America Down But Not Out

America, seen either from here or from abroad, doesn’t look so good these days. The country that maintained world peace for decades now “leads by behind,” or not at all. You don’t have to have nostalgia for George W. Bush’s foreign policy to wish for someone in the White House who at least belongs in the same room with the likes of Vladimir Putin. Some wags now suggest that President Barack Obama has exceeded Jimmy Carter in foreign policy incompetence – Carter certainly was more effective in the Middle East.

What about space? Remember, we won the space race but now have to depend on Russian launch vehicles to do much of anything in orbit. President Obama thought we could rely on the Russians to provide us with cheap rides into orbit, but Putin squashed that notion after we objected to his actions in Ukraine. John Kennedy must be turning over in his grave.

And as for our domestic economy, the best you can say is “It could be worse,” particularly if you look at what’s happening in torpid Europe. It’s a sign of our utter lack of confidence that the current administration, and much of the punditry, still thinks we should follow the Continent’s economic and social policies.

Yet, despite all these challenges – and two presidencies the public ranks among the worst in history – it’s far too early to write off the United States. After all, no one else is doing very well. Even the widely touted BRICS countries – Brazil, Russia, India, China and South Africa – face slowing growth and mounting social problems.

There are several factors that help explain why the USA’s long-term prospects are better than many Americans may assume.

Entrepreneurial edge

The essential strength of the U.S. economy has rested on having two things that rarely occur together – an innovative culture combined with massive natural resources. Whole industries, notably technology, years ago thought to be lost to Japanese and other Asian competitors, have recentralized in the United States. In 1990, six of the world’s top 10 semiconductor companies were Japanese; by 2011, five U.S. chip companies dominated the top 10, which included only two Japanese companies, Toshiba and Renesas. And their combined revenue in 2012 was less than half that of world leader Intel’s $49.7 billion.

As of now, there’s not a key technology sector where the U.S. is not in the lead. We dominate social media, software and biotechnology. In fact, about the biggest technical threat we face is from the administration’s bizarre desire to surrender control of the Internet to foreign countries, many of whom, the president may acknowledge, do not share our values or relish our current predominance. Over time, to be sure, there will be challengers, notably China, South Korea and India, but none are likely to gain predominance in the near future. The same can be said in media; Hollywood still reigns supreme and U.S. dominance in fashion, lifestyle and music remains mostly in place.

The advantage of size

Other important countries are geographically large, but none – apart from Australia or Canada – is particularly rich. Russia is an oil plutocracy but beyond energy and weapons doesn’t export much else. China has a large land mass, but less resources, and its ability to feed itself will be increasingly constrained by pollution and diminishing water supplies. The country, by some estimates, has lost 28,000 rivers.

In contrast, America has a huge agricultural base, spread across a vast continent. If California goes dry for a spell, for instance, there’s lots of water and fertile soil in the northern Plains, the Southeast, the Midwest and parts of the Northwest. Size is a form of arbitrage that allows production to move from one place to another. Others are investing heavily in farm land and other real estate, evidence not of American decline, but, instead, of the patterns of investment that led to the country’s great expansion in the 19th century.

The energy revolution

The United States could be on the cusp of another period of broad-based industrial expansion, spurred, in part, by its rapidly growing natural gas and oil production. The current energy and industrial boom, notes Joe Kaeser, president of the German multinational conglomerate Siemens, “is a once-in-a-lifetime moment.” Cheap and abundant natural gas is luring investment from manufacturers in Europe and Asia, who now must depend on often-insecure and more expensive sources of energy.

The energy revolution has helped spark an industrial boom. There is already a shortfall, notes a recent Boston Consulting Group study, of some 100,000 skilled manufacturing positions in the U.S. By 2020, according to BCG and the government’s Bureau of Labor Statistics, the nation could face a shortfall of around 875,000 machinists, welders, industrial-machinery operators and other highly skilled manufacturing professionals.

New capitalist revolution needed

America’s capacity for perpetual renewal – what one Japanese scholar Fuji Kamiya calledsokojikara, a latent power to overcome seemingly insurmountable obstacles – persists but is limited by our political leadership in both parties as well as misguided economic policies. We need to alter contemporary capitalism’s tendency to favor and encourage transactions among investors and asset inflation, rather than fostering broad-based growth that rewards people adequately for their labor.

Fortunately, the capitalist system, particularly one under democratic control, allows for the possibility of reform, as occurred in 19th century Britain and early 20th century America. What is needed now is structural reform that can shift priorities away from rent-seeking and towards true wealth creation.

One clear priority is to reduce “financialization” of the economy. Over the past three decades, financial-services firms have doubled their share of the economy. The Obama recovery, with its bailouts of large banks and free-money policies for investors, has accelerated this trend, as companies have tended to be slow to reinvest profits in new products and innovations, preferring, instead, to engage in mergers or stock buybacks that raise share prices and reward investors, but do little for the overall economy.

In contrast, financial institutions often regard productive industries – notably manufacturing – as hampering short-term financial gains. This has repeatedly pushed companies to strip their industrial assets, typically moving them overseas.

Reforming capitalism toward a broader and more inclusive focus may not appeal to some – Wall Street investors, speculators in high-end real estate and tech oligarchs – who have done just fine the past five years. But, when asked what mattered more to them, most Americans preferred economic growth to redistribution, noted a 2014 studyconducted by the Global Strategy group, a Democratic consulting firm.

Polls of popular opinion in the United States and the United Kingdom find key ecological concerns, such as climate change, well down the list, behind such issues as the economy, immigration, crime, unemployment and even the state of morality. What Americans want most, notes political commentator Mike Barone, is “an economic boom.”

Such a broad-based economic boom is necessary if we are to restore America’s promise for this generation and, more importantly, the next. The country still has all the requisite advantages to lead in the next century and restore the middle class – if only the political leaders either rise to the occasion, or get thrown out.

This article first appeared in the Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

USA map image by BigStockPhoto.