Off track: America's economy is losing its competitive edge, and Washington hasn't noticed

Washington Monthly, March, 2005 by Benjamin Wallace-Wells

But in Washington, these new economic realities have barely been noticed.

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On an overcast (lay in mid-December, President Bush assembled a group of CEOs at the Reagan Building--a behemoth of a federal office complex that has become the favorite venue for small-government conservatives--for a conference to promote his economic agenda. The tone of the conference, so soon after a winning election, was upbeat, cheery, back-slapping, the happy Chamber of Commerce banter of executives who have recognized a problem that they know how to fix. At the end of the day, the president himself took the stage. He said the economy was fundamentally strong and that government's role would be to "create an environment that encourages capital flows and job creation through wise fiscal policy." To do this, he said, he would ask for Congress to privatize Social Security. and make his tax cuts permanent. He compared himself favorably to Franklin Roosevelt. He left the stage.

During the same conference, two floors up in the very same building, a group called the Council on Competitiveness held another event for the press, in which it laid out a very different vision. This group, comprised of 400 blue-chip business executives (the CEOs of IBM, Pepsi, and General Motors, among others) and university presidents--as rough an approximation of the American establishment as you could fit in a single room--was nearly as downbeat as the president was buoyant. The astonishingly fast rise of international competitors, they warned, has meant that the American economy has reached an "inflection point," a "unique and delicate historic juncture" at which America, "for the first time in our history ... is confronting the prospect of a reverse brain drain."

The report made a point of noting that the United States remains the world's dominant economy, the leader in fields ranging from biotechnology to computers to entertainment, but the CEOs nevertheless cited worrying evidence that this dominance might not last. For decades, the United States ranked first in the world in the percentage of its GDP devoted to scientific research; now, we've dropped behind Japan, Korea, Israel, Sweden, and Finland. The number of scientific papers published by Americans peaked in 1992 and has fallen 10 percent; a decade ago, the United States led the world in scientific publications, but now it trails Europe. For two centuries, a higher proportion of Americans had gone to university than have citizens of any other country; now several nations in Asia and Europe have caught up. "Those competitor countries ... are not only wide awake," said Shirley Ann Jackson, the president of the American Association for the Advancement of Sciences, "but they are running a marathon ... and we tend to run sprints."

While the president's talk focused almost exclusively on the need to free up capital for investment, these CEOs barely mentioned that as a problem. Instead, they stressed various below-the-radar government actions that they felt were undermining America's competitive edge: security arrangements that have crimped the supply of educated immigrants; recent cuts in science funding (the president's 2005 budget sliced money for research in 21 of 24 areas); and the reassigning of what research funding remains to applied research, most of it in homeland security and the military, and away from the basic scientific research that economists say is the essential engine of future economic growth. They also expressed concern about those policies Washington was not pursuing but should be: broadening access to patents; increasing research into alternative fuels; and bringing information technology into the health care market.