01 Jun 2009
Consumption Is America’s Competitive Advantageby Sean SilverthorneTopics:
In the saber-rattling and highly influential 2007 report Rising Above the Gathering Storm, the National Academies warned that America’s technology and scientific leadership was being surpassed by a number of Asian countries, threatening both our dominant position in markets and, yes, even our standard of living.
But Amar Bhidé (MBA ’79, DBA ’88) thinks the “gathering storm” theory is not only wrong but alarmist and harmful. Writing in his book The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Princeton University Press, 2008), Bhidé declares that the United States, rather than investing massive sums to regain technological preeminence, is much better off becoming the best country at incorporating such advances in new products and services, no matter where the ingredients are produced.
Bhidé, a professor at Columbia Business School who earlier taught at HBS, 1988–2000), wades hip deep into business history (he cites HBS historians Richard Tedlow, Thomas McCraw, and Walter Friedman in a span of a few pages) and economic theory to argue that, in fact, the erosion of technological and science leadership would be far from a disaster for the United States.
What’s that? Yes, R&D investment produces benefits and prosperity, but not the wide array of pluses and spill-overs offered by “venturesome consumption” of new products and services, the author contends. Citing his own research into venture-backed firms, Bhidé says lower-level innovation contributes much more sustainable economic growth as well as an increase in the standard of living, social well-being, and desirable jobs.
Meanwhile, obsessing over establishing science-tech superiority brings its own ills, including a threat-level mentality that diminishes America’s ability to fruitfully partner in a global economy.
Bhidé argues that high-level know-how developed in other countries benefits the United States because it is highly mobile and cheap: What is invented expensively in Taiwan, for example, can then be produced cheaply in the Philippines and exported to create consumer surplus in the United States.
The really good news for America, he says, is that our well-developed and venturesome consumerism provides the ideal potting soil for all these mobile ideas to take root. Consumers, not patents, are our national competitive advantage.
“Suppose researchers in, say, Germany develop a technology that helps retailers reduce inventories. The exceptional companies to use it, such as Wal-Mart, will lead to greater increases in productivity and living standards in the United States than in countries — possibly including Germany — where regulations, custom, and other factors may discourage retailers from using the new technology.”
It is folly for the United States to hunker down in an international technology race, he concludes. “Today’s conditions allow nations to gain from each other’s advances, and our challenge lies in making the best of this good fortune.”
— Sean Silverthorne
Class of MBA 1979, Section A