Tuesday, January 10, 2012

The Math in the Battle for Economic Superiority Between China, USA

"Joseph Nye, the professor and former dean of the Kennedy School of Government, made an interesting point. He noted that a rising China has 1.3 billion citizens. But America at its best has 7 billion in that it draws on the world's talents, as its corporations and colleges demonstrate. Nye in general is skeptical of the "declinists."
See the full article here.

I think Nye makes an excellent point. His mind is more on strategy than economics, but, frankly, the two are hard to separate. When I speak of an "Opportunity State" I'm speaking of a replacement for the welfare state. The welfare state, of course, was a political/economic construct the raison d'etre of which was basic welfare for its citizens so they wouldn't rebel against industrial capitalism.

The goal of an Opportunity State would be quite different. It doesn't exist to promote an industrial economy; rather it exists to promote a post-industrial economy. This "new economy" is softer, relies more on creative capital, innovation, and technology. Which brings me to the 7 billion people theory: in an industrial economy 7 billion workers making industrial goods creates incredible problems of competition. Factories could not be easily retooled as comparative advantages between nations shifted. On the other hand, in a new economy the means of production are much more easily shifted; after all, in most instances they are intellectual in nature. Further, whereas in an industrial economy it's easy to saturate a market with durable goods, it's easy to imagine 7 billion people using cell phones, new apps, cures for cancer, etc.

Given these new realities, Opportunity States (notice the plural usage) must prepare their citizens for work within the global economy. Of course not all states will have the same comparative advantages. In Mexico and China, your workforce will be more industrial (industry, after all, isn't going away) at the bottom, while at the top you will have creative managers looking to connect with western firms that desire a widget to be made at cheaper prices. In the west it's more complicated. Since western countries have a comparative disadvantage in manufacturing cheap goods, they have a comparative advantage in entrepreneurship, financial services, engineering, science, medical research, and more. Western citizens will increasingly need to be prepared to commute (potentially via virtual commutes) to foreign nations; to bring back-office operations from foreign firms; to perform the sort of transparent, and vetted due diligence necessary for investment capital, etc etc. After all, their soft skills are greatly needed in the global marketplace the same as cheap goods are needed in the global marketplace.

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