It has been said that a recession is when your neighbor is out of work, but a depression is
when you are out of work. During the latter part of the 20th century, most Americans
looked askance at the “recession” wherein manufacturing and assembly jobs migrated
from the United States to Mexico and, when Mexico was no longer able to compete, to
points west, such as Vietnam and China. But in the early days of this century it is
becoming painfully clear that this “recession” could morph into a full-fledged depression
as jobs at ever-higher levels in the labor food chain prove no more immune to global
competition than those already departed. Virtually no one’s job seems safe from the
growing army of highly capable, highly motivated and often highly educated foreign
workers who are seeking jobs and are willing to perform them for a lot less remuneration
than that to which the typical American has become accustomed. And this is true whether
the American is a farmer, an assembly worker, an office employee, an engineer, an
accountant, a banker, a dentist, a radiologist or an architect.
But is it not a good thing that the citizens of other nations are prospering? The answer is
of course a resounding “yes” The inevitable social perturbations of modernization
notwithstanding, broadly based prosperity can only make the world a safer and more
stable place for all. It can make less costly products available for American consumers,
and provide new customers for American products. Yet it is inevitable that there will be
relative winners and relative losers in eras of such great change. Thus, America cannot,
and must not, remain on what is by now a decades-long course that appears likely to
ensure that too many Americans will ultimately counted among the losers.
The answer, if history has any relevance (and it usually does), is not to build a
protectionist barrier around our nation, a Great Wall of America. Rather, the solution is
to embrace, at least to start, President Bush’s proposals on research, education and
taxation announced in his 2006 State of the Union address. These proposals have been
broadly endorsed by members of Congress on both sides of the aisle. Indeed, in this year
of impending elections and rampant adversarialism, the issue of maintaining and increasing
America’s competitiveness is one of the few that has garnered strong bipartisan support.
For example, the Senate bill that fundamentally implements the President’s proposals and
those of the National Academies (as described below) quickly gathered seventy co-
sponsors: 35 Republicans and 35 Democrats.
What accounts for this rare demonstration of bipartisanship? For nearly two decades, the
business and labor communities have grown increasingly concerned about America’s
ability to compete for jobs in the evolving global market. More recently, a number of
groups have conducted studies of the trends, including the Council on Competitiveness,
the National Association of Manufacturers and the Chamber of Commerce. Six years ago,
a major federal commission on which I served—the U.S. Commission on National
Security/21st Century (a.k.a. the Hart-Rudman Commission)—devoted a fifth of its
concern and its recommendations to science and education policy. But like the better
known homeland security proposals of that commission, whose importance was not
recognized until after it was too late, our science education proposals also received too
A recent study conducted under the aegis of the National Academies of Science,
Engineering and Medicine, however, seems finally to have provided the tipping point.
The National Academies were created by President Lincoln and chartered by Congress in
1863 to provide independent advice to the Federal government on matters relating to
science and technology. Today their membership includes more than two hundred Nobel
Laureates. The Academies’ study of competitiveness, entitled Rising Above the
Gathering Storm: Energizing and Employing America for a Brighter Economic Future,
originated in a request by Senators Lamar Alexander and Jeff Bingaman—both members
of the Committee on Energy and Natural Resources—to conduct an assessment of
America’s economic prospects in the 21st century. This request was quickly endorsed
and expanded by Congressmen Sherwood Boehlert and Bart Gordon of the House
Committee on Science.
In response to the request, the Academies assembled twenty individuals with diverse
backgrounds, including university presidents, public school educators, CEOs, Nobel
Laureates and former presidential appointees. The draft results of the committee’s work
were examined by 37 well-qualified anonymous reviewers, also designated by the
Academies. It was the unanimous finding of this non-partisan committee that America
faces a serious and intensifying challenge with regard to its future competitiveness and
ultimately its future standard of living. The committee noted that the American standard
of living in the years ahead will depend largely on the quality of jobs its citizens hold.
Additionally, without a broad supply of quality jobs, tax revenues will not suffice to
provide for strong national and homeland security, healthcare and other vital government
services. The lack of a vibrant domestic consumer market will create yet another
disincentive for either U.S. or foreign companies to invest in new facilities in America.
What is bringing about this change? The study’s answer is that the prosperity equation
has a new dimension, one that some have referred to as “the death of distance.” In the last
century, breakthroughs in aviation created the opportunity to move people and goods
rapidly and efficiently over great distances. Bill Gates has referred to aviation as the
“World Wide Web of the 20th century.” In the early part of the present century, we are
approaching the point where the communication, processing and storage of information
are all virtually free. We can now efficiently move not only physical items efficiently over
great distances, we can also transport information in large volumes at little cost.
As is by now well recognized, the consequences of these developments are profound.
Soon, all but those jobs requiring near-physical contact among parties will be opened to
competition from job seekers around the world. Further, with the end of the Cold War
and the evaporation of many of the political barriers that used to divide the globe, nearly
three billion highly motivated, and increasingly well-educated, new capitalists-in-the-
making have entered the job market. And the results so far?
- U.S. companies each morning receive software that was written overnight in India in
time to be tested in the United States and returned to India for further production that
same evening—making the 24-hour workday a practicality.
- Back-offices of U.S. firms are located in such places as Costa Rica, Ireland and
- Drawings used by American architectural firms are produced in Brazil.
- U.S. firms’ call centers are based in India, where employees now take courses on how to speak with a midwestern accent.
- U.S. hospitals electronically transmit patients’ X-rays and CAT scans to be read by
radiologists in Australia and India.
- Accounting firms in the United States have clients’ tax returns prepared by experts in
- Tee times at private golf clubs are assigned in call centers located thousands of miles
- Visitors to an office not far from the White House are greeted by a receptionist who
appears on a flat screen display and controls access to the building and arranges contacts;
she is in Pakistan.
- U.S. patients have major dental work performed in the Dominican Republic, since airfare
is a minor part of the overall cost of treatment.
- At some McDonald’s drive-through windows, orders are transmitted by satellite to a
processing center over a thousand miles away (currently in the United States), where they
are processed and returned to the food service worker who prepares the order.
- Surgeons sit on the opposite side of the operating room and control robots to perform
medical procedures. It is not a huge leap of imagination to conceive of highly-specialized,
world-class surgeons who are located not just across the operating room, but across the
As Tom Friedman concluded in The World Is Flat, a book that has drawn much attention
to the increasingly competitive global marketplace, globalization has “accidentally made
Beijing, Bangalore and Bethesda next door neighbors.” And in this new neighborhood, able
candidates for many jobs that traditionally have resided in the United States are now just
a mouse-click away.
How will America compete in this rough-and-tumble environment, which is evolving
much faster than most had expected? The answer is not very well—at least not unless we
shift gears. The Red Queen in Lewis Carroll’s Through the Looking Glass offers sage
advice: “Now, here, you see, it takes all the running you can do to keep in the same place.
If you want to get somewhere else, you must run at least twice as fast as that!”
One element of competitiveness is, of course, the cost of labor. In Vietnam, the wrap-rate
for low-skilled workers is about 25 cents per hour, one-twentieth the U.S. minimum
wage. Similarly, five qualified chemists can be hired in India for the cost of one in
America. Eight engineers can be hired in India for the cost of one in America. Thus, the
cost of labor is not likely to become a competitive advantage for America in the
The availability of financial capital has traditionally represented a significant competitive
advantage for America, but the evolving mobility of capital is likely to remove that
advantage. This is plainly evident in the willingness of U.S. firms to build factories,
offices and research laboratories in Mexico, Vietnam, China or almost anywhere else if a
competitive advantage can be derived by doing so. Capital, as has repeatedly been
observed, comfortably crosses geopolitical borders—and now does so at the speed of
light. Consider that:
- Last year, for the first time, American investors put more new money into foreign stock
funds than into domestic stock portfolios.
- Chemical companies closed seventy facilities in the United States in 2004 and tagged
forty more for shutdown. Of 120 chemical plants being built around the world with price
tags of $1 billion or more, one is in the United States and fifty are in China. No new
refineries have been built in the United States since 1976.
Human capital—the quality and size of a nation’s work force—is a particularly important
factor in assessing competitiveness. America’s public school system comprises the cradle
of this asset. Yet, as it exists today, that system in the aggregate compares abysmally
with those of many other developed—and even developing—nations. This is particularly
true in the very fields that underpin most innovation, namely science, mathematics and
technology. For example, in 1995 (the most recent year for which data are available), U.S.
12th graders performed below the international average on a test of general knowledge in
mathematics and science. And in 2003, U.S. 15-year-olds ranked 24th out of forty
countries that participated in a Program for International Student Assessment examination
of students’ ability to apply mathematical concepts to real-world problems.
The existence of a vibrant domestic market for products and services is another important
factor in determining a nation’s competitiveness, since such markets help attract
businesses to locate facilities and jobs in those countries. But here, too, there are warning
signs: Goldman Sachs analysts project that within about a decade, 80 percent of the
world’s middle-income consumers will live in nations outside the currently industrialized
world. In China alone there will likely be twice as many middle-class consumers as the
entire population of the United States.
Of the utmost importance to competitiveness is the availability of knowledge capital—
namely, ideas. Here, too, science and engineering are disproportionate contributors. But
knowledge capital, like financial capital, is highly mobile. There is one major difference:
being first-to-market, by virtue of access to new knowledge, can be immensely valuable—
even if by only a few months. Craig Barrett, the chairman of Intel, points out that 90
percent of the products his company delivers on December 31 did not even exist on
January 1 of the same year. Such is the dependence of high-tech firms on being at the
leading edge of scientific and technological progress.
And it is not simply so-called high-tech firms that share this dependence. For example,
John Pepper, the former CEO of America’s largest consumer products company, Procter
& Gamble, whose products span from toothpaste to diapers, has characterized his firm as
an R&D; organization.
There are, of course, still many other factors that influence a nation’s competitiveness.
These include patent processes, tax policy and overhead costs such as healthcare,
regulatory compliance and litigation. In all three areas, on balance, the United States is at a
competitive disadvantage with respect to most of its prospective competition.
On the other hand, America’s version of the free enterprise system has proven to be a
powerful asset, with its inherent drive to introduce new ideas and its discipline in flushing
out the obsolescent, even when it is painful in the near-term to do so. But others have
now recognized these virtues and are seeking to emulate our system.
The enigma is that despite all these factors, America seems to be doing very well just
now. The nation has the highest R&D; investment intensity in the world. It has a
disproportionate share of the finest research universities in the world. The state of
California alone has more venture capital than any nation in the world other than the
United States itself. Total household net worth now approaches $50 trillion. Two million
jobs were created in America in the past year, and citizens of other nations continue to
invest their savings in America at a remarkable rate.
But we owe this prosperity to past investments, many of them in the fields of science
and technology. In short, we are eating our seed corn, and the early indicators of future
prosperity are generally headed in the wrong direction. Consider that:
- The United States is today a net importer of high-technology products. Its trade balance
in high-technology manufactured goods shifted from plus $54 billion in 1990 to negative
$50 billion in just 11 years.
- In 2001 (the most recent year for which data are available), U.S. industry spent more on
tort litigation than on research and development.
- Federal funding of research in the physical sciences, as a percentage of GDP, was 45
percent less in FY 2004 than in FY 1976. The amount invested annually by the U.S.
Federal government in research in the physical sciences, mathematics and engineering
combined equals the annual increase in U.S. health care costs incurred every 20 days.
- The United States is one of the few countries in which industry plays a major role in
providing healthcare for its employees and their families. Starbucks spends more on
healthcare than on purchasing coffee beans. General Motors spends more on healthcare
than on steel.
The good news is that we can ensure that America does share in the prosperity that
science and technology are bringing the world. In this regard, the National Academies’
committee offered recommendations in four areas. In priority order, these are: (1) repair
the kindergarten through 12th grade public education system, especially in science and
mathematics; (2) increase investment in basic research, especially in the physical sciences,
mathematics and engineering; (3) encourage more Americans to pursue degrees in science,
mathematics and engineering; and (4) create a more friendly innovation ecosystem,
including encouraging rather than discouraging the immigration of world-class scientists
and engineers who, through their contributions, help create jobs for all Americans.
Today only 4 percent of America’s jobs are held by scientists and engineers. The
objective is not simply to create more jobs for this small group, but rather it is to
strengthen that group so it can create even more quality jobs for the other 96 percent of
the nation’s citizenry.
The first of the tasks noted above is of particular importance since the U.S. public K-12
educational system is not only failing to prepare many of the nation’s youth to function
in the high-tech world of tomorrow, it is also not producing an adequate supply of the
scientists and engineers who will be the innovators in that world. Today, 34 percent of
the practicing natural scientists in America holding Ph.D.s are foreign-born. Fully 56
percent of the doctoral degrees in engineering granted by U.S. universities last year were
awarded to foreign-born students. However, these individuals have recently begun to go
elsewhere to seek their education, and those who do come to America’s shores are
increasingly returning home after they acquire their degrees, since their own countries are
increasingly able to employ them and America’s immigration policies appear increasingly
The National Academies’ committee concluded that the key to producing high school
graduates educated to world-class standards in science and mathematics is to provide
them with teachers who are fully qualified to teach those subjects, teachers who can
convey the excitement of discovery to third-graders, not “turn them off” because “math is
hard.” Only with such inspiring classroom leaders can we expect an eighth-grader to make
the pivotal decision to study algebra—a decision that because of the cumulative character
of an education in science and engineering, largely determines whether that student will
have the option to pursue a career in those professions.
Today, 68 percent of U.S. public school eighth-graders are being taught mathematics by
teachers with no degree or certificate in the field, and about 33 percent of those in fifth
through ninth grades study physical science with teachers who lack corresponding formal
qualifications. One can hardly expect teachers assigned to teach topics out of their own
fields to convey excitement, depth of knowledge and motivation to their students.
America is not confronting a typical crisis. There will be no 9/11, Sputnik or Pearl Harbor
to alert the nation to the challenge it faces. The situation is much more akin to that of the
proverbial frog being slowly boiled in a pot of water.
With only 5 percent of the world’s population but nearly 30 percent of the world’s
wealth, Americans tend to trust that, somehow, U.S. scientific and technological
leadership, and the high standard of living it has helped make possible, is a natural state of
affairs. But such good fortune is not a birthright. If Americans want their children and
grandchildren to enjoy the standard of living most of today’s citizens have come to
expect, we must get out and compete effectively. Only by so doing can we keep the
recession that is upon us from becoming a full-fledged depression, and keep America’s
world leadership secure.
1 U.S. Commission on National Security/21st
Century, Road Map for National Security: Imperative for Change (Government Printing
Office, March 2001), pp. 29-46.