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"The Great American Comeback"

"The Great American Comeback"

Op-Ed, Politico

April 27, 2014

Authors: David H. Petraeus, Non-resident Senior Fellow, Michael O'Hanlon

 

As President Obama travels in Asia, the Ukraine crisis is very much on everyone’s mind. But so are questions, stoked over the last half-dozen years in particular, about whether America is somehow a declining power that will cede space and influence to China in the years to come. The number of magazine and book covers with some variant of “Are America’s Best Days Behind Us?” could fill an entire library.

It is important that Americans and Asians understand very clearly that the United States is not in decline. The United States is actually on the threshold of great opportunities, and North America is poised for several decades of leading the world.

The evidence is all around us. The U.S. economy is reviving, strengthened enormously by the ongoing energy and information technology revolutions, as well as the nascent manufacturing and life sciences revolutions. Twenty years into implementation of the North American Free Trade Act, the United States is part of a highly integrated North American market with Canada and Mexico—now our top two trading partners—as well as countries that share common values, a commitment to pluralistic democracy and an embrace of free-market economics. All of this should provide a sense of renewed confidence in a part of the world supposedly suffering from decline.

We first wrote about this last April; a year later, the argument appears to be holding up very well.

No question, our country and our continent face major problems. U.S. primary and secondary education lag the world, the U.S. federal budget is still far from healthy, much-needed immigration reform remains elusive for a divided Congress, middle-class incomes have hardly recovered from a generation of stagnation and our national politics remain largely paralyzed. At home, there is much to be done.

A shrinking deficit: The federal budget deficit is expected to be down to about $500 billion this year and to remain around that level through much of the decade. This is still too high, to be sure, and within a decade the figure is expected to again top a trillion dollars annually, as it did in the years immediately after the onset of the Great Recession. But the deficit is currently down to a manageable 3 percent of GDP, and the national debt is now declining modestly relative to the size of the economy. Part of the reason is the admittedly modest economic recovery; part of it too, however much one wishes to credit the Affordable Care Act, is the relative easing in the rate of growth of health-care costs.

Still besting China: After a couple years of decline, America’s standing in international competitiveness according to the World Economic Forum has stabilized in fifth place, with only Germany (a strong U.S. ally, despite the Snowden revelations) ahead of us among the world’s major economies. And China, for all its strengths and promise, has stopped ascending on the list for the moment, stuck at 29. No one wishes China ill, but it is probably preferable for American strategy that China’s geostrategic ascent slow somewhat, as too rapid and radical a pace of change in the international order creates a sense of American decline internationally and threatens to upend a generally stable global order. (And in fact, China faces an enormous array of challenges: a rapidly aging population exacerbated by the legacy of the one-child policy; horrible air and water pollution; rising restlessness and increasing riots and other manifestations of domestic unrest; and rising wages that are making its manufacturing slightly less competitive even as many people still need jobs, especially in the half of the country that hasn’t leaped ahead yet.)

The energy boom: According to the latest data, American oil production has been increasing at the rate of more than 10 percent a year and gas production at the recent rate of more than 5 percent. The United States leads the world in natural gas and, by some estimates, could surpass Russia and Saudi Arabia even in the former later in this decade. The comparative advantage the U.S. enjoys in any industry that requires natural gas as a raw material or cheap gas-produced electricity is, for the near-term at the least, now insurmountable.

The manufacturing rebound: American manufacturing, though down substantially as a fraction of world totals and of the overall U.S. GDP compared with a decade or two ago, has stabilized and in fact ticked up slightly in the last couple years. We are now in a clear No. 2 position behind China, with the latter producing $2.6 trillion in manufacturing value-added according to the most recent annualized figures in comparison with $2.0 trillion for the United States. But the U.S. share of the world total has nudged up slightly to just under 18 percent and there is considerable reason to think that the North American energy revolution will continue to “bring jobs home” and otherwise create manufacturing opportunities that had been rather rare in the early years of the 21st century otherwise.

The innovation edge: America continues to lead the world unambiguously in overall spending on research and development, on new patents, on the quality of its higher-education system, and in computer, aerospace and pharmaceutical innovation. And despite the logjam on immigration reform, its continued reputation as a melting pot and its modest but positive population growth rate (especially together with the growth of our North American partners) give it easily the best demographic profile and trajectory of any major power on Earth.

Put all this together, and a few important conclusions emerge.

First, we need not panic about today’s deficit but we still need reform on entitlements and tax policy—with each political party compromising more than it currently would like on sacred political cows—so that the situation remains acceptable come 2020 and beyond. Barring that kind of compromise, our deficit-to-GDP ratio will begin to climb once again.

Second, while the Murray-Ryan budget deal of 2013 stopped the indiscriminate sequestration axe for a while, we need a sounder budget deal for the short term since sequestration is due to return in 2016 (and in fact, the deal’s budget levels in 2015 for defense, and for domestic discretionary accounts that fund infrastructure development and science research and development and education, are already too low).

Third, we need immigration reform to keep our workforce dynamic, and if a big deal proves elusive in the short term, smaller deals on issues like increasing quotas for H1-B visas are long overdue.

Fourth, education reform at home, a slow and difficult project to be sure, needs to continue, with experimentation in various ways as we seek to improve our international competitiveness, with a particular eye on science and math. The White House can help further by establishing a high-profile project to make science and math education seem more alluring to children by showcasing the amazing accomplishments of Americans whose stories should be inspiring to our youth.

Fifth, and even more so in light of Russia’s ongoing threat to Ukraine, and also given the uncertainty that Iran’s nuclear program continues to cause for Middle Eastern markets, we need to get moving on energy, notably by allowing and encouraging the export of American natural gas to economic partners in Europe and Asia (action in particular is needed to speed the final approval process for the firms granted export licenses for liquefied natural gas).

Sixth and finally, despite our challenges, we need to avoid talking ourselves down. More than a decade of harsh partisanship in Washington, D.C., and profound anxiety across the country over our national future—a longer stretch of national doubt than we had even in the 1970s, arguably—have taken their toll. But we are doing much better than the common wisdom often holds, and that should help us face everyone from Vladimir Putin and Ayatollah Khamenei to an increasingly assertive China with confidence and rational optimism, not gloom and doom.



 

For more information about this publication please contact the Belfer Center Communications Office at 617-495-9858.

Full text of this publication is available at:
http://www.politico.com/magazine/story/2014/04/the-great-american-comeback-10606
0.html#.U16dzFVdV8E

For Academic Citation:

Petraeus, David and Michael O'Hanlon. "The Great American Comeback." Politico, April 27, 2014.

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