Fareed Zakaria on Restoring the American Dream

♠ Posted by Emmanuel in at 10/26/2010 12:03:00 AM
TIME-CNN has evidently hired former Newsweek editor Fareed Zakaria lock, stock, and barrel. Before, he already had his GPS programme on CNN. With Newsweek being sold for $1, he's evidently transferred his print commitments to TIME magazine as well. Not one to dwell with small topics like yours truly, he attempts to explain no less than how to restore the American Dream. You needn't ask me what I think of it as it's probably dead and gone. Indeed, the standard of living of the current generation of folks living in that subprime pastime paradise will, on current trends, be assuredly lower than that of their predecessors. Before getting to his article, I 'd also like to point out that he would have done better had he mentioned a host of other things I've covered in one way or another:
  • No mention of reducing inequality that spreads benefits per increment of national income better;
  • No mention of increasing very limited social mobility (the Horatio Alger part of the American dream or, more accurately, delusion);
  • No mention of getting extraordinarily portly Americans to be fit, which is a more proactive way to control health care costs;
  • No mention of how public policy can encourage beneficial apprenticeships instead of often-pointless college degrees as he alludes to which afford few job opportunities;
Ah well, enough of me. The essay is well worth reading if ever so optimistic. Here are his main suggestions:
What We Need to Do Now

Ultimately American jobs are created from the bottom up by companies, not from the top down by government fiat. But there are measures we can take that will encourage the process. Here are the key ones:

Shift from consumption to investment. Fundamentally, America needs to move from consumption to investment. Everyone agrees that the best way to create good jobs in the U.S. is to create new industries and companies and to innovate within old ones. This means large investments in research, technology and development. As a society, this needs to become our strongest focus. (See how the future of work is changing.)

Despite substantial increases and important new projects under the Obama Administration, the federal government is still not spending as much on R&D as a percentage of GDP as it did in the 1950s. I would argue that it should be spending twice that level, which would be 6% of GDP. In the 1950s, the U.S. had a huge manufacturing base that could absorb millions of semiskilled workers. Today, manufacturing is a small part of the economy and faces intense global competition. The only good jobs that will stay in the U.S. are jobs related to knowledge and innovation. Additionally, in the 1950s, America was the only research lab in town, accounting for the vast majority of global scientific spending. Today, countries around the world are entering the arena. Two weeks ago, South Korea — a country of just 50 million people! — announced plans to invest $35 billion in renewable-energy projects. We should pay for this with a 5% national sales tax — call it an American innovation tax — which would be partly offset by a small reduction in income taxes. This would have the twin benefits of tamping down consumption and yielding some additional funds. All the proceeds from the tax should be focused on future generations, because we need to invest massively in growth. (Comment on this story.)

The often overlooked aspect of investment is investment in people. America has been able to create the future in large measure because it has tapped into the energies and work of immigrants. It has managed to invest in human capital by taking smart, motivated people from around the globe, educating them in the planet's best higher-education system and then unleashing them in a dynamic economy. In this crucial realm, the U.S. is now disinvesting. After training the world's best and brightest — often at public expense — we don't find ways to make sure they stay here by giving them a green card but rather insist that they leave and take their knowledge to another country, where they will invent, inspire, build and pay taxes. Every year, we send tens of thousands of the smartest Indians and Chinese back home, which is a great investment — in the future of those countries.

Training and education. "Most jobs that will have good prospects in the future will be complicated," says Louis Gerstner, the former CEO of American Express and IBM. "They will involve being able to juggle data, symbols, computer programs in some way or the other, no matter what the task. To do this, workers will need to be educated and often retrained." We need more and better education at every level, especially job retraining. So far, most retraining efforts in the U.S. have not worked very well. But they have worked in countries that have been able to retain a manufacturing base, like Germany and parts of Northern Europe. There, some of the most successful programs are apprenticeships — which cover only 0.3% of the total U.S. workforce.

There are advantages to the U.S. system. We don't stream people too early in their lives, and we allow for more creative thinking. But the path to good jobs for the future is surely to expand apprenticeship programs substantially so industry can find the workers it needs. This would require a major initiative, a training triangle in which the government funds, the education system teaches and industry hires — though to have an effect, the program would have to be on the scale of the GI Bill.

Fiscal sanity. To pay for such initiatives, the government needs to get its house in order. The single most important aspect of this is getting health care costs under control, followed by other entitlement programs, especially pensions at the state level. Government today spends vast sums of money on current consumption — health care and pensions being a massive chunk of it — which leaves little money for anything else. We need a radical rebalancing of American government so it can free up resources to fund future growth. (Watch a video about being young and uninsured in America.)

Benchmark, benchmark, benchmark. There is now global competition for growth, which means the U.S. has to constantly ask itself what other countries are doing well and how it might adapt — looking, for example, at what other countries are doing with their corporate tax rates or their health care systems and asking why and where we fall short. Americans have long resisted such an approach, but if someone else is doing tax policy, tort litigation, health care or anything else better, we have to ask why.

There are things the U.S. does well. Most new jobs in America are created by start-ups and small companies, so the ease of doing business is crucial — and there's good news there. The World Bank has a ranking of countries measured by the "ease of doing business," and the U.S. is No. 4. That's very good, but there's a catch. Those rankings are divided into several categories. In most, like "starting a business," the U.S. does well. But in one category it's only 61st in the world, and that is "paying taxes." (See six year-end tax tips.)

The American tax code is a monstrosity, cumbersome and inefficient. It is 16,000 pages long and riddled with exemptions and loopholes, specific favors to special interests. As such, it represents the deep, institutionalized corruption at the heart of the American political process, in which it is now considered routine to buy a member of Congress's support for a particular, narrow provision that will be advantageous for your business.