Towards A Good Samaritan World

Monday, March 07, 2005

DON'T BE AFRAID OF FOREIGN INNOVATORS

Is the US "losing its competitive edge," as this article claims? Wrong question.

The word "competitive" is applicable to individuals and corporations. It might even apply to small countries, inasmuch as these are reliant on a given industry, e.g. garments or timber, or abundant in a particular factor of production, e.g. low-skilled labor. It has no meaning for the United States.

From the article:

On weekend afternoons, Best Buy is as bustling as a souk, full of grandmothers and little kids tooling around with digital video cameras and geeked-out salesmen explaining to the moms that the cell phones in their hands have nearly the computing power of desktop PCs... Whereas a decade ago the most creative, groundbreaking stuff came from Silicon Valley, now it all seemed to come from overseas. The plasma televisions were from Korea; the computer-like cell phones were from Finland; the feature-packed digital cameras were from Japan.

During the last six months, we have begun, quietly, to enter a newly tense moment, with university presidents, business leaders, and columnists delivering ominous-sounding reports and editorials about the threat to American innovation posed by a freshly competitive world—the renewed vitality of western Europe, Japan and Korea, and the ravenous growth of China and India.


Other countries may have made these products, but we still get to buy them. And that's the whole point. The word "competitive," applied to countries, imagines a zero-sum game where none exists.

If I work for Motorola, and everyone in Best Buy is getting Nokia phones, I might lose my job. It doesn't follow that if I'm an American, and everyone in Best Buy is buying Finnish cell phones, I have reason to worry. Foreign "vitality" in developing new products may be a threat to "American innovation." But innovation is just one economic activity of many. There is no reason to identify the health of the innovation sector with the health of the American economy, any more than there is reason to identify the health of the garment industry, or the car industry, with the American economy.

Just as the rest of us may benefit by the outsourcing of garment production, or car production, so we may benefit if foreigners out-innovate American firms-- and then sell these products to us.

If you read the article carefully, you'll notice how selective the quotes are. Most of them are from people on the coasts, and especially at elite universities. But these do not speak for the national interest; they speak for the interests of the innovation industry-- and, by the way, they come from heavily Democratic regions.

Another revealing quote:

But there is perhaps no economic sector that is undergoing a more profound evolution, or in which government investments could make a bigger difference, than energy. As India and China continue their rapid industrialization, and with it their need for oil, analysts predict that the price of oil, already sky-high, will grow even more prohibitive—which means that whichever companies develop the most effective alternative fuels and energy-efficiency technology will revolutionize the industry, and whichever countries can produce those breakthroughs may become rich on it, the Bahrains of the 21st century.


But Bahrain et al. became rich, not because they developed a new energy technology, but because they were sitting on the natural resources that a new energy technology demanded. The Bahrainis didn't invent the internal combustion engine, and it wouldn't necessarily have made them rich even if they had. If future, oil-displacing energy technologies are developed by Europeans or East Asians, these technologies can easily be adopted by Americans. At worst, we'll pay them a lot of patent fees for using the technologies. More likely, they'll end up paying a disproportionate share of the fixed costs of innovation, and we'll get to free ride-- the way they get to free-ride on our development of new drugs.

You have to suspect a bit of intellectual dishonesty here. The guys at the Washignton Monthly want the US to cut greenhouse gas emissions, but they know this would involve self-sacrifice on the US's part. So they're creating a bogus self-interest argument for it.

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