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Senior Vice-President for Research and Innovation, Professor of Theoretical Physics, Michigan State University

Wednesday, May 04, 2005

More Friedman...

This is from his column of April 29, 2005. He is co-teaching a class with Summers on globalization, which must be quite interesting...

"For the first time in our history, we are going to face competition from low-wage, high-human-capital communities, embedded within India, China and Asia," President Lawrence Summers of Harvard told me. In order to thrive, "it will not be enough for us to just leave no child behind. We also have to make sure that many more young Americans can get as far ahead as their potential will take them. How we meet this challenge is what will define our nation's political economy for the next several decades."

Indeed, we can't rely on importing the talent we need anymore - not in a flat world where people can now innovate without having to emigrate. In Silicon Valley today, "B to B" and "B to C" stand for "back to Bangalore" and "back to China," which is where a lot of our foreign talent is moving.

Meeting this challenge requires a set of big ideas. If you want to grasp some of what is required, check out a smart new book by the strategists John Hagel III and John Seely Brown entitled "The Only Sustainable Edge." They argue that comparative advantage today is moving faster than ever from structural factors, like natural resources, to how quickly a country builds its distinctive talents for innovation and entrepreneurship - the only sustainable edge.

Economics is not like war. It can always be win-win. "But some win more than others," Mr. Hagel said, and today it will be those countries that are best and fastest at building, attracting and holding talent.

There is a real sense of urgency in India and China about "catching up" in talent-building. America, by contrast, has become rather complacent. "People go to Shanghai or Bangalore and they look around and say, 'They're still way behind us,' " Mr. Hagel said. "But it's not just about current capabilities. It's about the relative pace and trajectories of capability-building.

"You have to look at where Shanghai was just three years ago, see where it is today and then extrapolate forward. Compare the pace and trajectory of talent-building within their population and businesses and the pace and trajectory here."

India and China know they can't just depend on low wages, so they are racing us to the top, not the bottom. Producing a comprehensive U.S. response - encompassing immigration, intellectual property law and educational policy - to focus on developing our talent in a flat world is a big idea worthy of a presidency. But it would also require Mr. Bush to do something he has never done: ask Americans to do something hard.


maxkennerly said...

Yikes, not more of that "flat world" crud. Be sure to read this devastating review of his latest tripe:


It's not that Friedman is wrong per se, it's that there are at least 50 million other people who could do his job far better than he.

Anonymous said...

I am a lot more worried about the extent and nature (Asian central banks) of deficits and practically zero household savings and the huge housing bubble that you periodically highlight... With such low safety net, either in the form of govt. or family (as in Asia), things can get pretty bad for quite a long time.

From the few people I talk to (who are in India), the wages of at least some of the top engineers are comparable to US wages, not a tenth or even third. And this is on exchange rate; they do better in PPP basis. Things like cell phone, cable TV ($5 for over 60 channels, for ex.) are MUCH cheaper than in the US (comparable package ten times in US). Where they get dinged is housing.

The PPP thing is more meaningful when talking about China and India. The latest USB key drives, for which I paid 100$, are less than a tenth in Beijing. It is the same for clothing.


Steve Hsu said...


The article you linked to is funny. This one is also good:
The Datsun and the Shoe Tree

Nevertheless I agree with many of his points.


When this housing bubble bursts a lot of people will get hurt. But will it take a decade, as in Japan?

Re: PPP, last time I was in Beijing even Duracell batteries (a tradeable commodity if I ever saw one) were several times cheaper than here.

Anonymous said...

Do economists have a good understanding why PPP stays so imbalanced for such a long time?

Steve Hsu said...

Well, it's up to enterprising entrepreneurs to arbitrage away these differentials. But, it is hard to predict the timescale.

I can think of many outsourceable tasks that will probably take a decade to be outsourced...

Anonymous said...

Steve wrote, I can think of many outsourceable tasks that will probably take a decade to be outsourced...

The arbitrage I'm thinking of would be regarding goods, not services.

My impression is that the PPP imbalances last on the order of multiple decades.


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