Almost a year ago, President Obama set a challenge in his State of the Union speech: "We need to out-innovate, out-educate, and out-build the rest of the world." He had just signed a law that ordered the Department of Commerce to write a report on American “competitiveness.” That report was released last week and claims that "elements of the U.S. economy are losing their competitive edge which may mean that future generations of Americans will not enjoy a higher standard of living."
The report is a perfect example of a line of reasoning common among Republicans and Democrats alike. The idea is that the world is more or less like the Olympics. Countries are engaged in a competition in different fields: scientific research, educational achievement, and the development of new technologies. Obama has repeatedly returned to the idea of competition, declaring in a December speech in Kansas that the United States must win the "race for good jobs." His Republican challengers have also enjoyed raising the specter of an America losing its edge (because of Obama, of course).
Obama and the Republicans might disagree on the answers, but they agree on the question: "How can America compete with the rest of the world, especially China?" But this is the wrong question to be asking. We are not actually engaged in economic or technological competition with China or with anyone else. Absent a state of open war, our economic growth helps that of other countries, and vice versa. New technology developed in the United States will benefit the rest of the world, and vice versa.
The extremely complicated interactions between countries—goods, people, culture, and ideas all flowing back and forth—are not akin to a sporting competition. To pretend that we are all engaged in a giant worldwide track meet for economic domination serves the interest of business above individuals. To pretend that there is a field event for technological domination actually hurts American business by imposing futile regulations on technology exports. This deeply entrenched misunderstanding about the nature of technological innovation leads to unnecessary tax breaks and prioritizes trendy metrics of performance (where putative relative success can be measured) over the fundamentals necessary to shaping a better society. By thinking we are racing with China, or Europe, we will end up worse off.
The case that we are in competition is often linked to the claim that the United States is somehow “falling behind.” A July report by the Information Technology and Innovation Foundation that ranked countries on the basis of how “innovative” they are typifies this perspective: “It is worth reiterating that in 2000 the United States ranked first, a position it likely held for the majority of the post-war period, but in a decade it has fallen to fourth. At this rate, where will the United States rank at the end of the next decade?” The United States was “behind” Singapore, Finland, and Sweden. Comparing a country of 300 million people with a city-state and a couple of Nordic countries whose combined population is less than that of Los Angeles doesn’t mean much. But it lets ITIF sound the trumpets of alarm and claim that drastic action is needed.
On the surface, there is a sort of international competition over jobs. Commerce Department data show that U.S.-based multinationals cut 2.9 million domestic jobs during the first decade of the century and added 2.4 million jobs abroad. But look more closely, as in a November report from the Commerce Department, and you’ll see that of those new jobs abroad, only 8.9 percent involved sales to U.S customers—the overwhelming number of new jobs abroad were related to economic growth abroad. It looks like jobs “moved” from the U.S. to other countries, since the numbers are about the same size.
But the truth is that jobs were lost in the U.S. for many reasons: technological change, corporate consolidation, and a sluggish economy. The jobs that were created abroad are, by and large, different jobs than the jobs lost in the United States. As Paul Krugman wrote in an essay for Foreign Affairs in 1994, “it is simply not the case that the world's leading nations are to any important degree in economic competition with each other, or that any of their major economic problems can be attributed to failures to compete on world markets.” It’s easy to blame today’s bleak economic outlook on a failure to compete. But doing so is just finding a scapegoat for domestic shortcomings.
The bible of the competitiveness crowd is a National Academy of Sciences report called Rising Above the Gathering Storm. (In terms of melodramatic white paper titles, the United States is surely a world leader. The report was first issued in 2005; a 2010 revision was subtitled: Rapidly Approaching Category 5.) The 2010 report notes, “30 years ago the United States had 30 percent of the world’s college students. Today we are at 14 percent and falling.” This is cited as evidence of a decline in American competitiveness. But that’s like saying the United States has a smaller percentage of the world’s well-nourished people than it did 30 years ago. It is good for people around the world to go to college and be well-fed. Neither takes anything away from the United States.
The competition rhetoric is almost always linked with calls for increased investment in research. But as Argentino Pessoa of the University of Porto, among others, has pointed out, there is a slight negative correlation between R&D intensity and GDP growth—in other words, spending more on research doesn’t necessarily make you richer. Amar Bhide, in his book The Venturesome Economy, cites the example of Norway, which isn’t even in the top 20 countries ranked by share of scientific papers published, but has the highest labor productivity in the world.
Knowledge—of which technology is a kind—gets shared widely. A Dec. 7 New York Times article called “China Scrambles for High Tech Dominance” gets it exactly wrong. “If the future of the Internet is already in China, is the future of computing there as well?” The future of the Internet isn’t in China any more than the present of the Internet is in the U.S. Technonationalists (as Bhide calls the competitiveness caucus) like to trumpet the fact that Google is an American company. But the benefits of quartering Google’s corporate headquarters are dwarfed by the benefits of using Google (and its peers, like Baidu, a Chinese search engine) and other revolutionary technologies. And those benefits get spread widely. The Internet, for example, was invented in the United States—but that does not mean we get the most benefit from it.
Indisputably, more scientific research is going on in China today than 30 years ago. But let’s do a simple thought experiment. Imagine that someone in a lab in China cured cancer tomorrow. Technology spreads quickly—that cancer cure would be applied in the United States (and throughout the world) with tremendous benefit for human welfare. In no way would we be worse off. Sure, a Chinese pharmaceutical company would make money. But so would the pharmacist who sold the drug in the United States and the doctor who prescribed it. American researchers would build on the Chinese discovery. American workers would be more productive, and American families would have their sarcoma-ridden loved ones futures restored to them. The money made by the notional Chinese pharmaceutical firm is inconsequential compared with the worldwide effect of the miracle cure.
Let’s consider the example of penicillin, discovered in England by Alexander Fleming. Louis Pasteur did important preliminary work in France. It was in the United States that industrial production (and therefore the ability to benefit large numbers of people) was made possible. Sure, “the Internet” was invented in the United States, but the World Wide Web (click here for the difference) was invented 20 years ago in Switzerland by an Englishman. The computer I’m working on was made in China. Which country gets the credit when I go to Slate.com?
Companies do compete with one another over particular implementations of technologies. But if a Japanese company sells an American an awesome photocopier, both are better off. The Gathering Storm report claims “even weeks can matter in the race to be first; hence the job-creating value of research is highly perishable.” This is hokum. Tons of things matter when it comes to who sells more photocopiers, or cameras, or assembly-line robots, or music players. In the next sentence, the report gives the example of the iPod—a phenomenally successful consumer product, which came to market years after the first MP3 players, undermining the very point the authors were trying to make. The competition between Apple and other manufacturers of MP3 players has nothing to do with which country’s researchers find the basic principles behind digitally encoding music.
Even military technologies that governments strive to keep secret spread quickly. Russia got the atomic bomb within a few years of the United States, as did Britain, France, and China. The Russians made a copy (the Tu-4) within years of the American B-29’s debut. When an American drone crashed in Iran recently, there was much handwringing about the Iranians using the fallen model to create similar technology. But it would be more remarkable if Iran never got its hands on a drone. Whenever a technology becomes useful, whether to the military or to a teenager, it becomes more widely used. When it becomes widely used, a copy is likely to fall into the hands of an adversary, thus spreading the technology.
This isn’t to say that the plans for the newest stealth drone system need to be made open source. It’s reasonable for a country to try and keep some secrets, just as companies try to keep proprietary information under wraps. But we shouldn’t be shocked when these attempts fail—it was in their nature to fail.
Attempts to limit the spread of technology, like ITAR—the U.S. framework for controlling the export of militarily sensitive technology—never work very well. Being overzealous in their enforcement on the basis of a supposed technological competition just creates a bureaucratic quagmire, without actually securing any military advantage to speak of. If we find ourselves at war with China, we can worry about the question of tactical advantage. (The efforts to counter roadside bombs in Iraq and Afghanistan are a good example of actual technological competition in the narrow sense in which it does take place: not between Iraq and the U.S. as countries, but between the insurgent who wants to explode a roadside bomb and the soldier who wants to prevent it from going off.)
Regulations based in the wrongheaded belief in technological competition, like ITAR, hurt American businesses that are trying to export technologies that fall under ITAR’s umbrella (at one point, the export of computers with Pentium chips were banned). But other businesses stand to get boondoggle tax breaks and subsidies in the name of competition. A June Commerce Department report calls for tax breaks to help America compete, arguing that it will spur innovation. (The report called for a five-year vacation from capital gains tax for small business and three years of zero corporate income tax.) If you are ranking countries based on who gives start-ups the most freebies, more tax breaks will always improve your ranking. But will they actually help spur economic growth or innovation?
New ideas are a good thing, but trying to come up with more of them than someone else by throwing money at the problem won’t work. As a 1998 paper by Austan Goolsbee noted, sudden increases in R&D spending tend to just raise salaries for researchers, rather than lead to more research. The same can be said of broad-based tax breaks; investors will make more money, but they won’t necessarily be any more innovative.
Competition rhetoric can be used to incite hysteria—“We are falling behind!”—and to inspire pride—“We’re number one!” Weirdly, the competitiveness crowd often argues both of these at the same time: We are the greatest country on earth even as our schools are failing.
This contradiction can only be resolved by realizing that these rankings were meaningless to begin with. We don’t need to run twice as fast, or rise above any storms, or worry if people in Germany or Japan or China live better than they used to. We shouldn’t worry about American technology spreading to our rivals. Television spread quickly throughout the world; so did the computer, the railway, antibiotics, the car, the automatic washing machine, and any other useful technology you care to name. If this diffusion takes place faster today than it used to (witness the rapid adoption of mobile phones around the world), this is a good thing. It doesn’t hurt America’s ability to “compete” because, as an empirical fact, the economic importance of cooperation trumps that of competition on a national scale. This is bad news for jingoistic politicians and business leaders, but good news for everyone else.