Thomas L. Friedman listened to Tung Chee-hwa (董建華), Hong Kong’s first chief-executive under Chinese sovereignty. Ralph Gomory on the other hand doesn’t want us to listen to Thomas Friedman. That said, all that Tung said (not too long ago, apparently) was that
“China was asleep during the Industrial Revolution. She was just waking during the Information Technology Revolution. She intends to participate fully in the Green Revolution.”
Anyway, Friedman wants innovation for America – “president Obama should seize this moment before the midterms — possibly his last window to put together a majority in the Senate, including some Republicans, for a price on carbon — and put in place a real U.S. engine for clean energy innovation and energy security”.
Friedman’s view is based on some scientific evidence. America is at a strategic inflection point, he writes. Andy S. Grove, a leading IBM manager, describes a strategic inflection point as
“a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end”.
But since then, when Friedman supported his president in 2003, the times have changed. For one, the Iraq war was wrong, or not exactly as right as it first looked. Besides, maybe the French weren’t really that stupid back in 2003. The French prime minister was out drumming up business for French companies in the world’s biggest emerging computer society in India while Friedman and GW Bush were taking care of Saddam’s weapons of mass destruction.
But let’s get back to the strategic inflection point.
To succeed at a strategic inflection point, a company (or a country’s industries, as generalized by Friedman) must not only absorb new technologies, or develop them according to emerging or hidden trends in demand, writes Grove.
To put it more fundamentally scientific (as I understand it), America’s strategic choice between catching Osama and contributing to the wave of green technology is about a choice between surviving and growing in a great time of creative destruction, or getting destroyed in the process – economically, not militarily.
Friedman advocates a – by now seemingly established – pattern of international division of labor:
In the process, China is going to make clean power technologies cheaper for itself and everyone else. But even Chinese experts will tell you that it will all happen faster and more effectively if China and America work together — with the U.S. specializing in energy research and innovation, at which China is still weak, as well as in venture investing and servicing of new clean technologies, and with China specializing in mass production.
This could be a nice prelude for a more perfect Doha Round.
There is probably noone who would question the benefits of being a big player in new technologies – green technologies for example. But Ralph Gomory, himself a scientist, took issue with Friedman’s ideas. America can’t avoid the fate of losing productive capacity by trading designs, ideas, and R&D […] for the items we need. Gomory argues that while R&D is crucial for manufacturing, it’s share in an economy is clearly less than ten per cent. There is no way to balance the value of manufactured goods with R&D alone. Gomory writes that
[w]e need successful industries and we need to innovate within them to keep them thriving. However, when your trading partner is thinking about GDP rather than profit, and has adopted mercantilist tactics, subsidizing industries, and mispricing its currency, while loaning you the money to buy the underpriced goods, this may simply not be possible.
Nor is there a need to rely on generating nothing but designs, ideas, and R&D anyway. “Cheap labor” as a location factor doesn’t explain why Japan and Germany as high-wage countries are successful in the automotive industry, and it doesn’t explain why semi-conductors as a model of a high investment, low-labor content industry, are mainly made in Asia.
No need to say that JR finds Gomory’s argument more convincing. What only adds to the charme, Gomory offers surprisingly simple numerical evidence for his side of the debate. When you have good designs at hand, you better take them and build something useful and valuable yourself, rather than put it at your competitors’ disposal.
Besides, every country has its share of tinkerers, engineers, farmers, and unskilled workers. There is little space for that argument in economics – but if a trade-surplus country like China or Germany wants to do its share in rebalancing global trade disparities, not-so-bright citizens must find opportunities to earn money, too.
And then, maybe evening school will help a routined machine operator to become an engineer in the process. This would make sense both economically, and in terms of civil society. Long-term unemployed people on the other hand tend to lose interest in further education.