Tuesday, November 25, 2014

The American Comeback Kid

VIENNA – As is customary at the start of a new year, imposing statistics and trend forecasts are being trumpeted worldwide. For example, in 2016, China is expected to replace the United States as the world’s largest economy. And, by 2040, India’s population will have reached 1.6 billion, surpassing China’s, which will have stagnated a decade earlier.

Perhaps the most startling projection is that the US will become an energy exporter by 2020, and will become energy self-sufficient 15 years later, owing to the plentiful supply of inexpensive shale gas and the discovery of massive oil reserves everywhere from North Dakota to the Gulf of Mexico. Despite opposition from environmental groups, these reserves will be easier to exploit than those in Europe, because they are largely located in sparsely populated areas.

As a result, energy will be significantly cheaper in the US than in Europe or China for the foreseeable future. Indeed, shale-gas extraction is so economically favorable that even American gas exported to Europe would cost 30% less than what the Russian energy giant Gazprom currently charges.

Cheap energy provides a powerful incentive for energy-intensive industries – from steel and glass to chemicals and pharmaceuticals – to locate in the US. In fact, the decreased cost of manufacturing in America, combined with the country’s business-friendly regulations, strong rule of law, and political stability, will eliminate the competitive advantage that has driven China’s rapid economic growth over the last several decades.

Meanwhile, American universities still attract the world’s best and brightest in many fields, most notably in science and technology. And the country’s other longstanding advantages – flexibility, capacity for renewal, economic mobility, international regulatory strength, and the world’s main reserve currency – remain in place.

Given these favorable conditions, the US has already begun “on-shoring” its industry – a process that will most likely continue for several decades. As other advanced economies become increasingly services-based, the US is reindustrializing.

The resulting added value will bolster policymakers’ ability to find long-term solutions to persistent problems, including an inefficient health-care system, inadequate primary and secondary education, and blatant social injustice. Success in these areas would further enhance America’s appeal as an industrial center.

As part of the Harvard Business School’s US Competiveness Project, Michael Porter and Jan Rivkin recently published an eight-point plan, which could be implemented within the next two to three years. Each proposed measure has generated broad, bipartisan agreement among policymakers (at least behind closed doors).

The plan highlights the need to take advantage of the opportunities afforded by shale gas and newly discovered oil reserves. Low-cost domestic energy could help to lower the trade deficit, spur investment, and decrease America’s economic exposure to volatile oil-exporting countries. A strong federal regulatory framework could help to ensure this result, while minimizing the environmental and safety risks associated with extraction.

Other proposals include easing the immigration of highly skilled individuals, particularly graduates from US universities; addressing distortions in international trade and investment; developing a more sustainable federal budget framework; streamlining taxes and regulations; and initiating an ambitious infrastructure program. By pursuing these strategies, President Barack Obama could restore America’s position as the engine of the global economy.

But implementing the eight policy proposals would also widen further the wealth gap between the US and Europe, which has been growing for the last three decades. In 1980-2005, the US economy grew by a factor of 4.45 – a level that no major European economy even approached. In 2011, Norway and Luxemburg were the only European countries with higher per capita national income than the US in purchasing power parity terms. And, by 2040, European countries’ populations will have stagnated or shrunk (with the exception of the United Kingdom, which will have a population of roughly 75 million, comparable to Germany), while America’s will have grown to 430 million, from 314 million today.

The political consequences of the US economy’s renewed strength will reverberate worldwide. But maintaining this economic revival will require greater reluctance to intervene in foreign conflicts or engage in new wars.

This recognition has already dampened US policymakers’ support for the Arab Spring uprisings: witness Obama’s hesitation to intervene in Libya and his unwillingness, at least so far, to involve America directly in Syria’s bloody civil war. Although the Arab Spring’s historic significance was initially likened to that of the fall of the Berlin Wall, mounting concern about the Muslim Brotherhood’s increasing political influence is overshadowing the positive potential of change in the region.

Likewise, while the US will not relinquish its bilateral relationship with Israel, relations between Israeli Prime Minister Binyamin Netanyahu and Obama have reached a new low. In this context, a major American peace initiative in the Middle East is unlikely in the foreseeable future.

Meanwhile, America’s former rival, Russia, is struggling to restore its hegemony over many of the ex-Soviet countries. And conditions in Africa and Latin America are generally stabilizing.

Given this, America’s foreign-policy priorities have shifted to the Asia-Pacific region, where the most pressing economic, political, and security challenges – including the threat of North Korean missiles and rising tensions between China and its neighbors over competing sovereignty claims in the South and East China Seas – are emerging. Other global challenges appear relatively minor in comparison.

Although the weight of global politics, economics, and, in turn, influence is largely shifting from the Atlantic to the Pacific, it would be a mistake to underestimate America’s role in the new world order. America never really stepped out of the spotlight, and it will continue to play a leading role.

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    1. CommentedAshok Rao

      Americans have a wonderful knack for declinism. I don't think there's been a single point in our history where a loud minority (or majority) hasn't claimed that our prevalence is nigh.

      Bill Clinton had a lovely quote, "there is nothing wrong with America that cannot be fixed by what is right with America".

      Many have bet against America. They've lost. I do like Fareed Zakaria's analogy of America's role in a new world order, that is the demotion from chief executive to chairman – first among equals.

      Not a bad place to be.

    2. CommentedLeo Arouet

      Estados Unidos es la primera potencia económica, militar, tecnológica, de investigación e innovación del mundo, y lo seguirá siendo durante mucho tiempo...

    3. Commenteddonna jorgo

      your article is iam SUPERPOWER and even NOT .
      well because the USA have one objetive to take the MIDDLE EAST OIL this doesn't mean will go out from the seriouse crisis economic they are ..OR WILL BE LEADER OF WORLD ..one COUNTRY who KEEP HIM SELF BY HIGH TAX AND EXPASION ECONOMIC IS NOT POWER IS POOR
      iam not fighting USA or no one i am very real in my opinion looking all the statistice fact.
      JUST iam sure with the Obama administration the situstion will be constant 4 y after this will see the usa economy will be very bad ..because the consecuances left behind this gv (is the same Obama take from BUSH)
      SO cycle..
      CHINA have diffrent strategy so they will continue to be power .(have many reason)
      ISRAEL is power mind and bank for the world (like or not) to thw world ..(some)
      RUSSIA is (gas price) to the EUROPE is very logical

    4. CommentedProcyon Mukherjee

      The Harvard Business School survey summary on U.S. competitiveness is as follows: 71%, expected U.S. competitiveness to deteriorate, with firms less able to compete, less able to pay well, or both; 64% expected U.S. firms to be less able in three years to pay high wages and benefits, while 45% saw firms as less able to succeed in the marketplace. It is clear that the majority feel that workers would be under greater pressure than the firms. There was more pessimism from people inside U.S. than from outside of U.S. who participated in the survey; respondents in manufacturing were more pessimistic than those in the other sectors. The most striking part of the survey says about the poor judgment of U.S. firms on where to locate businesses and jobs and U.S. is actually competing with the entire world on hosting businesses and jobs. The summary of challenges in competitiveness is to found in emerging weaknesses in America’s tax code, political system, K-12 education system, macroeconomic policies, legal framework, regulations, infrastructure, and workforce skills.

      Now we can debate, whether we have a comeback kid or a well-entrenched fighter, who has some odds to muster.