[FoRK] [brian@juvensa.com: [GRG] Its more than just Stem Cells - Can Americans Compete? - Part 1]

Eugen Leitl eugen
Tue Jul 19 03:11:09 PDT 2005

----- Forwarded message from Brian <brian at juvensa.com> -----

From: Brian <brian at juvensa.com>
Date: Mon, 18 Jul 2005 22:39:21 -0700
To: Gerontology Research Group <grg at lists.ucla.edu>
Subject: [GRG] Its more than just Stem Cells - Can Americans Compete? - Part
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Reply-To: Gerontology Research Group <grg at lists.ucla.edu>

Steve covers the Stem cell issue frequently, but this is just one
example of a much bigger issue - which is described in more detail in
the Fortune magazine cover story below.  
As politics and religion take over the center stage of science in
America, as the war in Iraq drags on for years, as our school system
slips further down the list in terms of competitiveness, and our
deficits balloon and our society ages - you have to wonder if anyone is
thinking about keeping the science and technology home fires burning.
As Fortune suggests in this story, If you think things are bad now, they
could get a whole lot worse very quickly, and right now things are not
looking good. 
July 25, 2005
America Isn't Ready
IT'S A CRISIS OF CONFIDENCE unlike anything America has felt in a
Residents of tiny Newton, Iowa, wake up to the distressing news that a
Chinese firm--What's it called? Haier? That's Chinese?--wants to buy
their biggest employer, the famed but foundering Maytag appliance
company. Two days later, out of nowhere, a massive, government-owned
Chinese oil company muscles into the bidding for America's Unocal. The
very next day a ship in Xinsha, China, loads the first Chinese-made cars
bound for the West, where they'll compete with the products of Detroit's
struggling old giants.
All in one week. And only two months earlier a Chinese company most
Americans had never heard of took over the personal computer business
formerly owned--and mismanaged into billions of dollars of losses--by
the great IBM.
"Can America compete?" is the nation's new No. 1 anxiety, the topic of
emotional debate in bars and boardrooms, the title of seminars and
speeches offered by the liberal Progressive Policy Institute, the
conservative economist Todd Buchholz, and countless schools and Rotary
Clubs. The question is almost right, but not quite. We're wringing our
hands over the wrong thing. The problem isn't Chinese companies
threatening U.S. firms. It's U.S. workers unable to compete with those
in China--or India, or South Korea. The real question is, "Can Americans
The stakes are mammoth: Respectable analysts believe it's possible--not
certain, but possible--that the U.S. standard of living, after decades
of steady ascent, could stall or even begin to decline. More worrisome
is the chance that if the world's most powerful nation finds itself
getting poorer rather than richer, some kind of domestic or even global
political crisis could follow.
As for the big question at the center of it all--Can we compete?--the
answer isn't obvious. The don't-worry-be-happy crowd points out that our
last national fit of wailing and garment rending, when Japan was going
to smite us in the 1980s, proved unfounded. We adapted and prospered, as
we always had (and Japan didn't). But today's situation is so starkly
different that it's tough to find comfort in our experience then.
We're not building human capital the way we used to. Our primary and
secondary schools are falling behind the rest of the world's. Our
universities are still excellent, but the foreign students who come to
them are increasingly taking their educations back home. As other
nations multiply their science and engineering graduates--building the
foundation for economic progress--ours are declining, in part because
those fields are seen as nerdish and simply uncool. And our culture
prizes cool.
No one is saying that Americans can't adapt and win once more. But look
at our preparedness today for the emerging global economy, and the
conclusion seems unavoidable: We're not ready.
To understand better whether Americans are destined to be the scrawny
and pathetic dweebs on the world's economic beach, it's necessary to
refine the question. Who is most threatened? How come? What will it take
to make America stronger in a new economic world? What political forces
could propel--or derail--progress?
Many iconic U.S. firms--Coca-Cola, Procter & Gamble, Texas Instruments
--already do most of their business and employ most of their workers
outside the U.S. Conversely, some of the most American brands you can
think of--Hellmann's mayonnaise, Jeeps, BV California wines--are owned
by non-U.S. companies (Unilever, DaimlerChrysler, and Diageo,
respectively). To complicate matters further, many products of U.S.
companies are made outside the U.S.--Maytag refrigerators are no longer
made in Galesburg, Ill., but in Mexico--while many non-U.S. companies
make products here--your new Toyota may have come from Kentucky. Now add
a few more twists: Your Dell laptop may have been assembled in Malaysia
from parts made by American companies in Thailand.
The truth is that large companies transcended nationality long ago, and
globalization gives them as many opportunities as problems. It
increasingly lets them hire, source, and sell wherever they like, and
that is basically good news no matter where the incorporation papers are
For American workers, globalization is a radically dicier
proposition--far more so than most of them realize. The fast-changing
economy is exposing vast numbers of them to global labor competition,
and it's a contest millions of them can't win right now.
Three main factors are changing the game. First, the world economy is
based increasingly on information, bits and bytes that have to be
analyzed, processed, and moved around. Examples: software, financial
services, media. Second, the cost of handling those bits and bytes--that
is, of computing and telecommunications--is in free fall. Wide swaths of
economic activity can be performed almost anywhere, at least in theory.
Turning theory into reality is the third factor: Low-cost countries--not
just China and India but also Mexico, Malaysia, Brazil, and others--are
turning out large numbers of well-educated young people fully qualified
to work in an information-based economy. China will produce about 3.3
million college graduates this year, India 3.1 million (all of them
English-speaking), the U.S. just 1.3 million. In engineering, China's
graduates will number over 600,000, India's 350,000, America's only
about 70,000.
The result is that many Americans who thought outsourcing only
threatened factory workers and call-center operators are about to learn
otherwise. That is a giant development, because information-based
services are the heart of the U.S. economy. With 76% of its jobs in
services, America's economy is the most service-intensive of any major
country's. Of course many of those jobs can't be shipped abroad: Chefs,
barbers, utility and NFL linemen, and many others know they can't be
replaced by even the smartest person in Bangalore.
But growing numbers of other service jobs are not safe. Everyone has
heard about the insurance-claims processors, accountants, and medical
transcriptionists in India and elsewhere who've taken away U.S. jobs by
doing the same work for much less money. More alarming is that the value
of outsourced jobs is steadily rising. Morgan Stanley is hiring Indian
bond analysts, fearsome quants who can make or cost a company millions.
Texas Instruments is conducting critical parts of its next-generation
chip development--extraordinarily complex work on which the company is
betting its future--in India. American computer programmers who made $
100,000 a year or more are getting fired because Indians and Chinese do
the same work for one-fifth the cost or less.
The big question is how far all this will go. A massive new study from
the McKinsey Global Institute predicts that some industries could be
changed beyond recognition. In packaged software worldwide, 49% of jobs
could in theory be outsourced to low-wage countries; in infotech
services, 44%. In other industries the potential job shifts are smaller
but still so large they'd create major dislocations: Some 25% of
worldwide banking jobs could be sent offshore, 19% of insurance jobs,
13% of pharmaceutical jobs.
Looking at occupations rather than industries, some fields will never be
the same. McKinsey figures that 52% of engineering jobs are amenable to
offshoring, as are 31% of accounting jobs.
Adding up all the numbers, McKinsey calculates that some 9.6 million
U.S. service jobs could theoretically be sent offshore today. That is a
staggering number. If all those jobs really did get outsourced, the U.S.
unemployment rate would leap from 5% to 11.4%. For various reasons, not
all those jobs will get sent abroad. Some companies aren't big enough to
make the effort worthwhile. Some have infotech systems so old or messed
up that they can't adapt to offshoring. Some managers just don't like
the idea.
McKinsey figures that about 4.1 million service jobs will actually get
offshored from high-wage countries to low-wage countries by 2008. It
doesn't make a forecast for U.S. jobs, but others have done so.
Forrester Research puts the number at 3.4 million white-collar jobs by
2015. Researchers at the University of California at Berkeley believe
the number will be far larger, perhaps 14 million.
Even those numbers could be too low, because they're based on surveys of
company plans today and extrapolations of current trends--always iffy
predictors. Professor Thomas H. Davenport of Babson College believes
that outsourcing is about to become radically easier and more widespread
for a seemingly mundane reason. Davenport sees industry groups and
professional associations rapidly standardizing processes like
purchasing and billing, making them easy to measure and assess. When
that happens, he says, "the low costs and low risks of outsourcing will
accelerate the flow of jobs offshore."
The downward pressure on U.S. wages could be more immediate and severe
than you might imagine. It is tempting to suppose that the giant U.S.
economy couldn't have felt much strain yet; the total number of
offshored white-collar jobs is probably fewer than a million so far. But
it doesn't take the shifting of many jobs to produce ripple effects
through the whole economy.
Why? Most U.S. workers whose jobs are sent overseas will try to find new
ones, perhaps in other industries or occupations. So the offshoring of
any jobs will produce job seekers who will tend to push wages down even
in industries in which outsourcing isn't happening. Far more
significantly, the mere threat of moving jobs offshore is enough to hold
wages down--those growing armies of skilled workers around the world are
increasing the labor supply in many occupations, and the immutable law
of markets is that when supply goes up, prices come down. It has
happened in all kinds of other markets--food, clothing, microchips,
appliances. Why not in labor?
Some economists believe they see it happening already. They note that
something extremely odd occurred in the U.S. economy last year: Average
compensation, including pay and benefits, fell. That is a rare event;
the last time it happened was 14 years ago. More important, it usually
happens in or around recessions or when productivity is going nowhere.
But last year wasn't like that. Productivity rose. The economy grew. The
unemployment rate was low and falling. Every indicator pointed to strong
wage increases, but just the opposite happened. Now some of the nation's
most eminent economists, including professor Richard B. Freeman of
Harvard and Stephen Roach of Morgan Stanley, believe the supply of
overseas workers in newly globalizing labor markets is holding U.S. pay
down and will do so for years.
All those university graduates in China and India threaten U.S. living
standards in another way. Paradoxically, it's not because they'll end up
working for U.S. employers, but because some of them won't, finding jobs
instead with domestic companies in their own countries. That's a problem
for America if many of those graduates are top students in science and
You might wonder why we're constantly reading about Chinese graduates in
engineering and not in law, medicine, literature, or philosophy. Why
this veneration of the pocket-protector set? Engineering is fine, but
there's more to life than technology, isn't there? Obviously there is.
The question--and for America and the West it's a huge question--is
whether there can be economic dominance without technology leadership.
Many economists would say no. "There is no other fundamental mover of
economic development than science and technology," Columbia University
professor Jeffrey Sachs has said. He notes that until the scientific
revolution began in the 17th century, virtually everyone lived on the
verge of subsistence. Three centuries of technology breakthroughs are
the root of today's abundance in the developed world, and those with a
technological edge--America, Japan, and Western Europe--still have the
highest standard of living.
So in a world economy that threatens to pull down American wages, the
key to fighting back is maintaining technological
superiority--continually creating high-value new jobs that workers in
the rest of the world can't do yet. What are the chances? A worrisome
sign is that the brightest students from many Asian countries are
staying home to get their Ph.D.s rather than coming to America, as they
did in rising numbers until the mid-1990s (see charts). Those foreign
Ph.D.s have been the driving force in scores of America's most
successful and innovative tech firms, but now we're getting fewer of
them, and other countries are getting more.
Perhaps worse, those who still come to America for their
Ph.D.s--arguably the best of the best--are returning home in increasing
numbers. In economies like China's or India's, growing two or three
times faster than America's, elite students see huge opportunities. Even
foreign nationals well established in the U.S. are heading home. "Many
of my friends are going back," says professor Godwin Wong of Berkeley's
Haas School of Business. "They're leaving big corporate jobs here
because they can make more money in China."
For the U.S. the loss of technology leadership could be historic.
Without that advantage, there would be little to prevent living
standards in the world's interconnected economies from equilibrating.
The rest of the world's living standards would rise, and-- at least in
the near term--America's would decline.

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