by Robert Bryce
March 12, 2013: Jaime Emmanuelli and Jon Miller, the owners of Hive Lighting, at the South By Southwest Interactive festival. Hive manufactures and sells plasma lighting systems that are just as bright as conventional systems but are Cheaper to operate because they require far less electricity. They also produce far less heat. Source: Photo by author.
In addition, Hive’s plasma bulbs don’t produce much heat, a factor that makes them doubly attractive for use on movie and TV sets, which are frequently challenged to keep actors cool as they perform in front of hot lights. “Go ahead, put your hand on it,” said Jaime as he pointed to one of Hive’s biggest lights. I reluctantly did as instructed. The surface of the lens was warm, but not hot, even though the light itself was blindingly bright.
To be certain, none of the entrepreneurs I met at South By Southwest are curing cancer, solving global warming, or turning back the clock on original sin. I’m not arguing that South By Southwest—or my adopted hometown of Austin—will somehow save the world (although the world does seem to be moving here). Nevertheless, what’s happening at South By Southwest Interactive exemplifies the best of America’s entrepreneurial spirit. Matt Tran, Jaime Emmanuelli, and Jon Miller are building new businesses. They are inventing new products, risking capital, and just plain hustling. It’s because of that hustle, the hustle that’s evident in the 3.6 million small businesses in America that have fewer than four employees, that America will endure and prosper.2
Put simply, America will dominate the Smaller Faster future because it has a long and illustrious history of entrepreneurship and small business. America has the resources—natural, financial, and intellectual—to foster that entrepreneurial talent. America continues to incubate a spirit of creativity and risk-taking that exists in few other countries. In France, a recent poll found that about 70 percent of people under the age of thirty wanted to get jobs working for the government.3 In the United States, young people don’t want to be bureaucrats. They want to start their own businesses and get rich, just as Jack Dorsey did with Twitter or Nick Woodman did with GoPro.
Let me be clear: I’m not about to stand up and wave Old Glory. I’ve never believed in American “exceptionalism,” whatever that dubious term might mean.4 It’s beyond dispute that America faces many challenges. Furthermore, it’s obvious that other countries are exerting more influence, both militarily and culturally. Yes, the United States must make room on the world stage for China. Yes, Africa is growing dramatically and will continue its rapid growth for decades to come. Yes, Brazil dominates Latin America and will continue to do so.
America’s crushing debt (about $17 trillion in mid-2013), structural unemployment, increasing economic stratification, decaying infrastructure, and bloated bureaucracy all weaken the country.5 At the very time that the United States needs a solid political system that can deal with hard choices on spending and taxation, the US Congress has devolved into a hyper-partisan institution that has been gerrymandered into gold-plated, ossified irrelevance. The October 2013 budget impasse that led to a two-week shutdown of the federal government provides the most obvious, and depressing, example of the pettiness and partisanship in Washington. Military bloat and overreach—which reached its apogee with George W. Bush’s 2003 invasion of Iraq—has been ruinously expensive. The Second Iraq War, costing more than $800 billion, will be remembered as one of the biggest strategic errors in modern US history.6
American politicians continue to appropriate hundreds of billions of dollars per year to the Department of Defense, even though it cannot pass a financial audit.7 Despite this lack of accountability, the United States continues to spend far more on its military than any other country. In 2011, US military spending was $711 billion. That was more than the military budgets of the next thirteen countries combined: China, Russia, UK, France, Japan, India, Saudi Arabia, Germany, Brazil, Italy, South Korea, Australia, and Canada.8
The inability and/or unwillingness of Congress to reign in defense spending is emblematic of a federal government that is dysfunctional in nearly every way. That dysfunction is occurring at the very time that the country desperately needs to be fostering innovation. There are no surefire ways to achieve that, but two areas must be addressed: patent reform and education reform.
For centuries, patents have been viewed as an essential element in the protection of inventors and their intellectual property. Abraham Lincoln famously said that the patent system adds the “fuel of interest to the fire of genius.” But over the past few years, it’s become clear that the US patent system has become too bloated. In 2011, the Patent Office was granting more than 4,000 patents per week, which is about four times as many as it granted in 1980.9 The profusion of patents on nearly everything including roses—yes, roses—has led to a litigation-prone system in which far too many companies have forsaken innovation and have instead opted to become “patent trolls,” entities that use endless lawsuits (or threats of lawsuits) in order to shake down companies that may be infringing on patents held by the troll.
For example, a Delaware-based company called Innovatio IP Ventures LLC has sent letters to about 8,000 US businesses demanding some $2,500 from each one. Innovatio claims that each of those businesses, including some of America’s largest hotel chains, are infringing on the company’s patents simply because they are offering Wi-fi access. Patent trolls are now costing American business about $29 billion per year.10 And without reform, those costs will continue to rob the economy of money that could otherwise be put to better use.
In 2011, Alex Tabarrok, a professor at George Mason University, wrote a short book called Launching the Innovation Renaissance, which offered a set of prescriptions for patent reform. Tabarrok contends that the United States has made the process of obtaining patents too easy. Among his suggestions are that patents be awarded for shorter periods of time and that the government should offer more prizes for innovation.11
The need for education reform is equally obvious. If the United States is going to continue leading the world, it must get better returns on the enormous amount of money it spends on education. The nation spends 7.3 percent of its gross domestic product educating students from the pre-kindergarten level through college. That’s the fifth-highest rate of spending in the world. But the United States ranks only fourteenth in college-completion rates.12
Education reform won’t happen quickly or easily. Teacher unions—along with all public-sector unions—must be brought to heel. Standardized testing, particularly at the grade-school level, has become a crutch for school administrators, often resulting in students being forced to substitute rote memorization for critical thinking skills. Much of the debate over education has focused on the amount of money being spent rather than the best ways to achieve better results. Education reform will mean accepting the fact that not every high school graduate should be going to college. Yes, the nation needs engineers and doctors. It also needs mechanics and welders, bakers and furniture makers.
For a quick, and depressing, window on the failures of American education, watch the 2010 documentary Waiting for Superman. Seeing grade-school children and their parents pin their dreams for the future on a lottery in the hope that they will be allowed to get a proper education is both infuriating and heartbreaking.
But even if we acknowledge America’s many challenges and the desperate need for reform—in our politics, patents, and schools—we must also agree that even with these many problems, the United States has numerous advantages over other countries.
People all over the world still want to immigrate to the United States, which remains an economic powerhouse. In 2012, the value of US exports totaled nearly $1.6 trillion. Only China and the EU export more.13 In fact, when we step back and look at the critical factors—demographics, geography, agriculture, economics and finance, institutions that foster innovation, and availability of low-cost natural resources—the United States could scarcely be better positioned.
The United States is the only developed coun
try on the planet that has a large and growing population—an increasingly important fact for the decades ahead. Europe, Japan, and China all have low birth rates and aging populations. As demographer Joel Kotkin points out, over the next four decades or so, the US population will likely increase by about 100 million people. All of those new residents—many of them immigrants or children of immigrants—will add to the US tax base and provide workers for industry. Further, that immigrant population will have babies. And people who are having babies are hopeful about the future.
Compare that hopefulness with the situation in Russia, a country wracked by corruption and suicide. Russia has the third-highest teenage suicide rate in the world; only Belarus and Kazakhstan have higher rates. Every day in Russia, about five citizens under the age of twenty take their own lives.14 Russia’s teen suicide rate is three times the world average.15 In 2013, Ian Bremmer, head of the Eurasia Group consulting firm, and Nouriel Roubini, professor of economics at New York University, summed up Russia’s problems: “Corruption; ham-fisted authoritarian politics; rising state control of the economy; unfriendly policies toward domestic and foreign investors; and lousy demographics are sapping confidence and strength.”16
China may be an economic tiger right now, but the country’s decades-long enforcement of a one-child-per-family policy will, over the coming decades, wreak economic havoc as the country’s supply of workers dwindles. (In late 2013, China’s state-run news agency, Xinhua, said the country will relax the policy.) Add in China’s lousy environmental record, generational corruption, and lack of natural resources (water in particular), and the country’s challenges become even more apparent. Japan has long been an industrial powerhouse, but it is facing some truly terrible demographics. It has one of the world’s lowest birth rates, and its population of 126 million is expected to drop by about one-third by 2060.17
The United States not only has good demographics, it’s blessed with terrific geography. Unlike China, Russia, Japan, India, and other countries, we don’t have any enemies at, or near, our borders. That means we don’t have to fortify our borders. Yes, the United States has increased security along the frontiers with Mexico and Canada, but those moves pale in comparison to the nearly constant tensions between, for instance, China and Japan, or India and Pakistan.
American farmers are among the world’s most productive. The United States grows nearly 17 percent of all global grain. It’s a major producer of nearly every agricultural commodity, from eggs and milk to beef and cotton.18 America’s ability to feed itself means Cheaper food for American consumers. It also gives the nation food security, and thanks to overseas demand for American farm products, significant foreign-exchange revenues.
The United States has a huge advantage over the rest of the world in economics and finance. For decades, the US dollar has been unrivaled as a perceived safe haven for investors. That status has survived the economic crisis of 2008 and the ultra-low interest rates that have prevailed since then. The US dollar may be weaker than it used to be, but it remains the world’s most respected currency. Several countries, including Panama, Ecuador, El Salvador, Zimbabwe, and several island nations don’t print their own currency. Instead, they trade in greenbacks.19 Foreigners still view the dollar favorably because no other country has such large, liquid, transparent capital markets. For investors all over the world, the United States continues to be an attractive place to put their money because they have a reasonable assurance that their assets won’t arbitrarily be seized by the government. In short, the rule of law counts. And the rule of law—for the most part—is respected in the United States.
In addition, the United States has a huge network of venture capitalists and private financiers who are always looking to put money into the Next Big Thing. In 2012, US venture capital firms invested about $27 billion in various companies.20 That availability of capital provides entrepreneurs and inventors with the opportunity to continue innovating and, for the best of them, the opportunity to take their new product or service to the marketplace.
Despite its many failings, the United States continues to have the world’s best schools. America’s land-grant colleges, along with its private and public colleges and universities are incubating innovation. In 2011, according to the National Science Foundation, university spending on research and development totaled a record $65 billion.21 For comparison, that amount of money is nearly equal to the gross domestic product of Puerto Rico. If America’s university-related R&D spending were a country, it would rank in the top ninety of all the countries on the planet in terms of GDP.22
As proof of America’s innovative nature, compare the number of Nobel Prizes awarded to Americans with the number awarded to non-Americans. In 2012, five Americans were awarded Nobel Prizes, a haul that accounted for half of the Nobels awarded that year.23 In 2011, thirteen Nobels were awarded, six to Americans.24
Between 1901 and 2012, the Nobel Foundation named 862 laureates.25 Nearly 40 percent of them, 338, were Americans. Over that same period, the United Kingdom came in a distant second, with 119 laureates. Even if you combine the UK’s 119 laureates with the Nobels won by Russia, Japan, Germany, and France, (for a total of 332) the United States still comes out ahead. China, despite having a population four times that of the United States, is simply not a factor. By 2012, China had won just eight Nobels.26 Of course, using a single prize like the Nobel as a gauge doesn’t reveal everything about a country’s ability to innovate. Nor does such a metric predict the future of innovation. Nevertheless, it’s important to note that the United States, with less than 5 percent of the world’s population, has been home to nearly 40 percent of all Nobel laureates.27
America simply does innovation better than any other country. Schools like Stanford, MIT, Harvard, University of Texas, and University of Michigan are engines of innovation. No other country has such a large number of schools that generate so many new ideas and products. America’s schools are continually churning out students and academics who are thinking of Smaller Faster ways to do medicine, engineering—and yes, like Matt Tran and his colleagues at Boosted Boards—skateboarding. That college/government/private-sector innovation engine cannot easily be replicated anywhere else.
In addition to those factors, the United States has cheap energy. The rest of the world doesn’t. Electricity in America is far Cheaper than it is in Europe and other developed countries. In 2012, the average household price of electricity among the twemty-seven members of the European Union was $0.26.28 In Denmark—the country that wind-energy advocates lionize for its progressive policies—a kilowatt-hour of electricity for residential customers cost a whopping 41 cents. In Germany—by far, Europe’s biggest economy, largest electricity consumer, and most important manufacturer—the cost was 35 cents. In Spain, another country that has provided huge subsidies to the renewable-energy sector, it was 29 cents. Meanwhile, stateside, the average residential cost of electricity in 2012 was about 12 cents.29 The average German resident is paying about three times as much for electricity as the average American, and the average Dane is paying about 3.4 times as much.
Industrialists are noticing. In 2012, Jean-Pierre Clamadieu, the chief executive of Franco-Belgian chemical company Solvay, told the Financial Times: “The fact that energy is cheap in the United States, and probably will be for a long time, is changing the game.” Further, “Electricity’s getting more and more expensive in Europe, and some of the decisions that have been announced regarding nuclear energy production will certainly move the price in the wrong direction. For industry this is really a concern.” He went on: “It’s very difficult to replace nuclear produced electricity, which costs about €40 per megawatt hour, with a wind turbine put far away in the sea, which costs €200 per megawatt hour.”30
Electricity is only part of the story. You name it—sun, coal, oil, uranium, natural gas, wind—the United States has loads of each. In 2012, the United States ranked:
• first in natural gas production;
• first in refined oil product output;
• second in coal production;
• second in electricity production;31
• second in refined-product exports;32
• third in oil production; and
• fourth in hydro production.33
Residential Cost of Electricity in the United States Versus Other Developed Countries in 2012
Sources: Eurostat; International Energy Agency.
Cheaper: Natural Gas Prices in the United States, Germany, UK, and Japan, 1995–2012
Source: BP Statistical Review of World Energy 2013.
The United States is the world’s second-biggest energy producer and second-largest consumer (China ranks first).34 Lots of people love to hate coal, but the United States has 237 billion tons of coal reserves—about 28 percent of the world’s known deposits. That’s more than 250 years of supply at current rates of production.35 The United States isn’t the Saudi Arabia of coal, it’s the OPEC of coal. America’s coal deposits contain 900 billion barrels of oil equivalent.36 That’s nearly as much as the 1.2 trillion barrels of proved oil reserves held by OPEC.37