October 16, 2006
Sunset in the Era of U.S. Economic Dominance
Those of us who work for universities are constantly reminded of the importance of perspective in assessing events and trends unfolding before us. Campuses are a bit like the fountain of youth in reverse – while you get older and more feeble over the years, the students all around you remain forever young. Those bright young faces have never known life before microwave ovens, cell phones, and instant replay – and may view the people and events that shaped your young life as you would pages on a history book.
To say that a sense of perspective is also vital to interpreting economic events would be quite an understatement. The daily dose of data we receive on the performance of the economy is of very little value until we fit it into a frame of reference built up from past outcomes, the influence of other events, and the performance of the economies of other regions and countries around the world.
Sadly, the mechanistic way in which most information on the economy is typically reported in the business media, the perspective that would help us better interpret and react to movements in markets and the economy is lacking. And that shortcoming has frequently clouded our judgment and decision-making.
The issues of globalization and American economic competitiveness are cases in point.
In response to the “greatest generation” label given to those Americans who came of age during the second world war, economist Clyde Prestowitz has referred to those of us that followed as being part of the “luckiest generation.” We were born into a world of American economic dominance, and the sweet spot for U.S. manufacturing, in particular. Even today, well after the chaos of a world war that left much of the rest of the industrialized world in shambles, the 5 percent of the world population that reside within our borders still accounts for almost 30 percent of world economic output.
From the perspective of the post-war workforce, American technological and economic superiority is viewed as practically a birthright, paving the way for a standard of living where now-retired high school educated manufacturing workers could enjoy vacations, boats, and college educations for their children. From this same perspective, the inability of the twenty-first century economy to deliver that same ride to the generation of workers that followed is frequently cast as a failure, with finger-pointing and accusations the inevitable results.
A larger perspective paints quite a different picture. Over the span of centuries, it is the single-country dominance we Americans have lived all of our lives under that stands out as unusual, and the closing of gaps between us and the rest of the world that becomes normal, instead of the other way around. And it is time that policies and attitudes began to reflect that fact.
There have already been some jarring reminders of how far the rest of the world – Asian countries in particular – has moved to challenge and occasionally overtake us in the world marketplace, but many more are ahead. The 2.4 billion people who live in China and India today – 37 percent of the world population – account for less than 7 percent of world economic output today. But a fraction of those huge populations have skills that are on par with any industrialized nation. By year 2010, for instance, it is estimated that 90 percent of all scientists and engineers in the world will live in Asia. How much longer can U.S. technological dominance – if it even exists today – be expected to last in these circumstances?
And it is hard not to notice that much of the rest of the world seems to be playing a different game. The continued strength of the dollar in the face of huge bilateral trade deficits with some Asian nations would not be possible without the conscious effort of their banks to prop up our currency. The extent to which our prosperity is greatly influenced – if not outright controlled – by decision-makers offshore through their currency and investment decisions, is unsettling to say the least.
We’re not losing the economic fight – not by a long shot. But too many of us aren’t even aware that we’re in one.
About the Author
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