Riaz Haq writes this data-driven blog to provide information, express his opinions and make comments on many topics. Subjects include personal activities, education, South Asia, South Asian community, regional and international affairs and US politics to financial markets. For investors interested in South Asia, Riaz has another blog called South Asia Investor at http://www.southasiainvestor.com and a YouTube video channel https://www.youtube.com/channel/UCkrIDyFbC9N9evXYb9cA_gQ
Sunday, February 1, 2009
Sustaining America's Edge in a Competitive World
In spite of America's leadership position in global competitiveness, the new US administration under President Barack Obama is asking the US Congress to more than double the federal education budget this year, as part of its stimulus package. Some of the new spending will ensure that any reductions in education budgets by local and state bodies are more than offset by additional federal dollars.
International math and science test results have consistently shown for over a decade that Asian students from China, Japan, Singapore and Korea perform better than American students. In spite of such results, the US continues to excel in scientific and technological innovation as measured by the number of Nobel prizes and number of international patent filings. Most of the recent breakthrough innovations have come from the United States. Six of the top ten highest ranked universities are in the United States. America's workers continue to be amongst the most productive in the world. There is only one Silicon Valley in the world and it is in the United States. This valley represents more of a state of mind rather than a physical place. Why is it? Do Americans focus more on scientific reasoning than facts and content? Is there greater focus on rote learning in Asia? Do Americans foster more creativity and greater exploration? Does freedom of expression in America encourage more questioning and better reasoning? There have not been any comprehensive studies to answer these questions satisfactorily. But one thing is clear: In the "New Economy", the most important single asset for any nation is the intellectual capital it develops by educating its people well. Investment in education could not be better described than by the words used by the Chinese genius Kuan Chung centuries ago: "If you plan for a year, plant a seed; if for 10 years, plant a tree; if for a 100 years, teach the people. When you sow a seed once, you reap a single harvest; when you teach the people, you will reap a 100 harvests."
The Department of Education’s discretionary budget for the 2008 fiscal year was about $60 billion. The stimulus bill would raise that to about $135 billion this year, and to about $146 billion in 2010. Other federal agencies would administer about $20 billion in additional education-related spending. The new spending represents a dramatic boost in a country which already spends more than most of the industrialized nations on education.
In recent years the federal government has contributed 9 percent of the nation’s total spending on public schools, with states and local districts financing the rest. Washington has contributed 19 percent of spending on higher education. The stimulus package would raise those federal proportions significantly. Total public and private spending on US education is close to a trillion dollars a year, about 6.8% of the 14.5 trillion dollar GDP.
In higher education, the bill would increase spending on Pell Grants, the most important federal student aid program, to $27 billion from about $19 billion this year, according to the New York Times.
“It’s a very good idea to increase Pell Grants in the stimulus,” said Terry Hartle, a senior vice president for public affairs at the American Council on Education, which represents colleges and universities. But Mr. Hartle said that even he was having difficulty tracking all the new spending. “A lot of things will go through, and only later will we know exactly what happened,” he said.
The large increases in education spending may or may not be sufficient to guarantee a continuing edge for America in the brave new world of competition. But it is very likely to help, particularly if the spending boost is accompanied by a sound education policy that encourages new technology innovation, philosophy of peaceful coexistence with other nations, achieving breakthroughs to respond to the modern challenges of climate change, renewable energy, sustainable development and a new industrial and information revolution that makes life better for all citizens of the world.
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"The large increases in education spending may or may not be sufficient to guarantee a continuing edge for America..But it is very likely to help, particularly if the spending boost is accompanied by a sound education policy" - I agree with you on this 100%. Great article. Keep it up!
Here's NY Times Nobel Laureate economist-columnist on Ibn Khaldun's lessons for Microsoft and other established powers:
The trouble for Microsoft came with the rise of new devices whose importance it famously failed to grasp. “There’s no chance,” declared Mr. Ballmer in 2007, “that the iPhone is going to get any significant market share.”
How could Microsoft have been so blind? Here’s where Ibn Khaldun comes in. He was a 14th-century Islamic philosopher who basically invented what we would now call the social sciences. And one insight he had, based on the history of his native North Africa, was that there was a rhythm to the rise and fall of dynasties.
Desert tribesmen, he argued, always have more courage and social cohesion than settled, civilized folk, so every once in a while they will sweep in and conquer lands whose rulers have become corrupt and complacent. They create a new dynasty — and, over time, become corrupt and complacent themselves, ready to be overrun by a new set of barbarians.
I don’t think it’s much of a stretch to apply this story to Microsoft, a company that did so well with its operating-system monopoly that it lost focus, while Apple — still wandering in the wilderness after all those years — was alert to new opportunities. And so the barbarians swept in from the desert.
Sometimes, by the way, barbarians are invited in by a domestic faction seeking a shake-up. This may be what’s happening at Yahoo: Marissa Mayer doesn’t look much like a fierce Bedouin chieftain, but she’s arguably filling the same functional role.
Anyway, the funny thing is that Apple’s position in mobile devices now bears a strong resemblance to Microsoft’s former position in operating systems. True, Apple produces high-quality products. But they are, by most accounts, little if any better than those of rivals, while selling at premium prices.
So why do people buy them? Network externalities: lots of other people use iWhatevers, there are more apps for iOS than for other systems, so Apple becomes the safe and easy choice. Meet the new boss, same as the old boss.
Is there a policy moral here? Let me make at least a negative case: Even though Microsoft did not, in fact, end up taking over the world, those antitrust concerns weren’t misplaced. Microsoft was a monopolist, it did extract a lot of monopoly rents, and it did inhibit innovation. Creative destruction means that monopolies aren’t forever, but it doesn’t mean that they’re harmless while they last. This was true for Microsoft yesterday; it may be true for Apple, or Google, or someone not yet on our radar, tomorrow.
Here's a Time Magazine piece titled "China Makes Everything. Why Can't It Create Anything?":
... China's 1.3 billion upwardly mobile people are voracious consumers of everything from cars to smartphones to Kentucky Fried Chicken. Through its relentless exports, China has amassed a mountain of cash reserves and made itself Washington's biggest foreign creditor.
However, the China that vacuumed up factories to become the Workshop of the World is fading into history. The country is a victim of its own success. Decades of nonstop growth have forever altered China's place in the global economy and changed how it must compete with rich nations like the U.S. and emerging economies like India. The tools that China has used to spark its economic miracle — government support, cheap labor, state-directed finance — cannot ensure its future. The country can no longer rely on just making lots of stuff; China has to invent things, design them, brand them and market them. Instead of following the leaders of global industry, China has to produce leaders of its own.
Such a transition is not easy. Few emerging nations in modern times have made the leap from assembler to inventor, copycat to innovator. For China, this would mean an overhaul of its economy. Many of the products China manufactures today aren't really very Chinese at all. Apple iPads might be exported from assembly lines based in China, but the Chinese themselves do little more than piece them together. The core technologies come from elsewhere, and even the factories are run by foreign firms (like Taiwan's Foxconn). For Chinese companies to compete with the world's best, they have to create products of their own that have a similar impact as the iPad. That requires a set of skills and know-how they don't yet possess and a level of managerial expertise they haven't yet developed. Economist William Janeway, author of the book Doing Capitalism in the Innovation Economy, says what has gotten China thus far won't be enough for the next step: "It is hard to start the process of pushing the frontier with [such] practices and policies."
Chinese policymakers fully realize that. The new leadership team in Beijing, ushered into office a year ago, has pledged to press ahead with free-market reforms — liberalizing finance, supporting private enterprise and cracking open protected sectors. "China's modernization will not be accomplished without reform, nor will it be achieved without opening up," Premier Li Keqiang recently conceded. So far, though, progress has been slow. Few meaningful initiatives have been introduced, and even headline-grabbing measures — like the September launch of a special zone in Shanghai to experiment with freer capital flows — have proved mere baby steps. Li and his mandarins must take on vested interests and rein in an overbearing bureaucracy, which will require formidable political will. China's leadership "is not ready yet to deliver a comprehensive reform package with executable specifics and clear timetables," Bank of America Merrill Lynch economists warned in October.
Whether China succeeds or fails will determine where everything from sneakers to cars to smartphones are manufactured, the brands that appear on them and who sells them. Failure could stall China's economic miracle and dampen global growth with it. Here are five challenges China must address:
1. Labor is no longer cheap
2. Companies lag behind in technology
3. Innovation doesn't come easy
4. There are too few global brands
5. Good managers are hard to find
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