Can Americans Compete? U.S. not building human capital as before –Primary and secondary schools falling behind rest of world –Universities still excellent, but foreign students increasingly taking education back home –Science and engineering grads increasing elsewhere, declining here Many iconic U.S. firms already do most business and employ most workers outside U.S. –Conversely, some quintessential American brands (e.g., Jeep) owned by non-U.S. cos*** –Many products of U.S. cos made outside U.S. while many non-U.S. cos make products here Dell laptop may have been assembled in Malaysia from parts made by American cos in Thailand

Can Americans Compete? Large cos transcended nationality long ago – globalization creates opportunities as well as challenges For American workers, globalization is dicier proposition—vast numbers exposed to global labor market competition, contest many cannot win at this time –Global economy increasingly based on information –Cost of handling information in free fall –Low-cost countries turning out large numbers of well-educated workers fully-qualified to work in information-based economy China reported to be producing 600,000 engineering grads in 2005, India 350,000, U.S. 70,000 (note considerable issues re: these numbers) –Outsourcing no longer threatens only mfg and lower-level knowledge work McKinsey estimates 52% of engineering jobs amenable to offshoring, 31% of accounting jobs –Downward pressure on U.S. wages

Can Americans Compete? Question is whether there can be economic dominance wo/ technology leadership –Until scientific revolution began in 17 th century, virtually everyone lived on verge of subsistence –Three centuries of technology breakthroughs are root of today’s abundance in developed world Those w/ technological edge have highest standard of living –Key to competitiveness is maintaining technological superiority – continually creating high-value new jobs that workers in rest of world can’t do yet #1 policy prescription: education That’s a problem for America today –As America changed from agricultural to industrial economy, high school movement swept U.S. »8 th grade education no longer enough –European model, which prepared small minority of young people for college, was rejected »Morrill Act of 1862—land-grant universitiesland-grant –By 1940, U.S. was world’s best-educated nation

Can Americans Compete? U.S. spending on R&D will have to increase –71% of industrial R&D is on development, not basic research –Federal funding of research in physical sciences as percentage of GDP has been declining for 30 years How can American workers be worth what they cost? –Greatest challenge will be changing a culture that neither values education nor sacrifices the present for the future as much as it used to – or as much as our competitors do –Challenge to business, government, and society