What America Must Do To Compete With "Chindia"

The sheer amount of brainpower in China and India gives them an edge

Ever since the collapse of the Soviet Union, Americans could reasonably dream of a world dominated by a single superpower: the U.S. No longer. The rapid transformation of China into an economic powerhouse, and the likelihood that India will follow in its footsteps, means the U.S. must prepare for a far different future, one where it must learn to share economic power as never before.

Such change won't be welcome or easy. But as America's economic dominance is challenged -- China could surpass the U.S. as the world's largest economy by mid-century, with China and India combined accounting for roughly half of all global output -- Washington must craft fresh strategies that will still allow the U.S. to thrive in this new tripartite world order.

First, America must renew its commitment to innovation, allowing U.S. companies to keep creating new products and services that customers around the world want. The U.S. has long shown a knack for producing the kind of high-margin manufactured goods (aircraft, construction gear), branded consumer products (Coca-Cola (KO ), iPods (AAPL )), and smart intellectual property (movies, drugs) that are hot sellers from Boise to Bangalore to Beijing. But today's Asian competitors are quickly acquiring the technical skills that underlie much of American innovation. For instance, China and India graduate a combined half-million engineers and scientists a year, vs. 60,000 in the U.S. It's the same lopsided story in life sciences. Even if training in the U.S. is better -- a debatable point -- the sheer amount of low-cost brainpower that China and India will have at their disposal will eventually give them an edge.

That's why it's time for Washington and the states to set more rigorous standards for instruction in such key subject areas as science and math, where Asian students consistently outperform. It will take years to see the payoff there. In the interim, the government needs to rethink visa changes that, since the September 11 attacks, have made it more difficult for foreign students majoring in technology fields to attend college or graduate school in the U.S. Many of those students go to work for American companies after graduation, invaluably bolstering our technical competitiveness.

But there's a lot more than schooling that needs to change. For one, the U.S. has dominated global commerce and culture for so long that few Americans study any language other than English. Indeed, only about 9% of Americans speak a second language. More worrisome: Although college enrollment in Chinese language classes has grown 20% in the last decade, the 2000 census found that less than 1% of the U.S. populace speaks Chinese. That's fine today, when America still rules the global roost. But given the eastward shift of design and manufacturing and the Asian expansion hopes of many U.S. companies, more Americans must become proficient in local languages.

To be sure, the ascendancy of China and India is not assured. Both countries face a host of challenges that could have big destabilizing effects on the global economy if not handled smoothly. For example, if China's growth slows and its unemployment rises, it could face political unrest from both those who lose their jobs and the hundreds of millions of peasants still in the countryside. That would surely put a chill on foreign investment and could even disrupt shipments for the hundreds of foreign manufacturers who now use it as a production venue. And China's fragile banking system, only now starting to face competition from foreign firms, could still implode and roil world markets. Meanwhile, India's public finances are a mess -- budget deficits at the federal and state level are near 10% of gross domestic product -- and its historical rivalry with neighboring Pakistan could escalate into a military conflict that could stall growth.

But counting on China and India to falter is foolhardy. Beijing has proven surprisingly adept at managing its economy, tripling per capita income in a generation and attracting tens of billions annually in foreign investment. Likewise, India is putting in place the infrastructure upgrades and reduced bureaucracy to shift it from a services-outsourcing specialist into a broad-based manufacturer in the China mold.

That's why the emergence of China and India as economic giants should be a wake-up call for America -- and the rest of the developed world, for that matter. The "Chindia" region's mix of cheap skilled labor, capital-friendly governments, and huge domestic markets is simply too potent to be dismissed. So the U.S. must continue vigorously engaging India and China as trading partners who just may fuel its future growth along with their own. Otherwise, America risks becoming the next Old Europe: desperately trying to slow the march of global progress in a vain effort to retain past glories.

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