The views expressed in the following post reflect those of Neetu Mahil and not those of the World Bank.
As soon as President Obama delivered his State of the Union address, commentary on his speech was abundantly available. Media talking heads, obliged to endlessly give their opinions, talked about anything from his tone of voice to the color of his necktie to the possibility of him not seeming black anymore (thanks Chris Matthews).
While journalists and television pundits dissect his speech and its ramifications, shouldn't we instead be focusing on what Obama was really proposing to do? Early in the speech he related that "despite all our divisions and disagreements... America prevailed because we chose to move forward as one nation, as one people."
Wasn't he trying to inspire us to forget our differences and instead make better choices now to ensure that our future is both certain and bright? Changing priorities at the top is a good start, but in order to cultivate the sustained growth America needs to rebound from financial ruin, it will take innovative thinking and follow through. I want to offer an idea to that end.
Recently in India, a shipment of khoya -- a milk reduction used to make Indian sweets -- was discovered to contain spurious materials. This brought the sweets market to a stand-still as details of the extent to which this was common practice were revealed. Producers were found cutting costs by mixing blotting paper, along with poisonous mustard seed substitutes and deadly dye synthetics, into the milk used to make khoya. While Indian public confidence in sweet manufacturers was shaken, what disturbed consumers most was the lack of accountability: though laws exist to protect consumers in India, there is a stark dearth in enforcement.
This gave me an idea: why not make khoya-based sweets in the United States and then sell them back to the Indian market? Wouldn't middle and upper class Indians pay more for sweets manufactured in the US because these exports would have to pass through FDA inspections? Wouldn't consumers pay more for assured quality?
In this way, America can effectively re-brand itself as a maker of safe, high-quality goods. Historians and economists have long understood that manufacturing is the backbone of any healthy economy. Without a middle class- the child of a vibrant manufacturing economy- things like banks, restaurants, and other retail establishments cannot thrive. It is a historical fact that manufacturing is the easiest way to enrich the largest amount of people in the shortest period of time. Lifting people out of poverty means giving them work making things that people somewhere will want to buy.
Skeptics may chime in with that old adage about outsourcing: America cannot make cheaper goods than China. Well, therein lays our answer. Maybe the world doesn't really want the cheapest toy, or hamburger, or car. Maybe instead they want the safest toy, food, or vehicle they can afford. Racing to the bottom is not necessarily what trade is all about (although many would have you believe that). It is rather about giving people what they want, and that does not necessarily require cheapness. As seen with the organics movement here in the United States, an increasing number of people will happily pay more for food that takes longer to grow and is better treated and managed.
The Obama administration would do well to consider the example of Germany. It is well known that Germany is not the cheapest place to manufacture... well, anything. With social protections and high taxes, Germany also cannot compete with China on low-end goods. But what Germany lacks in price competitiveness, it makes up for with labor sophistication and innovative niche production. Germany is known not for churning out cheap goods at lightning speed but rather for expensive high-quality goods that take time and money to make. As with cars, car parts, machines, and chemicals, Germany produces food, clothing, high-tech telecommunications and medical devices. Essentially, if you want to buy something to last awhile, you'll probably buy German as opposed to Chinese.
But making high-quality goods is not enough; a market is required in which to sell these goods. Who on earth would buy more expensive American products? The answer may be a bit surprising. According to Foreign Policy, by "2040, the Chinese economy will reach $123 trillion... and China's per capita income will hit $85,000." This year, for the first time since the Model-T rolled off the assembly line, China will buy more cars than the United States. And that is not all; as the New York Times reports, "for consumer goods, China is surpassing the United States as the world's biggest market -- from cars to refrigerators to washing machines, even desktop computers." China has also exceeded Japan as the second largest importer of diamonds. America may not have diamonds or an abundance of cheap labor, but America does have a large supply of entrepreneurs, strong tax incentives to start and grow small businesses, and historically low interest rates and a weak dollar. Shouldn't we be taking full advantage of our depreciated currency which favors exports? Perhaps, in a bit of historical irony, we may find ourselves selling quality instead of quantity to the very same market that once financed our own flood of domestic low-cost Wal-Mart style goods.
Further, an ever-more climate conscious world will take to the idea that built into an American price along with the quality and safety-assurances are guarantees including labor rights and environmental protections. Sebastian Morris, professor at the Indian Institute of Management in Ahmedabad, writes that "historically after a certain stage in the transformation process when incomes are high, concern for the environment suddenly increases leading to a flurry of changes in rules and governance." This has already happened in Japan and Korea and will ultimately happen in countries like China and India. Eventually the organics movement will gain traction there just as it is beginning to in the West.
Above all, Americans have superior customer service skills, and this will help in keeping those who "buy American" happy with their choice in product. It is time to use this same skill set to sell things we actually make ourselves, while employing thousands to cater to the changing demands of a world of nouveau riche.
I can see Chinese and Indian consumers cuddling up with a Napa Valley merlot, wearing an American Apparel hoodie, lounging on a Poly-wood chair, emptying a Saber washing machine. These are things still made in the United States. But of course, we don't manufacture products here like we used to. While patents grew in the United States by 18% between 1995 and 2005, in Germany they grew by 30% and Japan by 56%. What would our future look like if we still spent as much on research and development as we once did, when Americans were busy inventing everything from personal computers to floppy disks to Post-It Notes to digital cameras to global positioning systems?
To retain our place in the world, we must build products that the world will love, and the good news is that we have all the pieces within our grasp. I don't pretend to have all the answers; those answers lie with the American people. In the words of Ralph Waldo Emerson: "Make a better mousetrap, and the world will beat a path to your door." It is up to readers, decision-makers, and entrepreneurs to take up the mantle of American ingenuity and carry this constantly morphing nation into its future prosperity. No one is going to do it for us.