- By Clyde Prestowitz
Clyde Prestowitz is the founder and president of the Economic Strategy Institute (ESI), where he has become one of the world's leading writers and strategists on globalization and competitiveness, and an influential advisor to the U.S. and other governments. He has also advised a number of global corporations such as Intel, FormFactor, and Fedex and serves on the advisory board of Indonesia's Center for International and Strategic Studies.
Speaking in Winston-Salem, North Carolina on Monday, President Barack Obama lamented America’s stubbornly high unemployment and promised to outline for the gathered students a "vision that will keep our economy strong and growing and competitive in the 21st century."
There was applause as the students sat on the edges of their chairs in anticipation. Unfortunately, what followed only proved that the president should have gone to his eye doctor instead of the Winston-Salem. It was at best, a case of partial vision.
It began with a "recognition" that in the past few decades revolutions in technology and communications and the integration into the global economy of two billion new people in India and China had touched off fierce competition among nations for the industries and jobs of the future to replace the auto mechanics and machinists that Forsyth Technical Community College, where he was speaking, had been founded many years ago to produce. It continued with the argument that the winners of the competition would be the countries with the most educated workers, the most serious commitments to research, the best roads, bridges, high speed trains and airports, the fastest Internet connections, and the most innovation.
The president emphasized that the most important competition the United States faces is not the competition between Republicans and Democrats, but the competition between America and its economic competitors around the world. "That’s the competition we’ve got to spend time thinking about," he stressed.
He went on to reassure the audience that America will win this competition because it has the world’s best universities, smartest scientists, best research facilities, and most entrepreneurial people. Indeed, entrepreneurialism is "in our DNA" he said.
But then the vision became a bit cloudy. Despite the reassurances of American superiority, the president said the country is in danger of, indeed is, falling behind — in high school graduation rates, the quality of math and science education, in the proportion of science and engineering degrees we hand out, in attracting research and development facilities compared to India and China, in R&D spending, and in Internet speed and connections.
Are you a little confused by how we could be falling so badly behind if we have the best universities, best research facilities, smartest scientists, and most entrepreneurial people? All I can tell you is that the president says we are facing in "Sputnik Moment", calling to mind the shock America felt in 1957 when the Russians launched the first earth satellite. To respond to this challenge, he emphasized that we must set the goal of "Made in America."
Hey, nothing wrong with that. At this point, I was cheering. He’s the first president in my memory who has dared to say that we need to compete by actually making things. So I give the first half of the vision an A.
But then Obama turned to how we’re going to come back and regain leadership by increasing education and R&D spending, improving our infrastructure, and doubling our exports by negotiating more free trade agreements like the one just concluded with Korea.
Aside from the Korea deal (which I’ll address in a moment),these are all good things to do and we should do them. But doing them will not by itself reverse the decline in our competitiveness. Actually, the Korea deal illustrates both why this is true and why the president’s vision is still impaired. South Korea’s workforce is not better educated than America’s. Nor does it spend more on R&D, nor is its labor inexpensive like that of China, and nor is it nearly as entrepreneurial. Yet the United States a growing trade deficit with South Korea and is far behind it in areas like liquid crystal displays, various kinds of semiconductors, cell phones, and much more.
What the Koreans do is target development of key industries with special financing and regulations and manage their currency to be undervalued versus the dollar as a kind of protection of the domestic market cum subsidy of exports, impede foreign penetration of domestic markets through a wide variety of formal and informal non-tariff barriers, fail to enforce intellectual property rights of foreign enterprises operating in South Korea, and make foreign investment in Korea extremely difficult as a practical matter.
I am not saying these things to attack South Korea. If these policies work, and they obviously do, South Korea has every right to keep them in place. But obviously Korea is engaging in a different kind of globalization than we are. And equally obviously, the president doesn’t recognize that. Thus the president expects that this new free trade deal is going to increase U.S. exports to Korea and create 70,000 jobs in the U.S. But any deal that allows currencies to be managed in such a way as to stimulate exports and inhibit imports – to mention just one factor — is not going to result in surging U.S. exports or in surging U.S. job creation.
The White House eye doctor needs to prescribe glasses that will allow the president to see the other half of the playing field and to recognize that he must play with a full deck of cards. More education and R&D? By all means, bring them on. But he also needs to respond to the industrial targeting, exchange rate, investment, and getting realistic about the globalization policies and practices of our economic competitors.
Clyde Prestowitz is president of the Economic Strategy Institute and author of The Betrayal of American Prosperity.