WASHINGTON – There are two issues confronting America’s economic vitality. One is the disturbingly weak short term economic picture and how to improve it. The other –and indeed far bigger one– is doubts about US long term competitiveness.
The short term economic problem unfortunately gets to be intertwined, with the political need to force visible results in terms of new employment now, before the November mid-term congressional elections. So, the sluggish economy is both an economic and a political problem for the Obama administration and for the Democrats standing for re-election who have to support it.
The president’s party, no matter who is in power, usually loses seats in Congress after the mid-term elections. And the dominant issue causing voters to switch sides is usually the economy not doing as well as hoped/promised/expected. Voting against the president’s party two years after voting him into office is a way for the electorate to show buyer’s remorse. Of course, much of this happens because voters exaggerate the president’s ability to influence economic outcomes via public policy; and because those who get elected, and this includes Barack Obama, usually over promised and thus, two years later, are short on results.
Politics and economics blended
And this November, after two extremely difficult years managing the Big Crisis, while trying to build foundations for new prosperity, the economy, while somewhat improved, looks a lot worse than what people expected and worse than what the administration promised. So, the only question is: how big a loss is it going to be for the Democrats? Will they lose the House? (Possibly). Or may be even the Senate? (Highly unlikely). Fearing the worst, the Democrats will calibrate their actions between now and November for immediate political effect, rather than long term economic soundness. And this usually means a lot of populism and not much substance.
Spin and counter spin
More broadly, the dictates of the political calendar and the unfolding electoral fight tend to pollute the debate and impede an intelligent conversation about what is really going on. The administration wants you, the voter, to believe that the glass is half full and getting fuller as we speak. The Republicans want you to believe the opposite. But, in this exercise in spin and counter spin, we miss a dispassionate evaluation of the patient.
We shall recover from the Big Crisis, but slowly
What is ailing America short term and long term? As for the short term, we could go on reciting once more the now canonic litany of what happened “to housing, sub prime mortgages, overleveraging by consumers, the banks”, and so on. But all this has already been beaten to a pulp and so let’s dispense with it. At some point, (although probably not soon enough to benefit the Democrats this November), we shall get out of the gigantic mess that unfolded in 2008-2009. Unemployment will go down some and the housing market will stabilize a bit. Nothing great, I am afraid, but better.
Long term issues: loss of competitiveness
Regarding the long term, however, the prognosis is bad, as there is no indication whatsoever that there will be a truly dramatic take-off. The truly worrisome fact is that, because of other systemic problems, whose onset precedes the Big Crisis, we shall not spring back from the Big Crisis, eager and fighting. We shall come back, somehow; but fatigued and wary. And why so? Let me give a short answer that may not embrace the full gamut of relevant factors; but that is nonetheless central.
In simple words: it seems that we have lost our magic touch with rapid fire innovation and our legendary ability to bring it to market, thus constantly re-generating the economy. We are still innovation players, but we are no longer the only or at least biggest game in town. While it is true that, as part of a long term growth strategy, we have to fix our fiscal picture through a serious reform of an entitlement system that, if unchecked, will lead to ruin, this would take care of the public spending side. But what about the wealth generation side? How can we generate many new viable enterprises, innovation and new value?
Andy Grove’s alarm: we can no longer “scale up”
Legendary Intel corporation leader Andy Grove lamented in a recent essay in Bloomberg BusinessWeek that US high tech enterprises will lose whatever edge they still retain, as they are no longer capable of “making” here what they invent. Grove maintains that the ability to control the “scaling up” of production, after having proven the viability of a new product, is itself a critical part of the innovation continuum. Today, critical innovation may still take place in the US, says Grove; however, not just some but all of the “scaling up” now is done in China. And this is not just because of the basic economic advantages (cheap labor) that China has; but by default, as we have lost the industrial infrastructure that would give us the domestic scaling up option if we wanted to exercise it.
Grove believes that this is now irreversible and that this inability to make anything in high tech is a huge strategic disadvantage for America. The industries that do the scaling, he contends, gain “know how” and new skills in the process. In time, mastery of the scaling process will give them the increased knowledge and the tools to become the future innovators. Innovation –he concludes– will shift to the localities where the scaling up is already taking place. This will be the new innovation ecosystem –and it will not be in the USA.
Vivek Wadhwa: the real issue is nurturing small enterprises
Others disagree, maintaining that the real strategic asset of the US economy is still the army of small entrepreneurs who create the real, new jobs, thus constantly reviving, growing and positively transforming the economic landscape. If we want new growth and net job creation, maintains Vivek Wadhwa in an essay in response to Grove, also featured in Bloomberg Businessweek, then we should enable the many would-be entrepreneurs who are all too often blocked by lack of access to capital or their lack of practical understanding of how to properly start a business.
Make full use of university based research
He also argues that the supposedly state of the art pipeline between academic research and the market place is clogged and not as good as it could be. As a result, the vaunted American genius to rapidly bring innovation to market is far less significant then legend would make us believe. Much valuable research is lost. Good ideas hatched in the lab never get to see the light of day. But if we remove these blockages, says Wadhwa, if we create a workable pathway, then we shall see a renaissance of enterprise, along with job creation, pushed forward by the many who have the genius and the will to make new things happen.
Chris Farrell: get more foreigners here
Others like Chris Farrell, himself a Bloomberg Businessweek writer, look at the innovation picture from a different perspective: the unequalled American ability to draw into America talent from abroad. He notes that America is still an incredibly powerful magnet capable of attracting scientist and entrepreneurs from other countries. The data is indeed staggering. Consider this: half of the new Silicon Valley start ups are created by foreign born entrepreneurs, mostly Indian and Chinese. One quarter of all new US patents have gone to foreign born innovators. A huge chunk of the higher degrees in science and technology awarded by the most prestigious universities go to foreigners. And many of them end up staying in the US.
Impressive contribution to America coming from foreign innovators
And why so? Because, current shortness of breath notwithstanding, America still has an incredibly “enterprise friendly” ecosystem: a unique combination of Super Universities, National Laboratories, Venture Capital, depth and liquidity of broader capital markets, and a huge domestic market that is still the envy of the world. And this is why bright people come here. Farrell’s policy recommendation is very simple. Welcome all of them. Make it easier, for all who have the desire, to come and study here. After they complete their academic work, make it easy for them to stay here legally and set up shop.
In a word: let us use the built in advantage that we have got –an environment still quite favorable for innovators– and let’s make the most of it. We have spent decades to create MIT and Caltech and so on. Let’s make them the beacon, let’s use this native advantage in the same way as the Chinese use cheap labor and tax breaks to lure capital and to attract new business to their manufacturing facilities. The proven record is that foreign born innovators help America maintain its technological edge. They create businesses and employment. If so, the more, the merrier.
Why America can no longer produce its own native talent?
Farrell makes an excellent point. But his pragmatic recommendation implicitly accepts as a given the systemic failure of the US education system and American society in general to produce a sufficient number of native scientists and entrepreneurs. By recommending that we should get as many foreigners as we can get, so that they will feed the innovation and business creation pipeline, he sidesteps the painful question as to why Americans are now in many instances minorities within the student bodies of the premier US research universities.
Of course, the fact that we can attract foreign talent is a fantastic advantage that should be used for all it is worth. But we cannot ignore the baffling shortcoming of a US society and education system incapable of nurturing a new generation of talented researchers and innovators.
Do we need American born innovators?
Oddly enough, the need to favor American native talent in science was pointed out long ago by Hungarian born physicist Edward Teller who came to the US as an immigrant and later on became the father of the H Bomb:
“If we’re not going to make a determined effort for more education in hard science and engineering, then we better stop thinking of the United States as a leading nation in the world.”
Historically America blended well native and new comers talent
So, while an immensely talented and extremely valuable immigrant himself, Teller believed that America needed to breed its own. Was he right? To a large degree, yes. The magic of America is or at least has been in the ability to blend native talent and expertise with an almost constant stream of new intellectual ingredients brought in by various waves of new comers who came to America because of its openness and because of the real opportunity that it offered to foreigners. Edward Teller was one of them. And he was not the only one.
A long list of illustrious foreigners
The list is long; and here are only a few examples. Scotland born Andrew Carnegie, steel industry leader and later on creator of one of the most remarkable philanthropies in US history. Nikola Tesla, innovator in electrical power, coming from Serbia. And of course physicist Albert Einstein. And then Hans Bethe, Felix Bloch, Enrico Fermi and Emil Konopinski, himself US born; but son of Polish immigrants. Hard to think of the “Manhattan Project” that brought about the A bomb and the end of the war with Japan without them. And impossible to think of the US space program without German born Wernher von Braun brought to the US after WWII and described by some as “the greatest rocket scientist in history”.
And, if we get closer to our times, former Intel CEO Andy Grove, referred to above, an immigrant from Hungary. And what about the top leadership of Pepsico? CEO Indra Nooyi, born in India, Massimo d’Amore, CEO of Pepsico Americas, born in Italy. And then we have IT and then energy venture capitalist Vinod Khosla, from India. And this is just a tiny bit of what would be an incredibly long list of illustrious and not so illustrious names; (this second list woud include the Indians running hundreds of motels, the Koreans operating so many tidy, immaculate grocery shops, and so on. These people did not go to MIT. But they were attracted by the possibility of “making it” in America, through hard work and personal drive. They enrich America; and they should be welcome, just as we welcome IT scientists).
Shall we rely on foreigners alone?
Sure enough, the very talented foreign scientists and innovators came to America, as opposed to Romania, because here in America there was a truly unique breeding ground, open to scientific innovation and its commercial applications. And yet, if we admit that America has lost (for good?) its internal regenerative ability, then future success in innovation is entirely in the hands of willing foreigners that will come here and provide the brains and the managerial talent that native born Americans can no longer supply. If this is so, then we are saying that the special “US blend” has to be, not just periodically reinvigorated, but actually created and nurtured primarily by foreign talent. This would be new. Will it work this way? We do not know. But you can bet that America would a lot different.
In the meantime, let’s make it easy for those who wish to come
Be that as it may, just like Chris Farrell in his piece, I am for open borders and support for the foreign scientists, innovators and entrepreneurs who still believe that there are unique opportunities for people like them to set up shop in America.
I would like to believe that their interest in coming here and doing things here encompasses more than the dream of big bucks. In America, unhindered creativity is possible because there is Freedom. While the connection between the two may have become somewhat dim for the US native population, many who come from countries in which free inquiry (not just in science) is either thwarted or made complicated by lack of vision or capital should appreciate the real value of what they can find here.
“Land of Enterprise”
As Edward Teller said long ago, we have to nourish our own. And this may be possible if the right education and economic policies are designed and implemented. And we should vigorously work on them.
But, in the meantime, by all means let’s use the appeal that America still has, as “The Country” that holds research and enterprise in high esteem. Let’s make this our brand: “America, The Land of Enterprise“. Let everybody know about this. And let everybody who aspires to new discoveries and new businesses come here and feel welcome.
Innovators are welcome
Long term, getting here the tens of thousands who at the moment may be contemplating this step of “Coming to America”, as the song says, may do more good to stimulate the regeneration of America’s fiber than pumping more tax payers dollars into this or that subsidized sector. If we need to make it a lot easier for those would-be entrepreneurs who wish to come but still hesitate, as they think about the complexities of getting to the US and then the challenge of navigating the still forbidding immigration processes, by all means let’s do so.
Ultimately, high quality human capital is the most fundamental strategic asset. Our ability to attract it here is our strength. And so let’s use this strength!