15 March 2005

Pay to Play (Update)

Tomorrow's International Herald Tribune features a slightly-reworked version of David Lampton's recent Boston Globe article, which touched-on some of the issues I discussed yesterday and two weeks ago. Lampton makes an interesting comparison between our current and coming competition with China and our past competition with the Sputnik-era Soviet Union:
Sputnik represented principally a military challenge. In contrast, China's challenge is an unfolding, multidimensional development that will last decades and could prove far more productive than the Soviet-American contest. China wants to play ball with America. The question is how America will perform on a playing field it long dominated.

To address this question one must examine the building blocks of national power and competitiveness: national investment and savings, education, health and sound, legitimate governance. China is doing comparatively well in the first three, far less well in the last. If Chinese competition can push America to make its own needed adjustments, this is to be welcome, albeit painful.

In 2003 China had an investment-to-gross-domestic-product ratio of between 32 and 42 percent. This makes high economic growth very likely. Chinese performance contrasts sharply with America's. In 2003, the U.S. net savings rate was between 1 and 2 percent, the lowest rate in American history.

The United States cannot long compete when it borrows for current consumption while China invests using its own savings. America must rebalance its saving, investment and consumption priorities. If it does, Beijing's competition will have done it a big favor.

Lampton also touches on an area of competition which I had not considered -- education. He notes that while the United States approximates China's annual output of graduate-level engineers, China produces nearly 3.5 times as many undergraduate-level engineers annually. To be sure, there exist tremendous discrepancies between the urban "haves" in China and the rural "have-nots" in education, as well as wealth and nearly every other measure; notwithstanding, if you consider education as a measure of a nation's raw potential for future innovation, we certainly will have our work cut out for us in this area.

One final item also intrigued me: "America's post-World War II allies in East Asia (Australia, Japan, the Philippines, South Korea and Thailand) are becoming increasingly dependent on exporting to China and/or receiving increasing investment from it." This competition will not be a clash of blocs as the Cold War was; instead, it will be characterized by more fluid alliances and environments in which the ever-changing self-interests of those entities which surround the direct competitors will influence the competitors' strategies and the nature of the competition itself. This will not be a team event.

Game on.


No comments: