for the next Apple, Google, or Facebook. Even though China for example invests large amounts of money in R&D, their return on this investment in terms of innovation is questionable. As the consulting firm Booz&Co documented in a series of reports examining the world’s top 1000 biggest R&D spenders,

“Money doesn’t buy results: There is no relationship between R&D spending and the primary measures of economic or corporate success, such as growth, enterprise profitability, and shareholder return.

The comparison of R&D investment with economic performance provides a lens through which we can judge the innovation effectiveness of the Global Innovation 1000. Despite significant variation in innovation investment levels, the sheer magnitude of these companies’ spending leaves little doubt that they are committed to innovation. But the disconnect between R&D investment and performance levels demonstrates that commitment is no guarantee of success”

On the other side of the ledger, how about the worrisome trends referenced by the experts who predict a relative decline? First and foremost, there is the economic argument that China’s overall GDP will surpass the US GDP at some point in the next few decades, perhaps even before 2030, at least at PPP values.  There is a large literature dedicated to speculation about whether the Chinese government will be able to maintain healthy levels of growth while addressing the many political, social and environmental problems it faces, and serious skepticism is in order. Moreover, the PPP (purchasing power parity) measure is only one way to look at GDP, and from a geopolitical vantage point it’s very unclear it is the best one. When measured at market values, the Chinese economy even in the best of circumstances will not catch up for a longer period of time. The same is true for the GDP/capita measure, which could be a proxy for how much Beijing could divert money to foreign affairs as opposed to the domestic concerns of providing for their very large population. After all, as Robert Kagan argues, the relationship between economic growth and geopolitical influence is not nearly as straightforward as we sometimes assume: for example, “It is not clear that a richer India today wields greater influence on the global stage than a poorer India did in the 1950s under Nehru, when it was the leader of the Non-Aligned Movement, or that Turkey, for all the independence and flash of Prime Minister Recep Tayyip Erdoğan, really wields more influence than it did a decade ago.”

Another worrisome trend mentioned by GT 2030 is the state of the US education system: the report echoes a common theme of the national dialogue on this topic: “without large-scale improvements in primary and secondary education, future US workers – which have benefited from the world’s highest wages – will increasingly bring only mediocre skills to the workplace.” From business leaders to the Gates Foundation to countless task force reports, there is overwhelming concern about the poor performance of US K-12 students on standardized scores compared to their foreign peers, particularly in math and sciences. While I share some of this concern, I do so to a much lesser extent than the GT2030 authors. First of all, this is not a new concern: as even some advocates of the importance of improving K-12 education admit, the US has always been an outlier of sorts in this area: “The United States has never done well on international assessments of student achievement. Instead, its level of cognitive skills is only about average among the developed countries. Yet the country’s GDP growth rate has been higher than average over the past century.” One possible explanation for this is the superior quality of America’s higher education system: as the same study notices, “By most evaluations, U.S. colleges and universities rank at the very top in the world.” Another reason has more to do with other strengths of US economic system not related to education performance, such as less government regulation, openness to free trade, and perhaps most relevant for this debate, high levels of skilled immigration.

Something that is missing from this debate is an acknowledgement that, even though American students in K-12 may not do very well at math and sciences, the US economy as a whole traditionally addressed that problem in a two-pronged approach: allowing American students to “catch up” and develop in college the skills needed to go ahead and become successful when they enter the workforce, and also allowing large numbers of international students to study, and then stay over, in the US to work as scientists and engineers. Therefore, one of the easiest and least costly ways to maintain US dominance in science and technology is to make it easier for international students in these fields to remain in the United States and work for US companies without having to go through the onerous visa process currently in place.

One last note on this supposed lack of educational achievement in math and sciences. American students, while perhaps not as capable of solving abstract problems as well as some of their peers abroad, still have some intangible advantages in terms of transferring their skills to solving real-world problems and inventing new products and services to a degree unmatched around the world. After all, had  conducted such tests been conducted during the Cold War, it is likely that the Soviet block states, with their education systems heavily focused on test-taking and abstract problem solving, would have outscored the US and the Western world in general. Yet of course the US remained the hub of technological innovation and led the way in the information revolution in the 1990s and 2000s, as it continues to do today in the era of social networks, cloud computing, and, well, iPhone apps.

Lastly, there is the thorny issue of rising healthcare costs and, by virtue of how Medicare and Medicaid programs are currently set up, of so-called “entitlements.” (The third leg of this problem, Social Security, is much more readily “fixable” in economic terms and it represents less of a long-term concern than medical costs.) It is true that high levels of government spending, if continued at the present trend, will hurt the overall prospects for economic growth by contributing to large fiscal deficits, and, incidentally, also make it more difficult to fund national defense.  However, the recent political trends in Washington point to a serious bipartisan concern about this matter, and while one’s enthusiasm for “bipartisan efforts to achieve a grand bargain” should always be firmly under control, it is not entirely unrealistic to assume that the US will find its way out of the current fiscal morass sooner than we may think.

I welcome your comments on any one of these trends, and suggestions for other areas of inquiry on the issue of the “inevitability” of US relative decline.

Is America’s Decline Really Inevitable?

One of the two “unlikely but possible” scenarios suggested by Peter Feaver in his post below is that of a resurgent United States combined with an implosion of Europe and/or the BRICs. Such an option is not discussed in GT2030, but I would argue that a scenario that challenges the quasi-conventional wisdom in some circles that “the United States’ (and the West’s) relative decline vis-à-vis the rising states is inevitable” (p.82) is well worth discussing in more detail. In this post, I will address some of the factors that might make such a scenario more more probable than the many would expect, and I’ll particularly focus on the US decline side of the equation rather than the possible implosion of the EU or the BRICs.

Several contributors to this blog already highlighted some of the key advantages that the US will continue to have in 2030 relative to China and other emerging powers, and called into serious question the narrative of “decline.”

Among the strategic trends favoring the US, the most often-quoted ones are:

 

1. Demographic trends, where a combination of higher fertility relative to other potential world powers and immigration continues to give the US an advantage over its potential global competitors

 

2. Technological trends, where US advantages in nanotechnology and what The Economist recently called a “Third Industrial Revolution” brought about by digital manufacturing is likely to bring the high-tech manufacturing jobs of the future back to developed countries from developing ones

 

3. Innovation trends, where the uniquely safe and opportunity-rich entrepreneurial environment of the United States continues to remain the breeding ground for the next Apple, Google, or Facebook. Even though China for example invests large amounts of money in R&D, their return on this investment in terms of innovation is questionable. As the consulting firm Booz&Co documented in a series of reportsexamining the world’s top 1000 biggest R&D spenders,

“Money doesn’t buy results: There is no relationship between R&D spending and the primary measures of economic or corporate success, such as growth, enterprise profitability, and shareholder return.

The comparison of R&D investment with economic performance provides a lens through which we can judge the innovation effectiveness of the Global Innovation 1000. Despite significant variation in innovation investment levels, the sheer magnitude of these companies’ spending leaves little doubt that they are committed to innovation. But the disconnect between R&D investment and performance levels demonstrates that commitment is no guarantee of success”

On the other side of the ledger, how about the worrisome trends referenced by the experts who predict a relative decline? First and foremost, there is the economic argument that China’s overall GDP will surpass the US GDP at some point in the next few decades, perhaps even before 2030, at least at PPP values.  There is a large literature dedicated to speculation about whether the Chinese government will be able to maintain healthy levels of growth while addressing the many political, social and environmental problems it faces, and serious skepticism is in order. Moreover, the PPP (purchasing power parity) measure is only one way to look at GDP, and from a geopolitical vantage point it’s very unclear it is the best one. When measured at market values, the Chinese economy even in the best of circumstances will not catch up for a longer period of time. The same is true for the GDP/capita measure, which could be a proxy for how much Beijing could divert money to foreign affairs as opposed to the domestic concerns of providing for their very large population. After all, as Robert Kagan argues, the relationship between economic growth and geopolitical influence is not nearly as straightforward as we sometimes assume: for example, “It is not clear that a richer India today wields greater influence on the global stage than a poorer India did in the 1950s under Nehru, when it was the leader of the Non-Aligned Movement, or that Turkey, for all the independence and flash of Prime Minister Recep Tayyip Erdoğan, really wields more influence than it did a decade ago.”

Another worrisome trend mentioned by GT 2030 is the state of the US education system: the report echoes a common theme of the national dialogue on this topic: “without large-scale improvements in primary and secondary education, future US workers – which have benefited from the world’s highest wages – will increasingly bring only mediocre skills to the workplace.” From business leaders to the Gates Foundation to countless task force reports, there is overwhelming concern about the poor performance of US K-12 students on standardized scores compared to their foreign peers, particularly in math and sciences. While I share some of this concern, I do so to a much lesser extent than the GT2030 authors. First of all, this is not a new concern: as even some advocates of the importance of improving K-12 education admit, the US has always been an outlier of sorts in this area: “The United States has never done well on international assessments of student achievement. Instead, its level of cognitive skills is only about average among the developed countries. Yet the country’s GDP growth rate has been higher than average over the past century.” One possible explanation for this is the superior quality of America’s higher education system: as the same study notices, “By most evaluations, U.S. colleges and universities rank at the very top in the world.” Another reason has more to do with other strengths of US economic system not related to education performance, such as less government regulation, openness to free trade, and perhaps most relevant for this debate, high levels of skilled immigration.

Something that is missing from this debate is an acknowledgement that, even though American students in K-12 may not do very well at math and sciences, the US economy as a whole traditionally addressed that problem in a two-pronged approach: allowing American students to “catch up” and develop in college the skills needed to go ahead and become successful when they enter the workforce, and also allowing large numbers of international students to study, and then stay over, in the US to work as scientists and engineers. Therefore, one of the easiest and least costly ways to maintain US dominance in science and technology is to make it easier for international students in these fields to remain in the United States and work for US companies without having to go through the onerous visa process currently in place.

One last note on this supposed lack of educational achievement in math and sciences. American students, while perhaps not as capable of solving abstract problems as well as some of their peers abroad, still have some intangible advantages in terms of transferring their skills to solving real-world problems and inventing new products and services to a degree unmatched around the world. After all, had  conducted such tests been conducted during the Cold War, it is likely that the Soviet block states, with their education systems heavily focused on test-taking and abstract problem solving, would have outscored the US and the Western world in general. Yet of course the US remained the hub of technological innovation and led the way in the information revolution in the 1990s and 2000s, as it continues to do today in the era of social networks, cloud computing, and, well, iPhone apps.

Lastly, there is the thorny issue of rising healthcare costs and, by virtue of how Medicare and Medicaid programs are currently set up, of so-called “entitlements.” (The third leg of this problem, Social Security, is much more readily “fixable” in economic terms and it represents less of a long-term concern than medical costs.) It is true that high levels of government spending, if continued at the present trend, will hurt the overall prospects for economic growth by contributing to large fiscal deficits, and, incidentally, also make it more difficult to fund national defense.  However, the recent political trends in Washington point to a serious bipartisan concern about this matter, and while one’s enthusiasm for “bipartisan efforts to achieve a grand bargain” should always be firmly under control, it is not entirely unrealistic to assume that the US will find its way out of the current fiscal morass sooner than we may think.

I welcome your comments on any one of these trends, and suggestions for other areas of inquiry on the issue of the “inevitability” of US relative decline.