On Political Books

March/ April/ May 2014 Refuting U.S. Declinism, Sort of

Don’t worry about America losing its dominant position in the global economy. Worry instead about whether average Americans will benefit.

By Anne Kim


Unleashing the Second American Century: Four Forces for Economic Dominance
by Joel Kurtzman
PublicAffairs, 320 pp.

For as long as the United States has dominated the world as its economic, military, and cultural hegemon, fears of American decline have been as much a part of our national psyche as pride of place in our power—this even as our strongest challengers have failed to topple us. The Soviet Union collapsed in 1991, while Japan slid into recession just three scant years after Japanese investors bought New York’s iconic Rockefeller Center. Still, our anxiety over the threat of subjugation to a foreign rival persists.

Today’s pessimists especially worry about China. Over a single decade—in part through its invasion of American shelves and closets with cheap goods—the nation has catapulted into becoming the world’s second-largest economy. Since 2002, its gross domestic output has exploded from a mere $1.4 trillion to $8.2 trillion in 2012, fueling fresh concerns about a pending American twilight. As Carl Minzner of the Council on Foreign Relations observed in 2007, “China’s steady rise in economic and political influence is the single event that will reshape international politics in the 21st century.”

To counter the doomsayers, Milken Institute senior fellow Joel Kurtzman argues that America has nothing to fear and much to anticipate from its economic future. In Unleashing the Second American Century, Kurtzman, former editor in chief of the Harvard Business Review, makes the case for why America will continue to dominate the global economy and why its best days are yet to come. “[E]ven in an ailing world,” he writes, “America will grow stronger still.”

But while Kurtzman presents compelling evidence that the American economy as a whole will prosper, he doesn’t answer two questions of equal current salience: Who will benefit, and at what cost?

To build his case, Kurtzman identifies four interlocking forces that he sees as the foundation for future U.S. growth. First, he points to what he argues is a uniquely American brand of creativity rooted in a desire for “self-improvement.” The American way of thinking (“We are antsy, eager to move upward and onward”) enables the kind of “game-changing” innovation that other countries can’t match.

For example, Kurtzman points to the burgeoning robotics industry, which promises to transform not just high-tech manufacturing but also everyday life. U.S. companies are developing robots that could take on such dangerous jobs as mining, undersea exploration, or even fire fighting, as well as more mundane tasks such as housework (think Rosie from The Jetsons). Overwhelmingly, Kurtzman says, robotics companies are based in America. At the end of 2012, America had 373 robot makers, compared to eighty-one in Japan, sixty-seven in Germany, and forty in France. While other countries might be ahead of America in deploying big but mindless industrial robots, American companies such as iRobot and Boston Dynamics are pioneering the development of nimble, “autonomous” robots that can essentially think for themselves. IRobot, for instance, manufactures a popular robotic vacuum cleaner called the Roomba, which cleans the floor and then automatically returns itself to a recharging station. Rosie’s robotic grandsire won’t be a German industrial robot, but the Roomba.

The rise of the U.S. robotics industry also exemplifies a second trend Kurtzman identifies: the renaissance in manufacturing. In addition to new manufacturing enterprises such as robotics, Kurtzman documents the relatively recent trend of “reshoring” jobs from overseas. Among the companies rebooting U.S. production are Ford, GE, Whirlpool, Caterpillar, Dow, and the cooler manufacturer Coleman, as well as foreign companies investing in America. BMW, for example, invested $1 billion in 2009 to expand its plant in Spartanburg, South Carolina. In 2012 the company built 301,519 vehicles and exported nearly 70 percent of them—many to China.
The reasons for this American resurgence, Kurtzman argues, include the higher productivity of American workers, rising Chinese labor costs and considerations such as proximity to markets (shipping stuff from China is time consuming and expensive), and the protection of intellectual property. (For another analysis of the reshoring phenomenon, see “Three Ways to Bring Manufacturing Back to America”).

A third American advantage Kurtzman identifies is abundant energy from domestic shale reserves. According to one estimate he cites, America now holds 17 percent of the world’s total fossil fuel reserves—more than Saudi Arabia and Russia. Cheaper energy, especially for electricity made from natural gas, is helping to tip the balance for companies like Dow, for whom energy costs drive the decision about where to locate. Kurtzman names eighty-nine companies planning to invest a total of $65 billion in new domestic production facilities as a result of lower energy costs.

The final force that will undergird America’s economic preeminence, says Kurtzman, is the huge pools of capital that have been stockpiled by companies since the financial crisis. Much of that capital is parked overseas but still available for investment.

All of these advantages are real, and could potentially lead to higher GDP in the years to come than many economists are forecasting. But in his zeal to make his case, Kurtzman barely acknowledges, much less defends himself against, a host of inconvenient facts and counterarguments.

For example, Kurtzman says nothing about the possibility that the coming robotics revolution could lead to a net elimination of U.S. jobs, including many highly skilled ones. Yes, similar fears about automation have proven overblown in the past. But there is at least some reason to worry that this time may be different. Economists Erik Brynjolfsson and Andrew McAfee of MIT’s Sloan School of Management, for instance, have argued that increased automation is a big reason why recent recoveries, including the current one, have been relatively “jobless” and why employment and productivity growth have not been rising in tandem since the start of the century as they were before.

Kurtzman’s faith in America’s extraordinary level of entrepreneurial creativity—a faith drawn from his focus on a particular and mostly male world of high technology—also deserves scrutiny. As the Kauffman Foundation has shown, overall rates of business creation and entrepreneurship have basically stayed flat since 1996, with a slight decline from 2011 to 2012. And as this magazine has reported, when adjusted for population growth, rates on new business formation have fallen dramatically since the late 1970s (see Barry C. Lynn and Lina Khan, “The Slow-Motion Collapse of American Entrepreneurship”).

And what about those giant pools of capital companies have amassed? Kurtzman argues that the presence of all this untapped capital is a cry for corporate tax reform, and he assumes that “unlocking” all this cash will lead to a boom in corporate investment. But he doesn’t address the almost certain critique that some companies, given the opportunity to “repatriate” the funds, might spend the money on CEO bonuses or stock buybacks rather than on new plants, equipment, and other pie-enlarging investments. This is in fact the critique leveled after the last repatriation tax holiday in 2004. One report by the Democratic staff of the Senate Permanent Subcommittee on Investigations charged that even after companies brought home more than $300 billion in offshore money, more jobs were lost than gained and research activities declined.

Anne Kim is Editor of Republic 3.0.

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