Dragon, eagle, elephant and a black
swan By Dinesh Sharma
China opened "the largest sea bridge in
the world" on June 30. As the news spread quickly,
the state of Louisiana immediately complained that
China was guilty of propaganda.
For a
large part of what has been known as the first
American century, the Lake Pontchartrain Causeway
has claimed the rights to have the longest bridge
in the world. You can still hear the Cajun
greeting when you call the office, "Thank you for
calling the causeway, the world's longest bridge."
"Bunch of wannabes," declared general
manager Carlton Dufrechou. It's a "beautiful
bridge", concurs Dufrechou, but he says it is not
the longest sea bridge as it only covers 16 miles
(25.7 kilometers) of water length. However, due to
several long curves and extensions in the bridge,
which total 26 miles (41 kilometers), the Guinness
Book of Records has indeed placed
Jiaozhou Bay bridge in the
east China city of Qingdao as numero uno, bumping
off the causeway to second place, which covers 24
miles of water length.
Indian media
carried the story in the Economic Times, "How
China builds these, why India never does." Simply
awestruck by the massive Chinese appetite for
growth, it showcased a montage of other Chinese
marvels to come, the longest oil pipeline, tallest
skyscraper, largest dam, and so on. Before the
2008 Beijing Summer Olympic Games, when China
opened a two-lane highway to the Mount Everest
base camp - a 67-mile (107 kilometer) road that
runs right through Tibetan territory disputed with
India, New Delhi could only raise security and
environmental concerns.
In 2005, Berkley
economist Pranab Bardhan correctly observed that
China - often referred to as the flying dragon
because of its recent economic growth - would lead
India, the lumbering elephant, in innovation and
economic development for the foreseeable future.
Now, he has raised concerns that China's
and India's rise, also known as the "Chindia"
factor, the combined effect of two-fifths of the
world's population, due to long overdue sweeping
market reforms has been overblown, exposing the
underbellies of the two "awakening giants".
Assessing the many hyperbolic accounts,
Bardhan uses a literary reference from Henry James
to describe his reaction. It is like "our not
knowing ... and trying to ignore what 'goes on'
irreconcilably, subversively, beneath the vast
smug surface." Indeed, the media hype may be far
off for India, but are they really off-base for
China?
First, while China is huge in terms
of manufacturing size, its value added to the
global gross domestic product (GDP) is still
relatively small compared to the US and Japan.
Second, high-income growth and alleviation of
poverty have not come about due to global
integration or from greater exports, rather from
internal structural adjustments, such as changes
in the agricultural economy where the Chinese poor
were most concentrated. Likewise, in India the
growth from information technology and direct
foreign investment has not benefited the poor,
rather the multinational firms.
Certainly,
the two countries have arrived on the global stage
after two or three decades of steadily high
growth. Former US statesman Henry Kissinger has
admitted that he could not have predicted the rise
of China, a country he helped to open up with
president Richard Nixon 40 years ago.
Yet,
both India and China may have a way to go to catch
up with America. A report by INSEAD states:
If you measure innovation by the
number of patents granted in the US, you'd get
the sense that India and China are not just
lagging in terms of innovation - they're barely
off the starting blocks. China only has some
1,700 patents granted annually compared with
some 80,000 in the US. Indeed, around half of
the patents granted to China were submitted by
multinationals anyway.
Recent
data released by World Intellectual Property
Organization buck this trend as China has shown an
increase of 29.7% patent filings while the US
filings fell by 11.4%.
India, the largest
democracy in the world trails China and is
certainly far behind the US in innovation
efficiency, regulatory quality, financial market
integration, public research and development
expenditure as a percent of GDP, and number of
patents.
On all the indicators, the US has
also slipped behind the smaller Scandinavian
economies, such as Iceland, Sweden, Denmark,
Finland and Norway, as well as some of the Tiger
economies including Hong Kong and Singapore, who
seem more nimble and enterprising. Is the US
swooping like an eagle or taking a nose dive?
However, the US still bests China on
innovation. "Chinnovation" as a business writer
describes, at least for now, seems to be more of
an imitation than real innovation. China sent
alarm bells ringing recently when it disclosed
"copycat patents" using Japanese bullet rail
technology. "Japanese business circles are
increasingly alarmed by China's efforts to export
high speed railway trains it claims to have built
through its own expertise, but which have
obviously been duplicated from technology offered
by Japan," according to the Malaysia Star.
China's railway officials have adopted an
aggressive strategy, according to the China Daily:
"Our technologies may originate from foreign
countries, but it doesn't mean that what we have
now all belongs to them. We have added our
knowledge gained from experiments to the train and
made designs to satisfy our needs, so the new
train is not theirs anymore." The issue has become
more heated in the wake of Saturday's tragic train
crash in China.
America's leadership hangs
in the balance as everyone is asking, "Have the
lessons learned in the first American century been
applied towards the making of the second?"
Clearly, the race between the flying dragon and
the swooping eagle is on for who will lay claim to
the 21st century. Many historians are claiming
America may have seen its best days in the sun.
Both money and markets are now moving east
to China, which due to its sheer size and scale
represents an economic challenge very different
from the Cold War Russian economy, the Japanese
rise in 1960s and 1970s, or the consolidation of
the European Union in the 1980-1990. Will America
remain the epicenter of innovation?
America may still have the triple
advantage of individualism, immigration and
innovation, the three Is, working in its favor.
Will these deep cultural and economic drivers be
able to sustain American enterprise in the future
and hold at bay the rising tide of the emerging
economies?
Individualism:
Almost a generation ago, the psychological
anthropologist Francis Hsu wrote in The Caste,
The Clan and the Club, comparing India, China
and the US and saying that "rugged individualism"
was a key attribute of American culture. Now with
the changing demographics of the US and no Western
frontiers to tame, will rugged individualism
dating back to Herbert Hoover's 1928 speech,
define America in the 21st century?
At a
symbolic level, the mythic cowboy will continue to
be an American icon, but will he be able to cut
deals across different borders and shape policies
for an increasingly globalized world at the barrel
of a rifle? As Joseph Nye at Harvard has suggested
America's "hard power" will have to be balanced
with its "soft power".
After watching the
2008 Olympics, David Brooks of New York Times
wrote:
If Asia's success reopens the debate
between individualism and collectivism (which
seemed closed after the Cold War), then it's
unlikely that the forces of individualism will
sweep the field or even gain an edge ... The
rise of China isn't only an economic event. It's
a cultural one. The ideal of a harmonious
collective may turn out to be as attractive as
the ideal of the American Dream. It's certainly
a useful ideology for aspiring
autocrats.
At a recent book reading, I
asked Joe Scarborough and Mika Brzezinski of
MSNBC, "Why does America seem stuck?" They
suggested that America as a country is not stuck,
but Washington DC is definitely stuck.
We
can get people from different walks of life and
political backgrounds to agree with each other
around a dinner table, but in Capitol Hill, that
is not easily achieved. Certainly in the media,
commentators hype the debate to gain ratings,
which makes it harder to get consensus on big
actionable initiatives to move the country
forward. Due to a multitude of reasons, China has
no problem taking action on big-ticket items.
Immigration: Open
immigration has been the lifeblood of the American
economy. Will it be enough to attract high-skilled
labor from different parts of the world, with
rising emerging economies offering equally strong
incentives and inducements to join their ranks?
The Brookings Institute recently released
a report, "Skilled Immigrants a Growing Force in
the US Economy", suggesting that while the debate
on illegal immigration in the US is heating up,
not enough attention is being paid to high-skilled
immigrants who come equipped with college degrees,
who now make up almost 30% of the new immigrant
workforce .
At an Asian American award
dinner recently, US Senator Charles Schumer
described a conversation he had had with the head
of Deutsche Bank. The senator asked the banker,
"Which country will lead in 20 years?" Apparently,
the banker replied without hesitation, "America,
of course!" "But why," asked the senator? "Well,
because America is still the only country with an
open immigration policy," said the banker.
Certainly, the award winners at the gala,
heavily represented by immigrants from China,
Korea, Japan, India, Pakistan and other Asian
regions, were a testament to the American success
story. This has become almost a timeless narrative
about immigrants succeeding beyond the
expectations of their native country in the land
of opportunity.
However, according to a
recent study conducted at Berkeley, Duke and
Harvard, the allure of America as a magnet for
entrepreneurs may be fading. America is still
training high-class innovators, but it is losing
them to their native lands. American-trained
entrepreneurs seem much happier to return to their
native country and may achieve more at "home" than
in the US. The opportunity gap is not even
remotely close as an overwhelming majority of
Indians (72%) and Chinese (81%) claim that
"economic opportunities" are superior in Asia.
Ian Goldin of Oxford in his recent book
Exceptional People argues that migration
has been good for human societies and it's the
only way humans have advanced throughout the ages.
This is America's competitive edge:
Throughout history, migrants have
fueled the engine of human progress. Their
movement has sparked innovation, spread ideas,
relieved poverty, and laid the foundations for a
global economy. In a world more interconnected
than ever before, the number of people with the
means and motivation to migrate will only
increase.
According to recent data
from the US Patent Office, patents invented by
immigrants versus the native-born have occurred at
roughly twice the rate, with a 1% increase in
immigrants with college degrees resulting in a 15%
increase in patent production. New immigrant
innovators have filed a staggering 25% or more of
all US global patent applications in recent years.
Not surprisingly, these immigrants have also led
start-ups at higher rate and have co-founded more
than half of Silicon Valley firms since mid-1990s.
In other words, immigration is essential for
innovation.
Innovation: Due
to a can-do individualism and open immigration
policies, America still seems to possess the fluid
engines of innovation, claimed Vinod Khosla at a
tech summit recently. A co-founder of Sun
Microsystems, Khosla claimed that America still
had the capability to produce "the black swans",
those rare, improbable events that have a high
impact on the market and can radically alter our
social world, as described by the analyst Nassim
Nicholas Taleb.
Recent inventions like the
Google, I-Phone, Facebook, Twitter readily come to
mind, not to mention the Internet, cell-phones,
high-speed computer chips and so on.
Khosla believes that many of the green
technology ideas bandied about right now will be
obsolete soon. Most are going after the 1%-2%
incremental change in the marketplace when they
actually need to be thinking about a 1,000% delta.
According to Khosla, green technology
ventures need to think in terms of the "Chindia
pricing", the prices that will be affordable for
large segments of the human population without
subsidies. If people in China and India could
afford it, anyone on the planet can have access to
it.
The emerging markets as they fully
embrace capitalism will be thirsty for energy-rich
lifestyles; the demand will only grow. The real
solutions have to be scalable, affordable and
accessible to the majority of the planet,
according to Khosla.
The election of
President Barack Obama was heralded by many around
the world as a black swan moment of American
politics that could turn the country around. As
evidenced by many global surveys, the world
definitely got the message.
America's
image got a global make-over. Domestically, large
segments of the American population may not have
fully grasped the change that Obama promised. As
electioneering picks up again and we debate the
economy, jobs, immigration, debt, deficit and
innovation, we will soon find out which way the
political pendulum is swinging.
The
re-election of the first black president will
perhaps have a more enduring impact domestically
and on the US image abroad than did the first
black swan moment.
The outcome of the
upcoming elections may again narrowly hinge on the
economy and job growth. Yet, the larger questions
may persist for the long haul. Can America hold on
to the competitive edge as it did for the second
half of the previous century against the state-run
capitalism of Europe and the state-controlled
top-down Socialist economics? We may be just at
the beginning of the race and our children and
grandchildren may eventually have to settle the
score.
Dinesh Sharma is the
author of Barack Obama in Hawaii and
Indonesia: the Making of a Global President
(ABC-CLIO/Praeger, 2011).
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