The regeneration game

The Next American Economy, by William Holstein, Walker & Company, RRP$26, 256 pages

The Comeback: How Innovation Will Restore the American Dream, by Gary Shapiro, Beaufort Books, RRP$25.95, 224 pages

Make It In America: The Case for Reinventing the Economy, by Andrew Liveris, Wiley, RRP£16.99, 240 pages

Advantage: How American Innovation Can Overcome the Asian Challenge, by Adam Segal, WW Norton & Co, RRP£19.99, 295 pages

Aaron Sorkin’s wonderful script for The Social Network opens with Mark Zuckerberg, the founder of Facebook, telling his girlfriend that there are more people with genius-level IQs in China than the entire population of the US.

The claim is ludicrous, of course; if true, it would mean that every fourth person in China was a genius. But in deploying it as his opening line, Sorkin demonstrates his characteristic talent for jabbing a finger on to the raw nerves of American society.

Anxiety about US decline and the rise of China has become an obsession, from the Rand Corporation think-tank’s warning in February that the Chinese air force will be “an aggressive opponent in the event of a conflict” to Amy Chua’s recent book Battle Hymn of the Tiger Mother, a humorous memoir of “Chinese-style” child-rearing.

Behind all these phenomena lies a common concern: that America is slipping behind China as an economic – and, specifically, industrial – power. The Chinese economy, the world’s second largest, is on course to overtake the US to move into the top spot some time around the end of the decade. But, according to a recent Gallup poll, half of Americans think China is already ahead.

A couple of years ago, accounts of the financial crisis were the big thing in the publishing world. Now, plans for the recovery have become the new hot trend in business writing, seeing the release of a stack of books about “rebuilding America” and “reinventing the economy”, each with a flag-waving red-white-and-blue cover.

As is often the case with these publishing fads, readers would have been well-advised to wait a while before picking up one of these books, because some of the strongest examples are appearing this year. William Holstein’s The Next American Economy, Gary Shapiro’s The Comeback, Andrew Liveris’s Make It In America and Adam Segal’s Advantage all have something new to contribute in this increasingly crowded field.

None of the books is perfect. They mix fresh and thought-provoking insights with tired political talking points. They praise the authors’ achievements, in passages that must be more rewarding to write than to read. They share a perplexing fascination with the work of The New York Times columnist Thomas Friedman, and they are ready to criticise economists while apparently knowing little about what they actually think. William Holstein, for example, accuses economists of using intellectual models that “are based on a single national economy”, which is a bit like pouring scorn on modern astronomers for still believing that the sun orbits around the earth.

Yet for all that, a picture emerges from these scattered splashes of illumination, showing principles that businesses and governments, both in the US and beyond, would do well to understand.

In all the books, China is a constant theme, from Segal’s musings about Chinese potential in nanotechnology, to Shapiro’s red-blooded boast that he “wanted to punch” a Communist party official who had told him: “China going up ... US going down.”

Holstein’s reflections on China are less confrontational, including evocative reminiscences of the “vast seas of Chinese” cycling through Guangzhou at night in the late 1970s, which display his greatest asset: his ability to tell a story. The heart of The Next American Economy is nine impressively thorough case studies of “clusters” of successful US businesses, mostly making innovative products such as new types of batteries and adhesives. A veteran reporter, Holstein expended a lot of shoe leather in his researches, from Massachusetts to California, and he does an excellent job of describing what he sees and letting his subjects speak for themselves.

The point that crops up with startling regularity in their stories is the importance of government, both national and local, in helping these businesses to grow. A North Carolina technology company called Protochips, for example, pays warm tribute to the efforts of state and federal government agencies in helping it to export, including “excellent” Japanese translation.

Often, the positive contribution of government comes from the Pentagon, sometimes through its lavish spending on contracts with high-tech companies, and sometimes through its own research. As he and several of the other writers point out, the Defense Advanced Research Projects Agency laid the foundations of what became the internet.

The lesson Holstein draws is that, “Whether we like it or not, the federal government is involved in the economy, and must be.” In other words, for good or ill the government has a huge influence over the economy and it would do better to use that influence effectively in pursuit of thought-out strategic goals.

To turn from that conclusion to Shapiro’s The Comeback is like stepping through the looking glass. Shapiro is the president and chief executive of the Consumer Electronics Association, and the ebullient host each year of the CES in Las Vegas, the world’s largest annual technology trade show. He feels little warmth towards China – at one point he describes its rapid growth in patents for innovations as “maddening” – and even less towards the US government.

Over and over again the government – both the administration and Congress, Democrats and Republicans – are attacked for spending too much, borrowing too much and generally doing too much, for example launching antitrust cases in which “the US not only refuses to defend but, rather, often leads the attack on our crown-jewel companies” such as Microsoft.

Some of Shapiro’s strongest words are aimed at “DC lobbyists and lawyers”, who have “over-run” the nation’s capital “seeking special favours or money from government”. Coming from a man who is himself an industry lobbyist, this seems disingenuous in the extreme. It makes one look forward to Paris Hilton’s book explaining how America’s big problem is spoilt heiresses.

Yet he manages to explain how even this is all the government’s fault, “because the more government gets involved in business, the more protections businesses need to save them from government”.

Other sections of The Comeback are also shaky, such as the muddle-headed discussion of the healthcare reforms pushed through by President Barack Obama last year. When Shapiro sticks to home territory, however, to talk about innovation and entrepreneurship, he is on much firmer ground and makes some important points, stressing, for example, the vital role of new businesses in creating jobs.

In particular, he sets out a persuasive vision of what he describes as “American exceptionalism” in the innovation that created companies such as Apple, Amazon and Google. It is born, he argues, of “our nation’s rich and unique stew of individual liberty, constitutional democracy, limited government, free enterprise, social mobility, ethnic diversity, immigrant assimilation, intellectual freedom, property rights and the rule of law”.

That is a lengthy list, and Shapiro wisely declines to hazard a guess as to which factors are more important but his contention that “each is vitally important” is certainly plausible.

In Make It In America, Andrew Liveris, chairman and chief executive of Dow Chemical, worries that “the high-tech, high value-add products of the future will be imprinted with a cruel rebuke to the United States: ‘Designed and built in China.’ Or Germany. Or someplace else.”

He warns that inadequate education, particularly in public (ie government) schools, and crumbling physical infrastructure such as roads and ports, are threatening to destroy the American superiority in innovation that Shapiro celebrates.

A neutral reader is bound to worry that what is presented as “What is good for America” is actually “What is good for Dow Chemical”, and the two may not always be identical. Still, the perspective of a chief executive who is really making vital decisions about the location of manufacturing plants and research centres is well worth hearing.

For example, Liveris makes a point that many other business leaders have made before him but is still very little understood by the public: “It’s a mistake to assume that, in general, manufacturing jobs are leaving the United States chiefly because of cheap labour elsewhere.” Higher productivity in the US will often offset the higher wages, he adds. Instead, he suggests, it is the incentives offered by other countries such as Germany, and not by the US, that would persuade businesses to invest elsewhere.

Yet while Make It In America is full of stimulating ideas, and remarkably well-written for a book by a chief executive, it is not the best in this field. The most impressive recent book about “how American innovation can overcome the Asian challenge”, to use its subtitle, comes not from the journalist, lobbyist or industrialist, but from a think-tanker: Adam Segal of the Council on Foreign Relations.

His book, Advantage, offers by far the most sophisticated analysis of the complexity of international relationships between the US and emerging economies such as China and India, in which America is, in the words of one of his chapter headings, “trading with the (potential) enemy”.

A national security expert, Segal is naturally interested in the defence implications of, for example, US controls on exports of technologies with military uses.

However, he also has a lot to say more broadly about economics and business. He pours welcome cold water on some of the excitement about the growing technological sophistication of China and India, arguing that “while some science and technological capacity is shifting to Asia, the spread is incremental”.

Echoing Shapiro, he argues that the US has advantages as a centre of innovation that cannot be easily replicated elsewhere. As he puts it: “Asia is underdeveloped in the software of innovation”, by which he means both formal organisations and the cultural framework: “the source code”.

He suggests that, within limits, the US will be better served by greater openness in the flow of products, ideas, money and people. For both security and economic reasons, he adds: “The United States must continue to lead in the production of new technologies, not doggedly defend whatever edge it currently possesses.”

From all of these books, the policies needed to support long-term economic growth seem reasonably clear: improve public education; develop alternatives to oil; simplify the tax system; strengthen broadband connections, and rebuild infrastructure.

Perhaps the most striking point, though, is the importance to the US of immigration; I began listing the countries of origin of the entrepreneurs interviewed by Holstein, and quickly got to Turkey, Taiwan, Venezuela, Iran and England before I gave up.

Shapiro puts it characteristically vividly when he argues: “America is what it is because of our immigration heritage. Without it we will lose our creative fire.”

To say that human ingenuity and enterprise are the most important source of prosperity is an overworked truism. (It also always reminds me of the great line from the comedian Emo Philips: “The president said children are our most precious natural resource. Let’s hope it never comes to that.”)

Yet today the US sends away tens of thousands of foreigners each year who have qualified from American universities with science and engineering degrees. As a result, it is cutting off what has traditionally been one of its great sources of competitive advantage: the ability to draw from the world’s talent pool.

For quality of life, in terms of freedom and the rule of law even more than in material well-being, the US is still a world away from China, and that is a lead that shows little sign of being eroded. By refusing to make the most of that advantage, the US is increasing the likelihood that the next Mark Zuckerberg will emerge not in Boston, but in Beijing or Bangalore.

Segal points out that it is inevitable that China and other emerging economies will in time catch up on the US, as they close the productivity gap. But the US can still deliver rising living standards and jobs for its people, if it can retain a sufficiently dynamic economy. If the government wants to do what it can to help that, then retaining a generation of future scientists and entrepreneurs seems like a pretty good place to start.

Ed Crooks is the FT’s US industry and energy editor

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