America’s Real Global Responsibility

Beyond the political sphere, there is an additional moral imperative that falls on the educated elite in the United States.

The U.S. economy is rich enough and big enough to absorb the risks of innovation. The United States also has a critical mass of educated people — and a financial system able to fund their ideas.

It is our obligation to take risks, to be the trailblazers — and absorb most of the uncertainty.

We are the only country big enough to absorb a failure on the magnitude of the massive telecom and dotcom losses without losing a step.

If the United States does not walk the path of exuberant growth, there is no one else who will.

The fast-growing Asian giants — China and India — do not have the resources or the financial infrastructure to support risky innovation.

Japan and Europe have chosen the path of safe, cautious growth — which is based on the steady accumulation of capital.

If the United States follows suit, the result will be a lower growth rate for the whole world.

And without technological innovations that increase productivity and reduce the use of scarce resources, it is hard to see how the mass of the world's population can even approach the standard of living of the industrialized nations.

We should be taking on the big risks. That is the right thing for us to do. And even if they do not work out, that is our responsibility to the rest of the world — and to our children.

This is not simply a matter of economics. It is a matter of moral responsibility.

Embracing exuberant growth is a way of giving purpose to our lives — over and above the simple accumulation of goods. It is a way of ensuring that our children live not in the Age of Uncertainty, but in the Age of Possibility.

At any time, the U.S. economy has strands of both exuberant and cautious growth.

Companies are trying to create new products and master breakthrough technologies — even as they are improving the products already on the market. Most of the activities that we engage in each day fall under the heading of cautious growth.

But exuberant growth is the only way that a mature industrial economy such as the United States can compete against low-cost competitors overseas.

If the United States is not extending its technological lead, it becomes much easier for other countries to catch up.

For example, it was during the 20-year period of cautious growth — from 1975 to the mid-1990s — that the United States lost much of its international competitiveness, its trade deficit exploded and manufacturers moved jobs out of the country.

During this period, the United States seemed helpless to hold back the tide of imports from overseas. Cautious growth depends on investment in physical capital — and that is not one of America's strong points.

Other countries have much higher savings rates — as well as less expensive workers. There was no way for the United States to compete on those terms.

Exuberant growth instead builds on the real competitive advantage that the United States has, not in capital, not in education — but in risk-taking.

Other countries simply do not have the resources to take a chance on an expensive new technology the way that the United States does.

At the same time, exuberant growth in the United States turns out to be enormously beneficial to other countries as well.

Think of the process of economic development as a ladder. The bottom rung is agriculture and natural resources. The next rung up is light manufacturing, such as textiles and clothing.

Then come heavier industrial processes, such as steel-making, followed by more advanced industrial production, such as automobiles — which is in turn followed by high-tech products, such as electronics.

It is only natural for successful countries to keep moving up the ladder. That is what happened with Japan, Korea and Taiwan — and that is what is happening now with China and India.

As countries develop, their industrial capabilities increase — and so does the range of products that they can make. Exuberant growth has the effect of allowing the United States to keep moving to higher and higher rungs on the ladder.

Technological change creates new products and new markets that can be exploited for a time — before other countries catch up.

In the 1990s, it was high-tech, software, the Internet and biotech leading the way. And as the United States and other advanced countries move on to new markets, it opens up the lower rungs of the ladder for other nations.

Taiwan and Korea can move up to producing electronics components and even whole computers for the United States — while China can produce the toys and other products that were once "Made in Taiwan."

India can attract call centers and help desks — routine and repetitive tasks that can easily be outsourced.

The foregoing is excerpted from “Rational Exuberance” by Michael Mandel. All rights reserved. No part of this book may be used or reproduced without written permission from HarperCollins Publishers.