Does the U.S. Realize it’s in Competition?

Original Article

Mr. Herbold is a member of Discovery Institute’s Board of Directors

Living half time in Asia for the last two and half years has taught me that many countries around the world are tightly focused on competing with other countries for energy resources and global talent, as well as creating a solid financial foundation for their country and an attractive environment for multi-national companies to run their businesses.

Unfortunately, in my opinion, very few people in the U.S., and even fewer in Washington DC, seem to realize this.

Concerning energy, while we all realize the Middle East countries are the owners of massive oil and gas fields, other countries such as Russia, China, Venezuela and Brazil are moving aggressively to gain control of key natural resource assets. For example, Russia now owns 27% of the world’s proven gas reserves and 6% of the world’s oil reserves. The latest data shows that for every five barrels of oil still in the ground, four of those barrels are owned by countries, not by the big multi-national oil companies. While the U.S. has some oil and gas assets, the U.S. environmental activists and lobbyists have bullied the U.S. Congress into not tapping them, leaving the U.S. in a huge disadvantaged situation.

As oil and gas prices increase, U.S. citizens are making other countries extremely wealthy. Government officials in Washington, DC should be panicked over this issue. They should be establishing very high miles-per-gallon minimums for automobiles in the U.S. on a very aggressive timeline and lifting the restrictions on using our reserves in Alaska and the Outer Continental Shelf.

They should also be considering increased gas taxes to push us to gas efficient vehicles, and they should be pouring billions of dollars into R&D efforts focused on batteries and fuel cells in order to do an end run around this oil crisis. This research could easily be funded by gas tax revenues and by modestly decreasing the very large budgets of several government departments which are having minimal impact when measured against the dollars spent, such as the Department of Education’s $59 billion discretionary budget.

Another area where we are losing badly is technical talent. Over the decades the U.S. has dominated industrial and technical innovation. That has been the engine of our economy, creating totally new industries. Unfortunately, we are now losing our share of the technical talent globally. Various estimates show that together, China and India are producing well over three times the number of bachelor degrees in engineering and information technology related disciplines each year.
Even more important, our K-12 public school systems are simply not turning out quality talent. For example, in the state of Washington, the Seattle School District recently published figures showing that only 17 percent of their graduates are equipped for college (that is, 4 years of math, 4 years of English, and a few other key courses that are required).

Concerning the percent our young people getting a bachelors degree versus other countries, we have gone from 1st ten years ago to 16th. Even worse, when Bill Gates makes his annual pilgrimage to Washington, DC and pleads for higher H-1B Visa limits, so that foreign talent can be hired in key jobs in America, he gets turned down every year. Thus, there is no option for Microsoft other than to move more jobs outside the U.S. ( as they did very recently in starting an operation in Vancouver, British Columbia) so they can hire the people they need. The common-sense solution is to give a green card to every foreign student who gets a technical degree here in the U.S. We badly need their services.

Concerning our schools, legislation needs to be passed that requires teachers to be evaluated annually, with the top 15% or so getting big raises, and the bottom 7% or so being released. Scrap tenure; we need our school systems focused on performance. Surprise audits should be done regularly, and school systems not doing these things should lose their funding. Also, failing students should be held back. It sends a clear signal to the students that they have to really work hard and master the material.

Other countries are setting up centers for excellence in specific technical areas and luring key scientists from around the world. An example of this is occurring in Singapore where the government has built a massive biomedical complex and has lured key scientists from around the world to reside there. In accepting Singapore’s offer, the world-acclaimed scientists Neil Copeland and Nancy Jenkins of the U.S. National Institute of Health indicated, “We wanted to be in a place where they are excited by science and things are moving upward.” They were obviously referencing the continual decline of U.S. Government funding for research. Forty years ago that number was 6 percent of the federal budget and today it is 2 percent. For 10% of the annual discretionary budget of the U.S. Department of Education, we could build several centers modeled after Singapore.

The financial health of the U.S. government is a global embarrassment. We have a $9+ trillion deficit and the unfunded liabilities for healthcare and social security are $57 trillion. If the U.S. government had to use the same accounting rules it places upon companies, the USA Today recently noted that the 2007 deficit would be $2.5 trillion. Said another way, we are bankrupt.

This is in stark contrast to many countries around the globe such as China, several Middle East countries, Norway, Singapore and Russia, which generate a profit each year, based on smart management of their natural resources, very low corporate tax rates which attract multi-national companies and increase total tax revenue for the country, and smart investment of cash reserves. What is needed is for citizens to get very mad, and to put intense pressure on their legislators to stop treating U.S. budget as an infinite source of funds, and to begin managing the country as a business.
Russia is an interesting example. As noted in the Wall Street Journal recently, the country was near default a decade ago. Now, thanks to running the country like a business and the surging prices of exports of oil and other raw materials, Russia has just about paid all of its debts and has half a trillion dollars in its reserves.

The cumulative value of the cash reserves of the countries referenced above is $3.5 trillion (and estimated to be $12 trillion by 2015). That is why in recent months you are saw financial transactions such as China buying 10% of Morgan Stanley and 9% of U.S.-based Blackstone Group, Russia buying 5% of EADS/Airbus, and Singapore buying 4% of Citigroup and 9% of the Swiss bank UBS.

We should all be seriously disappointed by the lack of leadership in our country in these areas and we need to hold our government responsible for its lackadaisical attitude. Quite simply, we are getting beat by some very aggressive competition. It’s time to wake up, Washington, DC!

Robert J. (Bob) Herbold, retired chief operating officer of Microsoft Corporation, is the Managing Director of The Herbold Group, LLC and a Senior Executive in Residence at INSEAD graduate business school, Singapore Campus.

Robert Herbold

Robert J. Herbold, retired executive vice president and chief operating officer of Microsoft Corporation, is the Managing Director of Herbold Group, LLC, a consulting business focused on profitability. Herbold serves on the Board of Directors of Weyerhaeuser Corporation, Agilent Technologies, First Mutual Bank, and Cintas Corporation. Also, in 2002 he was appointed by President Bush to the President's Council of Advisors on Science and Technology.