This commentary in the Financial Times from Byron Wien, the former Morgan Stanley guru, is spot on. Everyone making a decision to vote for President in the U.S. should heed Wien’s word before pulling that lever.
America’s decline will not be easily reversed
By Byron Wien
Having grown up in an America where the opportunities seemed endless, I am dismayed at how optimism seems to have diminished among our younger people. To understand how we got into this position, it might be useful to go back to 1933. During that year the U.S. was in a deep recession and Hitler came into power in Germany. Thousands of European intellectuals, Jewish and otherwise, left Europe and came to the US, adding considerably to the scientific strength of this country. War broke out in 1939 and over the next six years Europe was flattened and Asian industrial cities were considerably damaged. The continental U.S. built up its manufacturing capability to fight the war and was untouched by enemy bombs during the conflict.
In 1945, the U.S. was clearly the world’s leader militarily, economically and politically. Its universities were pre-eminent and its cultural life was enriched by the migration of Europeans during the previous decade. This position of leadership lasted 35 years until 1980. It received a boost from Russia’s launching of a space satellite, Sputnik, in 1957. This was a shock because Russia’s scientific prowess was not taken seriously at the time. The U.S. committed to putting a man on the moon in the next decade. Government funding for space research expanded and the objective was met.
Our space research gave rise to Silicon Valley and U.S. industrial strength was enhanced by technology innovation derived from products created for our satellite programme. By 1980 however, Europe, helped by the Marshall Plan, was back on its feet and the Japanese car and electronics industries were developing momentum. We took our leadership for granted, ignored this shift and became complacent.
Our problems became more serious when communism failed in Russia, Chairman Mao died and reforms that were started in China and India began to play a role in the world economy.
During the 1960s and 1970s, U.S. textile, apparel and shoe manufacturing migrated to Latin America and Asia. By 1990 many products formerly manufactured in the U.S. were being produced abroad. In addition, foreign automakers were taking market share from Detroit and we became more dependent on imported oil.
Our initial reaction to the end of communism was to take a victory lap because capitalism had won. We talked of 3bn new customers without realising that many of these people would also become competitors. We began to view ourselves as a service economy without recognising that services do not export well. During the past 20 years our balance of payments deficit has expanded to 6 per cent of our gross domestic product, putting our currency in peril because our low savings rate requires us to finance our deficits with borrowing from abroad.
One of the reasons we feel so overburdened by debt is that it has steadily taken more borrowing to finance our growth. In the 1950s the economy grew by 73 cents for each dollar of added debt. In the 1960s it was 65 cents. By the 1980s it was only 34 cents and so far in the current decade it is less than 20 cents.
We all know the sad story of our slippage in mathematics and science. In fourth grade, American children are ahead of almost everyone in the world. By the eighth grade they are even and by 12th grade they are seriously behind. If you walk through the labs of our great scientific universities you see many Asian faces. Some of them are Americans who grew up here but many are foreign students. In the past, most of them stayed to enjoy the benefits of our open society but now many are going home. Since September 11, 2001 many have trouble getting visas and there are now considerable opportunities for them in their native countries. Today, America is the leader in only five product areas: computer hardware, software, biotechnology, aerospace and entertainment. That is not enough to provide job opportunities for a country of 300m people.
America’s decline has been a long time in coming and will not be reversed quickly, if it can be reversed at all. To do so will require exceptional leadership from the next president, since some aspects of life in the U.S. may get worse before they get better.
To get started we will need to spend billions in a man-on-the-moon type programme to move from fossil fuels to alternative sources of energy. We will need to finance research in technology innovation and biotechnology, including stem cell research. We will need to generate most of our electricity using nuclear fuel. We will need to bring our infrastructure into the 21st century.
The next president’s biggest challenge will be to prevent America’s slide into a position where it is dependent on foreign sources for both capital and energy. We have the human resources to accomplish these goals. The question is whether we have the will.
Last year I gave a talk about America having reached its economic peak. I pointed out that England peaked in 1912 and life in the UK was still quite pleasant so I was not too worried about my own country having begun a gradual decline.
At the end, a young man approached the podium. He told me he had been reading my work for two decades. I thanked him and then he said: “One thing you should probably know is that Holland peaked in 1617 and life over there is still pretty good also.”
The writer is chief investment strategist for Pequot Capital Management