Can America Keep Up?
Why so many smart folks fear that the United States is falling behind in the race for global economic leadership
But if American firms and their workers don't keep up with tenacious foreign competition, American prosperity won't keep up either. And a few shingles may already be falling off the American dream. The median net worth of an American family rose just 1.5 percent after inflation between 2001 and 2004, according to the Federal Reserve. That's a significant slowdown from growth rates in the 1990s--and it occurred while the economy was expanding, unemployment was low, and home values were soaring. More startling, average wages actually fell 3.6 percent after inflation, a reversal of rising incomes in the 1980s and 1990s. And while wealthier households got richer, those in the lower rungs got poorer--effectively weakening America's middle class. "You should be worried," Nicholas Donofrio, IBM's No. 2 executive, told a gathering of colleagues and clients earlier this month. "We have no right to the standard of living we have. It can disappear as fast as it came."
America's changing status in the world is partly a historical correction. "We had an unusual share of global economic power after World War II, with China and Russia under Communist systems," says former CIA Director Robert Gates, now president of Texas A&M University. Progressive governments in India and China have helped harness the talents of millions of well-educated, industrious workers, increasing their standard of living and spending power. And economic strength begets geopolitical and military strength. China is particularly emboldened, aggressively competing with the United States for everything from arms deals to oil and gas fields. "China could be a truly global superpower within a few decades," predicts Stapleton Roy, former U.S. ambassador to China. "Terrorism will turn out to be far less significant than China's burgeoning economic growth."
To the victor... But for the foreseeable future, the battles will be over technology, jobs, and money. Telecommunications is emerging as a particular U.S. weakness, especially as phone, TV, and Internet services--still largely separate here in the States--merge into a single universe. "We had an absolutely dominant position in communications technology for a century," points out Dave McCurdy, president of the Electronic Industries Alliance. "Now we're losing our edge." The newest standard for cellphone services--"3G," which allows the high-speed Internet-like transmission of data and video to cellphones--is widely available in much of Europe and Asia and is likely to be the dominant standard in China by the time of the 2008 Summer Olympics in Beijing. But it won't become commonplace in the United States until about 2010. The head start could allow alliances of Asian nations like Japan, China, and South Korea to set some of the world's standards for telecom and Internet-based products. "The second Internet revolution won't be North American-centric," predicts the Gartner consulting firm. That means some of the richest spoils will go to companies like LG and Samsung in Korea, closest to the epicenter of change, just as U.S. businesses like IBM, Microsoft, and Intel benefited for decades from the predominance of U.S. products and standards around the world.
Those dynamics have already been playing out in the market. Lucent Technologies--home of the storied Bell Labs--and the Canadian company Nortel, which together wired much of North America for phone service, are struggling to stay above water, with weak stock prices and few new jobs in the United States. Meanwhile, Chinese telecom firms that few Americans have ever heard of, like Huawei and ZTE, are gobbling up business in Asia and developing countries and eyeing the industrialized world--the same pattern that made upstarts like Samsung and Chinese appliance maker Haier successful. American firms are moving aggressively into fast-growing overseas markets, too. Half of IBM's 190,000 engineers and technical experts now reside overseas, for instance. And while Big Blue is still hiring modestly in the United States, it has 30,000 Indians on its payroll and plans to add thousands more.
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