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Four Reasons This Will Be the Second American Century

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Joel Kurtzman is the author of "Unleashing the Second American Century: Four Forces for Economic Dominance" as well as a Senior Fellow at the Milken Institute.

Over the years we've been told a great many countries would soon be eating our lunch. When I was young, it was the Soviet Union with its 100 megaton nuclear bombs and its ability to lift huge payloads into space. Then it was the Japanese with their mastery of electronics and miniaturization. Now it's the Chinese who eye our lunches as they move 200 million people a decade from rural areas into cities, putting them to work building cities and working in factories. And yet, despite this onslaught, America has remained on top, despite what the alarmists say. I'm not saying the United States doesn't have problems. It does. But losing our economic lead is not one of them.

Four powerful forces are in the process of transforming the United States. I use the word transforming, instead of changing, to emphasize the magnitude of what is going on.

#1 CREATIVITY

The first transformational force is America's boundless creativity. Take a walk around Cambridge, Mass., and you get a glimpse of what I mean. Within a one square mile area, the future is taking shape. Sit down at Evoo, a trendy restaurant on Third Street, and as you pick at your rabbit confit, you can look at Genzyme's gleaming research tower across the street. Genzyme, a biotech and genetics powerhouse, makes drugs that change people's lives. It was recently purchased for $19 billion by Sanofi, France's giant pharmaceutical firm, and is morphing into Sanofi's defacto research center.

"The first transformational force is America's boundless creativity. Take a walk around Cambridge, Mass., and you get a glimpse of what I mean. Within a one square mile area, the future is taking shape."

The purchase price was high not to capture Genzyme's revenues, they were only about $4 billion at the time of the sale, but to capture the value of the talent that works there. Cambridge is a magnet for the best, brightest and most talented minds from around the world, which explains why Switzerland's huge pharmaceutical company, Novartis, moved almost its entire research group to Cambridge from Basel, and why Biogen Idec did the same.

Within bicycling distance of Genzyme (this is Cambridge, after all), there are labs run by Harvard, MIT, Tufts, Boston University, and a number of world-class hospitals. These are linked to privately-funded research centers such as the McGovern Brain Institute, the Broad Institute, Whitestone Institute and many others, which spawn dozens of startups a year -- some of which will no doubt evolve into tomorrow's Genzyme. And, while any nation on earth would love to have its own Cambridge, Mass. -- China and Singapore are trying to duplicate the Cambridge's magic at home -- the United States has nine other centers with people just as brilliant in San Diego, San Francisco, Palo Alto, Research Triangle, Seattle, Minneapolis, Austin, Houston, along New Jersey's I-95 corridor and elsewhere.

And, whereas these are centers focusing on creative advances in biomedical technology, other centers in the United States focus on advances in robotics, software, computers, chip design, bioinformatics, materials science, energy, and many other fields.

A great many countries have invested heavily to create centers like the ones we have, but so far, they have failed to catch up.

#2 NEW FOUND ENERGY RICHES

Another force transforming the United States is our new-found energy riches. Thanks to the so-called shale revolution, and the initiative of entrepreneurs like the late George Mitchell, the United States has seen its production of hydrocarbons soar, along with its production of biofuels, wind energy and solar energy. As a consequence, the United States is now the world's largest producer of energy, having eclipsed Russia in 2013. It is also the world's most inexpensive producer of all forms of energy except for biofuels.

"The United States is now the world's largest producer of energy, having eclipsed Russia in 2013. It is also the world's most inexpensive producer of all forms of energy except for biofuels."

What's significant about this transformation is not just that over time it will change the United States from an energy importer to net energy exporter. What's important is that as it does so, the money the United States now sends overseas to pay for oil -- $300-$350 billion a year --will remain in the United States. That money will be invested in an entirely new infrastructure of pipelines, refineries, chemical plants, storage facilities and export terminals. As it does, it will create millions of jobs.

Just as important, if not more, as America has been converting its utilities from burning coal to using natural gas, its overall emissions of CO2 have fallen. Although we didn't sign the Kyoto Protocols for emissions reductions, the United States may be the only major, developed, country to hit the Kyoto target of reducing CO2 emissions to 1992 levels (we are at 1993 levels now).

#3 THE RETURN OF MANUFACTURING

Abundant energy has also contributed to the third force transforming the United States: the return of manufacturing. Whereas a lot of people mistakenly think -- and worse, mindlessly repeat -- "we don't make anything here anymore," nothing could be further from the truth. The United States is the world's largest manufacturer, although in some years, it is tied with China. However, whereas China's manufacturing growth is flat, America's is pulling away.

Case in point: the United States is now the preferred place to manufacturer plastics and chemicals, since cheap natural gas can be used as a feedstock. It is also a preferred location to manufacture other types of products, because of its proximity to the North American market, with 450 million people, and because of its highly productive workforce.

The erroneous notion that the United States is not a manufacturing power stems from the fact that aside from vehicles, appliances, pharmaceuticals, computers and software, most of what America makes is sold to businesses, not consumers. Because average Americans typically don't buy airport radar systems, scientific and medical instruments, jet engines and aircraft, artificial hips, heart valves and pacemakers, aircraft carriers, satellites, rockets and weapons systems, they don't come in contact with American-made goods. As a result, they assume "we don't make anything here anymore."

"The erroneous notion that the United States is not a manufacturing power stems from the fact that aside from vehicles, appliances, pharmaceuticals, computers and software, most of what America makes is sold to businesses, not consumers."

But the facts are, America's manufacturing might is growing bigger. One reason is that it is easier to update products that you sell in North America from North America. Since you can manufacture using cheap natural gas and transport those goods using trucks that burn cheap natural gas, the attractiveness of the U.S. as a place to make things is increasing. Rather than taking weeks for a product to be manufactured in Asia and delivered to a customer in Ohio, if you make something in Texas it can be delivered to Ohio a day or two later.

The same is true with updates. Rather than updating a product made thousands of miles away, and having to wait weeks to see how well the update worked, product changes and updates can take place in days if the manufacturing is done in the United States. With today's ever shorter product lifespans and continuous changes, proximity matters more than ever. That's why, for example, Apple will be bringing back some of its production back from Asia, and why GE has been doing the same.

#4 ABUNDANT CAPITAL

In addition to these three forces, America also has enormous amounts of capital sitting on the sidelines waiting to be invested. Not only has the wealth of the average household recovered since the 2008 financial crisis, American consumers have less debt than at any time in the last 35 years. They are also saving more. In addition, banks have lots of money to lend and have put $1.7 trillion in excess reserves on deposit with the Federal Reserve. Once that money is lent, the wheels of American commerce will snap into action.

The United States is far from problem free. It needs to do a better job educating young people, especially from inner cities. The government is loaded up with debt -- much of which it took on to end the Great Recession -- and the distribution of wealth is highly skewed.

However, these problems are likely to be resolved once a sustained period of growth resumes. Unemployment, disproportionately affects people without a college education and without much work experience. But once the new energy infrastructure begins to be built, this group is likely to find work. And, as intractable as it may seem, there is some improvement in the nation's educational results. Finally, even though the deficit and debt have been falling over the last two years, the long term prognosis for them is not good. The only real way to shrink the debt is to make it a smaller share of GDP, which means to reignite growth -- something I believe is about to happen.

Over the years, many people have counted out the United States -- and been wrong. Given our newfound energy wealth, the return of manufacturing, our tradition of creativity and our vaults filled with investable capital, I can't help but believe the people counting us out now will be proved wrong again.

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