“AMERICA, WE HAVE A PROBLEM”

How are we doing in the global competition for jobs? The unanimous answer of the members of the Academies’ Gathering Storm committee is, not well.

For example

  • The US share of the world’s leading-edge semiconductor manufacturing capacity dropped from 36% to 11% in the past 7 years.

  • Chemical companies closed 70 facilities in the United States in 2004 and were in the process of closing 40 more the following year. Of the 120 new plants costing over $1 billion each that were under construction at that time, 50 were in China and one was in the United States.

  • The US Big Three automakers announced the closing of 26 plants in the United States over the next several years, while Japan-based companies are opening four new plants in the United States between 2006 and 2008.

  • There are now 12 energy companies in the world whose reserves exceed those of the largest US energy firm, ExxonMobil.

  • IBM recently sold its once-promising PC business to a Chinese company.

  • In Business Week’s ranking of the world’s information-technology companies, only one of the top 10 is based in the United States.



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Is America Falling Off the Flat Earth? “AMERICA, WE HAVE A PROBLEM” How are we doing in the global competition for jobs? The unanimous answer of the members of the Academies’ Gathering Storm committee is, not well. For example The US share of the world’s leading-edge semiconductor manufacturing capacity dropped from 36% to 11% in the past 7 years. Chemical companies closed 70 facilities in the United States in 2004 and were in the process of closing 40 more the following year. Of the 120 new plants costing over $1 billion each that were under construction at that time, 50 were in China and one was in the United States. The US Big Three automakers announced the closing of 26 plants in the United States over the next several years, while Japan-based companies are opening four new plants in the United States between 2006 and 2008. There are now 12 energy companies in the world whose reserves exceed those of the largest US energy firm, ExxonMobil. IBM recently sold its once-promising PC business to a Chinese company. In Business Week’s ranking of the world’s information-technology companies, only one of the top 10 is based in the United States.

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Is America Falling Off the Flat Earth? In spite of America’s growing demand for energy, no new petroleum refineries have been built and no new nuclear power plants have been ordered in the past 30 years. (France now derives 78% of its electric power from nuclear sources; Lithuania, 72%; Belgium, 54%; Armenia, 42%; Japan, 30%; and the United States, 19%.) Nearly 60% of the patents filed with the US Patent and Trademark Office in the field of information technology now originate in Asia. Once-mighty Ford and General Motors both have junk-bond ratings, and each has laid off over one-third of its dwindling North American workforce in the past 5 years alone. Last year Toyota brought to an end the notion of the US Big Three automakers when it sold more vehicles in the United States than Chrysler. This year, rapidly expanding Toyota ended General Motors’s 75-year reign as the world’s largest auto manufacturer. Only one of the 25 largest initial public offerings last year took place on American exchanges. China is on track to build 108 new airports between 2005 and 2010, including the world’s largest. The United States, in spite of stifling congestion, has built only one major airport in the last third of a century. Low-wage firms, such as Wal-Mart and McDonald’s, created 44% of the new jobs in America during one recent period—a period during which high-wage firms produced only 29% of the new jobs. Americans are now “saving” a net negative 0.4% of their disposable income. In 2000, the number of foreign students studying physical sciences and engineering in US graduate schools surpassed, for the first time, the number of US students. The Los Angeles Times reports that in the past 16 years two high-rise buildings were constructed in Los Angeles as the city executed its accelerated urban-renewal plan. In the past 10 years, 5,000 were built in Shanghai.

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Is America Falling Off the Flat Earth? Some foreign universities are now conducting their engineering and business classes in English to promote recruitment of faculty and students and simplify access to technical information. In contrast, the working language in the back halls of many US engineering schools is Chinese. The United States is falling relative to its economic competitors in broadband Internet access. As recently as 2000 it was in first place; now it ranks 16th in the fraction of citizens having broadband connections and 61st in the use of mobile telephony per capita. South Korea has nearly twice the broadband penetration (subscribers per capita) of the United States. Toyota now has over 5 times the market capitalization of General Motors and Ford combined. The United States ranks 17th among nations in high-school graduation rate and 14th in college graduation rate. Foreigners finance about two-thirds of US domestic investment, compared with about one-fifteenth a decade ago. China has supplanted the United States as the world’s number 1 high-technology exporter. During the past 30 years, 40% of new petroleum production came from industrialized nations. It is estimated that during the next 40 years, 90% will come from developing nations. Well over half the world’s foreign-exchange resources are held by emerging market countries: the poorer nations are now financing the richer nations. The German firm that a decade ago purchased one of America’s Big Three automobile makers, Chrysler, for $36 billion decided after 9 years that it didn’t want the company after all and in effect paid nearly $700 million to get someone else to take it away (along with its pension liability). Of the new R&D sites planned for construction in the next 3 years by the 177 companies queried in one recent survey, 77% are to be built in China or India, often using US corporate financing.

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Is America Falling Off the Flat Earth? An analysis conducted by Marie and Jerry Thursby for the National Academies Government-University-Industry Research Roundtable titled Here or There: A Survey of Factors in Multinational R&D Location records the findings of a survey of US and European firms that recently established, or plan to establish, R&D sites in an emerging economy. The top 10 reasons for choosing a selected location were the country’s growth potential, followed by the availability of highly qualified personnel, the existence of local customers, the strength of intellectual-property protection, the ease of negotiating intellectual-property rights, the inherent cost of conducting R&D, the ease of collaborating with local universities, the availability of university faculty with scientific or engineering expertise, the absence of regulatory and other restrictions, and the suitability of the country as an export platform. The bottom line is that the United States is today a net importer of high-technology products. It took slightly less than a decade for the US trade balance in high-technology manufactured goods to shift from a positive $40 billion in 1990 to a negative $50 billion in 2001. In fact, Americans now pay almost as much to foreign firms for imports as they pay to their own government in taxes. In a recent article, Business Week asks, “Why is that important?” and then answers its own question: “Because for the past 70 years Washington has been the 800-pound gorilla, more powerful by far than any other force in the US economy. That’s not true any more.” As USA Today (speaking of foreign financial reserves) puts it, “Developing nations have gone from beggar to banker.” Indeed, in just 7 years the United States has tripled its foreign debt. And although a great deal of attention has been focused on China and India because of their size and potential, The Economist reminds us that “these two together made up less than one-quarter of the total increase in emerging economies’ gross domestic product last year [2005].” Such is the magnitude of the competitiveness challenge that is sweeping the globe in this chaotic new-world disorder. But is it not good that other nations prosper? In the view of the National Academies’ competitiveness committee, the answer is a resounding “Absolutely.” In a world in which half the population lives on less than $2 per day, a prosperous world will almost certainly be a safer world, not to mention a more humane world. Similarly, a prosperous world will provide more potential customers for US products and cheaper and more diverse products for US consumers. Prosperity is not necessarily a zero-sum game, but there will inevitably be winners and losers. The National Academies’ Gathering Storm committee, in its work on competitiveness, sought to ensure that America would remain among the winners.

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Is America Falling Off the Flat Earth? Early projections as to the outcome of this global contest, which bears such enormous stakes, are already beginning to arrive. For example, I recently traveled some 7,000 miles on the Trans-Siberian Railroad and had the opportunity to visit—with the help of interpreters—with a broad spectrum of citizens of those remote regions. Russians, perhaps understandably pragmatic, are projecting the outcome of the world competitiveness race in the form of a joke that one repeatedly hears on the streets: “The optimists are studying English, the realists are studying Chinese, and the pessimists are buying Kalashnikovs.”