Outsourcer’s Apprentice

Figures that with 313 million people versus almost 1.4 billion folks in China, just on a statistical basis alone, the latter is simply going to have a greater number of geniuses, math whizzes and creative masters. It’s just a matter of numbers. We have some Chinese cultural barriers to more than a few levels of accomplishment – the complete lack of a tradition of great creative fiction writers plus the intimidation of seemingly perpetual censorship and punishment for “inappropriate” speech – that give the edge in those areas to Americans. But given that Chinese students are already culturally biased against pursuing careers in “free speech and creativity” sectors, and the necessity of finding other arenas in which to excel, it bears noting that where they have chosen in masses to focus creates a direct and immediate threat to our long-term competitive advantage.

Simply put, China knows that language barriers and cultural filtration are not significant “stoppers” to hard science, math and engineering. With their massive currency reserves, they also know that educating their young people in these areas is a super-priority, particularly with the financial collapse having put the United States in a position where it is cutting – substantially – its educational systems from pre-school on to the highest levels of post-graduate education. They have the money to educate, and they are spending it!

Let’s start with this ego-shattering report from Bloomberg.com (December 7^th): “Fifteen-year-olds in the U.S. ranked 25th among peers from 34 countries on a math test and scored in the middle in science and reading, while China’s Shanghai topped the charts, raising concern that the U.S. isn’t prepared to succeed in the global economy… The Paris-based Organization for Economic Cooperation & Development, which represents 34 countries… released the 2009 Program for International Student Assessment . For the first time, the test broke out the performance of China’s Shanghai region, which topped every country in all academic categories. The U.S. government considers the test one of the most comprehensive measures of international achievement.” Given that Shanghai is the growth model for the rest of China, we have every reason to be worried.

What’s worse, as China tries to jump start its move from being a purely servicing economy into being “the land of invention and growth,” it has taken more than a few liberties – perhaps even defying international law – in its “rules” concerning tech companies that wish to access the Chinese marketplace. For those drooling businesses, eying the 1.4 billion potential customers in a country that by 2030 is expected to be the largest economy on earth, the concessions that they are forced to make to sell in China clearly put the long-term value leverage in the hands of the locals at the expense of the foreign entities.

The impact of such rules, requiring local manufacturing and revealing patents to local companies, can have both dire and beneficial consequences for the companies seeking a PRC market presence. Such is the experience, noted in the December 14^th New York Times, of Spanish wind turbine manufacturer, Gamsea: “Nearly all the components that Gamesa assembles into million-dollar turbines here, for example, are made by local suppliers — companies Gamesa trained to meet onerous local content requirements. And these same suppliers undermine Gamesa by selling parts to its Chinese competitors — wind turbine makers that barely existed in 2005, when Gamesa controlled more than a third of the Chinese market.

“But in the five years since, the upstarts have grabbed more than 85 percent of the wind turbine market, aided by low-interest loans and cheap land from the government, as well as preferential contracts from the state-owned power companies that are the main buyers of the equipment. Gamesa’s market share now is only 3 percent… With their government-bestowed blessings, Chinese companies have flourished and now control almost half of the $45 billion global market for wind turbines. The biggest of those players are now taking aim at foreign markets, particularly the United States, where General Electric has long been the leader.” Challenges to these local marketing rules are being pursued within the World Trade Organization, but by the time that body rules, the smoke will have long be released from the jar, and China will be way down the competitive race track.

What does this mean for the United States? It’s pretty obvious that if we can’t figure out how to create new edgy technology that fills our export machine, China will leave us in the dust. And if our students just can’t compete with the engineers of China’s future, guess where that edgy technology will originate? When you combine history’s vicious cycle of prosperity followed by arrogance followed by decline followed by the rise of a replacement power – a process which has recycled since the first groaning of recorded history – with the above realities, the future trend is obvious. What is particularly confounding is that, knowing all of these realities, the United States isn’t really doing much to counter these trends and seeming to be consciously taking itself out of the competitive race in future years. In my mind’s eye, that is profoundly un-American, but the choice remains ours.

I’m Peter Dekom, and I am wondering exactly what it will take to constitute an appropriate “wake-up” call… and if we are remotely going to make that choice on time?