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Off Track
America's economy is losing its competitive edge and Washington hasn't noticed.
By Benjamin Wallace-Wells
There is a moment in the lifespan of every cool new gadget—two years after Bill Gates buys one, a year and a half after the popular press gets wind of it—that its price drops enough to show up in significant numbers on the shelves at Best Buy, the electronic superstore. At this instant, the product becomes accessible for middle class Americans, something they can imagine themselves buying, and so these electronics stores have become temples to innovation, the place most Americans go to get as close to the cutting edge as most of them dare. On weekend afternoons, Best Buy is as bustling as a souk, full of grandmothers and little kids tooling around with digital video cameras and geeked-out salesmen explaining to the moms that the cell phones in their hands have nearly the computing power of desktop PCs. But it's the men who are the most transported, moving from department to department with gawky reverence. At a Best Buy I visited recently in Alexandria, Va., I watched one dad gaze in wonder at row upon row of giant plasma televisions—elegant silver-framed screens that seemed not just to capture the way the world looks, but to improve upon it. He watched bees extract honey from flowers, and spiraling footballs drop into the hands of receivers, and you could almost see a two-part thought process play out over his face: First, If I wait a year, these sets will be half the price. Second, Screw it, I'm buying one now!
But there was something else I noticed: Whereas a decade ago the most creative, groundbreaking stuff came from Silicon Valley, now it all seemed to come from overseas. The plasma televisions were from Korea; the computer-like cell phones were from Finland; the feature-packed digital cameras were from Japan.
During the last six months, we have begun, quietly, to enter a newly tense moment, with university presidents, business leaders, and columnists delivering ominous-sounding reports and editorials about the threat to American innovation posed by a freshly competitive world—the renewed vitality of western Europe, Japan and Korea, and the ravenous growth of China and India. “We no longer have a lock on technology,” David Baltimore, a Nobel laureate and the current president of the California Institute of Technology, wrote recently in the Los Angeles Times. “Europe is increasingly competitive, and Asia has the potential to blow us out of the water.”
What worriers like Baltimore are beginning to grasp is that these changes are emerging just as the American economy is being made more vulnerable by the movement of manufacturing and service jobs overseas. As a result, we've become increasingly dependent on maintaining our edge in discovering the new technologies and applications that create whole new industries—just as other countries are closing that gap.
This is a fundamentally new threat. In the '70s and '80s, Japanese and European firms adopted American technology and made key improvements in process and design to shave cost and increase quality. Now, foreign companies are making many of the most important breakthroughs themselves. This shift is part of a change in strategy: instead of copying our innovations, foreign governments have decided to copy our very model of innovating. They have studied our centers of invention, the Silicon Valleys and Research Triangles, where university scientists, venture capitalists, high-tech entrepreneurs, and educated, creative workers, many of them from overseas, congregate. These creative centers, our competitors have learned, were the result of federal policy—decades of investment in basic scientific research; patent law changes that allowed universities to capitalize on discoveries made in their labs; financial reforms that gave rise to the venture capital industry; and immigration laws that opened the door to talented foreigners.
Over the last decade, our competitors have implemented similar policies at home: They have built universities, reformed financial markets, invited in immigrants, and made the development and adoption of new technologies national goals. Now, they're reaping the benefits. The technologies behind plasma screens emerged have been refined and expanded in labs under a research partnership between the Korean government and the electronics maker Samsung. Europe established its lead in mobile phones when European countries set a single standard for mobile communications (American firms are hobbled by lower-quality spectrum and three competing standards).
Foreign competitors are edging out the United States not just in today's snazzy consumer goods, but in the technologies that will define the marketplace in the years to come. Most economists and new economy thinkers believe that the likeliest candidate for the Next Big Thing is the research being done in nanotechnology, a catch-all term for the manipulation of matter at the molecular level. Nanotechnology could someday be used to repair broken DNA to prevent cancer, create supercomputers the size of pinheads, or fabricate building materials 150 times the strength of steel. American scientists have been tinkering with nanotechnologies for 20 years. But some of the most cutting-edge research today is coming from overseas. Last August, Israeli scientists announced that they'd managed to develop manipulable nano-wires, tiny organic tools they could use to rearrange atoms and conduct electricity over microscopic spaces, a breakthrough a leading MIT nanotechnologist admitted American researchers had been chasing “for many years.” In September, Japanese scientists announced that they would soon be able to use nano-engineering to build a computer chip 30 times more powerful than Intel's best. The breakthrough led American analysts to conclude that the United States was beginning to lose the race to bring nanotechnology products to market.
The worry of economists and business leaders is not simply that Japan, Israel, or South Korea will beat us, like one football team does to another. It is, more precisely, that we'll only be able to take advantage of rising wages in those countries (and afford our own here) if we continue to create new, cutting-edge products and services to sell to those countries—and right now America does not seem to be doing as much of that as we were just a few years ago.
This new competition from other developed countries, and the failure of America to fully keep pace, is one cause of our anemic job creation, three years after what was, by historical standards, a brief and fairly light recession. Another reason, of course, is the rise of China and India, where U.S. firms have not only moved manufacturing plants but also “outsourced” service sector jobs. America's employment base is being squeezed by these two pincers—China and India from below, and the developed world innovating from above. Over time, those pincers may come together, as China and India also become proficient in high-end innovation. China is already opening universities at a breathtaking clip, while Intel, Hewlett-Packard, Microsoft, and Verizon have all opened research labs there—the kind that anchored the development of Silicon Valley. “It's become inevitable,” says Ross Armbrecht, president of the Industrial Research Institute, which is the think tank for the research arms of America's corporations, “that more and more of the most far-reaching innovations will be going overseas, to India and China, in the near future.”
Economics is a negotiation in uncertainties, and so nobody's really sure what all of these changes will mean for the well-being of the American middle class. But when you survey economists, policymakers, and business leaders about America's long-term future, it's hard to find many rank optimists; there are the Panicked, and then there are the Merely Tense. Richard Lester, the head of MIT's Center for Innovation, told me he belongs in the latter camp: “Things look somewhat bleak in the long-term, but if you look around Boston, at the incredible concentration of talent and opportunity here, we've still got a head start, and if we're smart we can probably build on it.” Among the Panicked are economists such as MIT Nobelist Paul Samuelson, who has recently argued that the rapid spread of innovative capacity to other countries with lower labor costs makes him doubt the whole doctrine of “comparative advantage,” on which much of modern economics rests.
More... http://www.washingtonmonthly.com/features/2005/0503.wallace-wells1.html#byline
Off Track
America's economy is losing its competitive edge and Washington hasn't noticed.
By Benjamin Wallace-Wells
There is a moment in the lifespan of every cool new gadget—two years after Bill Gates buys one, a year and a half after the popular press gets wind of it—that its price drops enough to show up in significant numbers on the shelves at Best Buy, the electronic superstore. At this instant, the product becomes accessible for middle class Americans, something they can imagine themselves buying, and so these electronics stores have become temples to innovation, the place most Americans go to get as close to the cutting edge as most of them dare. On weekend afternoons, Best Buy is as bustling as a souk, full of grandmothers and little kids tooling around with digital video cameras and geeked-out salesmen explaining to the moms that the cell phones in their hands have nearly the computing power of desktop PCs. But it's the men who are the most transported, moving from department to department with gawky reverence. At a Best Buy I visited recently in Alexandria, Va., I watched one dad gaze in wonder at row upon row of giant plasma televisions—elegant silver-framed screens that seemed not just to capture the way the world looks, but to improve upon it. He watched bees extract honey from flowers, and spiraling footballs drop into the hands of receivers, and you could almost see a two-part thought process play out over his face: First, If I wait a year, these sets will be half the price. Second, Screw it, I'm buying one now!
But there was something else I noticed: Whereas a decade ago the most creative, groundbreaking stuff came from Silicon Valley, now it all seemed to come from overseas. The plasma televisions were from Korea; the computer-like cell phones were from Finland; the feature-packed digital cameras were from Japan.
During the last six months, we have begun, quietly, to enter a newly tense moment, with university presidents, business leaders, and columnists delivering ominous-sounding reports and editorials about the threat to American innovation posed by a freshly competitive world—the renewed vitality of western Europe, Japan and Korea, and the ravenous growth of China and India. “We no longer have a lock on technology,” David Baltimore, a Nobel laureate and the current president of the California Institute of Technology, wrote recently in the Los Angeles Times. “Europe is increasingly competitive, and Asia has the potential to blow us out of the water.”
What worriers like Baltimore are beginning to grasp is that these changes are emerging just as the American economy is being made more vulnerable by the movement of manufacturing and service jobs overseas. As a result, we've become increasingly dependent on maintaining our edge in discovering the new technologies and applications that create whole new industries—just as other countries are closing that gap.
This is a fundamentally new threat. In the '70s and '80s, Japanese and European firms adopted American technology and made key improvements in process and design to shave cost and increase quality. Now, foreign companies are making many of the most important breakthroughs themselves. This shift is part of a change in strategy: instead of copying our innovations, foreign governments have decided to copy our very model of innovating. They have studied our centers of invention, the Silicon Valleys and Research Triangles, where university scientists, venture capitalists, high-tech entrepreneurs, and educated, creative workers, many of them from overseas, congregate. These creative centers, our competitors have learned, were the result of federal policy—decades of investment in basic scientific research; patent law changes that allowed universities to capitalize on discoveries made in their labs; financial reforms that gave rise to the venture capital industry; and immigration laws that opened the door to talented foreigners.
Over the last decade, our competitors have implemented similar policies at home: They have built universities, reformed financial markets, invited in immigrants, and made the development and adoption of new technologies national goals. Now, they're reaping the benefits. The technologies behind plasma screens emerged have been refined and expanded in labs under a research partnership between the Korean government and the electronics maker Samsung. Europe established its lead in mobile phones when European countries set a single standard for mobile communications (American firms are hobbled by lower-quality spectrum and three competing standards).
Foreign competitors are edging out the United States not just in today's snazzy consumer goods, but in the technologies that will define the marketplace in the years to come. Most economists and new economy thinkers believe that the likeliest candidate for the Next Big Thing is the research being done in nanotechnology, a catch-all term for the manipulation of matter at the molecular level. Nanotechnology could someday be used to repair broken DNA to prevent cancer, create supercomputers the size of pinheads, or fabricate building materials 150 times the strength of steel. American scientists have been tinkering with nanotechnologies for 20 years. But some of the most cutting-edge research today is coming from overseas. Last August, Israeli scientists announced that they'd managed to develop manipulable nano-wires, tiny organic tools they could use to rearrange atoms and conduct electricity over microscopic spaces, a breakthrough a leading MIT nanotechnologist admitted American researchers had been chasing “for many years.” In September, Japanese scientists announced that they would soon be able to use nano-engineering to build a computer chip 30 times more powerful than Intel's best. The breakthrough led American analysts to conclude that the United States was beginning to lose the race to bring nanotechnology products to market.
The worry of economists and business leaders is not simply that Japan, Israel, or South Korea will beat us, like one football team does to another. It is, more precisely, that we'll only be able to take advantage of rising wages in those countries (and afford our own here) if we continue to create new, cutting-edge products and services to sell to those countries—and right now America does not seem to be doing as much of that as we were just a few years ago.
This new competition from other developed countries, and the failure of America to fully keep pace, is one cause of our anemic job creation, three years after what was, by historical standards, a brief and fairly light recession. Another reason, of course, is the rise of China and India, where U.S. firms have not only moved manufacturing plants but also “outsourced” service sector jobs. America's employment base is being squeezed by these two pincers—China and India from below, and the developed world innovating from above. Over time, those pincers may come together, as China and India also become proficient in high-end innovation. China is already opening universities at a breathtaking clip, while Intel, Hewlett-Packard, Microsoft, and Verizon have all opened research labs there—the kind that anchored the development of Silicon Valley. “It's become inevitable,” says Ross Armbrecht, president of the Industrial Research Institute, which is the think tank for the research arms of America's corporations, “that more and more of the most far-reaching innovations will be going overseas, to India and China, in the near future.”
Economics is a negotiation in uncertainties, and so nobody's really sure what all of these changes will mean for the well-being of the American middle class. But when you survey economists, policymakers, and business leaders about America's long-term future, it's hard to find many rank optimists; there are the Panicked, and then there are the Merely Tense. Richard Lester, the head of MIT's Center for Innovation, told me he belongs in the latter camp: “Things look somewhat bleak in the long-term, but if you look around Boston, at the incredible concentration of talent and opportunity here, we've still got a head start, and if we're smart we can probably build on it.” Among the Panicked are economists such as MIT Nobelist Paul Samuelson, who has recently argued that the rapid spread of innovative capacity to other countries with lower labor costs makes him doubt the whole doctrine of “comparative advantage,” on which much of modern economics rests.
More... http://www.washingtonmonthly.com/features/2005/0503.wallace-wells1.html#byline
