Despite evidence to the contrary, Americans like to think our nation is about to be eclipsed. When I was a boy, people worried the Soviet Union would bury us. (How’d that work out?) Early in my career, a lot of commentators were sure Japan was on its way to becoming number one. Now it’s China’s turn to pull ahead.
I have nothing against China, or any other country. But overtake the United States? Not for a while. I’ve been watching the global economy for decades, and it seems to me that growth in the United States is about to speed up, while growth in the emerging markets is slowing down.
I make that statement in light of four powerful forces which are at work in the United States and which no other country can duplicate. American creativity remains unsurpassed. Manufacturing is undergoing a renaissance, building on a strong base. New technology has turned the U.S., however improbably, into the world’s largest energy producer. And capital is abundant.
If you doubt the force of America’s creativity, take a walk through the Kendall Square area of Cambridge, Massachusetts. In the shadow of MIT, there are dozens of large biotech and life sciences companies, and many dozens of startups. The neighborhood has become one of the most dynamic research centers in the world for the biosciences.
Because of Kendall Square’s concentration of talent, and its infrastructure, Novartis, the giant Swiss pharmaceutical company, moved nearly its entire research center here from Switzerland. When the French pharmaceutical company Sanofi bought Cambridge-based Genzyme, for $17 billion, it made Cambridge the Paris-based company’s most important research hub. These commercial companies are surrounded by academic research centers at MIT and Harvard and by a complex of private, non-profit research centers like the Broad Institute, the McGovern Institute, and many others, all working to transform medicine and extend the frontiers of science.
Other countries would love to have a cluster of research institutions like those located in Cambridge. And the fact is, Cambridge is just one of several such clusters in the United States. There is the Bay Area, encompassing the Universities of California at San Francisco and Berkeley as well as Stanford; the area around San Diego; Research Triangle in North Carolina; the area around Austin and Houston Texas; the I-95 corridor in New Jersey; as well as Seattle and many other areas of the country.
Americans are also fond of telling each other, “we don’t make anything here anymore.” The need to renew manufacturing was a big issue in the Presidential election of 2012. It might surprise you to learn that the United States remains the world’s preeminent producing nation, responsible for about 20 percent of the world’s goods – a little more than China produces.
China leads the world in low-margin electronics assembly, textiles, and some types of machinery; the United States, on the other hand, is a high-end producer. The average person assumes we don’t make anything because we don’t make a lot of what a typical consumer buys. Instead, we make jet turbines, helicopters, sophisticated airliners and business jets, electric generators, radar, chemicals and plastics, satellites, and all kinds of weapons.
Despite years of flat or declining budgets, the United States has retained its lead in space. Private companies like SpaceX are building some of the world’s most sophisticated and efficient rockets (and will resume launching people into space), while Orbital Sciences and the United Launch Alliance retain the lead in satellites.
Evidence abounds that even more manufacturing is coming to the United States. A new wave of it began before the crash in 2008, stopped while the world caught its breath, and is now resuming. The domestic automobile industry is in the midst of upgrading its manufacturing plants, foreign auto companies are expanding in the U.S., and companies like General Electric are making more of their white goods domestically. And what’s behind America’s return to manufacturing? Two things …
An Energy Bonanza
First, America’s energy bonanza has changed the equation. This makes the United States, for many chemical companies, the preferred place to manufacture. Germany’s BASF, the world’s largest chemical company, has been investing $1 billion a year in the United States to expand its facilities and take advantage of America’s cheap natural gas to use as a feedstock. Dow Chemical is expanding its investment in the U.S. for the same reason.
How cheap is America’s natural gas? Over the past year, it has on average cost around $4 to buy a million BTUs worth of natural gas in the U.S. The same amount of natural gas cost about $14 in Europe, $15 in China, and about $16 in Japan. Not only can natural gas be used as a feedstock for chemicals, fertilizers, pesticides, paints, plastics, and cosmetics, in 2013 the Cummins Corp. an engine manufacturer, began building an engine for long-haul trucks optimized to run on natural gas.
America’s energy bonanza is not a short-lived phenomenon. It could be with us for a century, perhaps even longer. As it develops, the U.S. will shift from energy importer to energy independent, then to net energy exporter. As that happens, the trade deficit will fall. Indeed, it could even turn positive.
The Great Recession did what recessions tend to do. It shifted debt from the private side of the country’s balance sheet to the public side. The result has been that the government has a lot of debt, while households are in better shape than in decades. Today, households use a smaller share of their incomes to pay off their credit cards, mortgages, and other debts than at any time in the last 35 years. Americans are saving money at very high rates.
While households have been trimming down their debt, the value of people’s savings, investments, and retirement accounts has recovered from the recessionary low. In addition, since falling during the Great Recession, home prices are recovering, too.
Partly as a result of the slowdown, partly as a result of increases in productivity, and partly as a result of renegotiating their debt at highly favorable rates in the aftermath of the downturn, companies are flush with cash. Although estimates vary, American companies have between $4 and $5 trillion in liquid assets, a sum greater than the size of the German economy.
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America’s continued progress will be driven by creativity, manufacturing excellence, abundant energy, and large capital reserves. Whereas some countries might enjoy the effects of one or two of these forces, no country but the U.S. has all four going for them. For the first time since the Great Recession, the economic winds are at our backs.
I’m not suggesting that the U.S. doesn’t have problems. We certainly have our share. What I will say is that we now have resources available to fix those problems. While I’m at it, I’ll also note the good news that Americans are personally healthier than in decades. It’s enough to make you want to believe in a new American Century.