What happens when China moves the US out of the #1 economic spot? US education wakes from its 125-year sleep.
As Joseph Schumpeter tells it, in a cycle there is growth, followed by destruction, followed by more growth, with innovation the underlying driver throughout. He called it creative destruction. It's a story that's been told by many, from Friedrich Nietzsche to Michael Rothschild to the Lion King. Something comparatively better becomes the new attraction and the action migrates from one place to the next -- causing growth where it lands and leaving decay behind. It happens in ecosystems, it happens in advance of high school proms all over the country, and yes it happens in economies.
In this week's FORTUNE, Geoff Colvin discusses in part how it's happening the US. He points out that by some measures (like Angus Maddison's accounting for purchasing power parity), China will take over the #1 economy spot from the US not in 2050 as estimated, but in seven years -- in 2015.
Clearly it doesn't all happen at a single moment like a power switch. It's a distribution of events spread out over time. And if you're an architect, a commodities trader, or a t-shirt or device manufacturer, you can vouch for the fact that the action has already begun to move heavily there.
So what of it? If Schumpeter is right, and the last 4.5 billion years are any guide, there will be tremendous economic upheaval for the US. As the #1 economy, China (and India and elsewhere) with its low cost / high growth magnet will increasingly attract more industries, more companies and more jobs relative to the US. As a result, in the US many sub-industries will go extinct and entire job types will evaporate. Like the comet that piled into Yucatan Peninsula 65M years ago, significantly altering the environment and causing all land-based animals over 25kg to go away, the career and job environment in the US are going to structurally change.
Some people may think this is alarmist hand-waving rooted in fear. I don't. It's the opposite -- this magnificent change necessarily spells magnificent opportunity. Just as China is passed the crown, two generations in the US -- Gen X and the Millenials (and I wouldn't count out the Boomers just yet) -- are passed the baton to innovate, to make something different and valuable. What could you do with the #2 economy, the world's best universities, access to capital and your ability to learn? A lot.
It's this last part though that gives me pause -- faith in one's ability to learn.
I'm bullish on all the people who make it through high school, into college and out, to take up the call. They're confident they can learn. But how many people age 30-60 have forgotten they can learn? Or worse, how many people coming through the K-12 system never prove to themselves that they can?
If these numbers are big, we've got a problem. Here's why. We've seen the Creative Destruction movie before. We know how it ends. The way out of the destruction (and into new growth) is adaptation, and specifically, specialization. It's creating a comparative advantage -- in what you do or how you do it -- in something that is recognized as valuable in the global economy. Adaptation and specialization come from learning. Not textbooks and slide-rules, but on the job, in the plant, in the studio, in the team room, on the whiteboard, at the customer site. So if Taiwan becomes dominant in making iPhones (it already has) and London-Abu Dhabi becomes the finance corridor, what new markets will we carve out to dominate?
This question is very difficult to answer if a significant percentage of the US population views themselves as fixed: "This is what I do. This is what I'm good at. I can't/won't put in the investment to do something else because it won't work." If people don't believe they can learn, they're going to have a tough time surviving and advancing to the next round. There are many reasons adults curb their learning, but at minimum the lack of a growth mindset is in part a K-12 failure. K-12 education is first and foremost the institution charged with showing people they are not fixed. People first learn at home with whatever family is around, but K-12 schooling is where people validate the idea they've learned how to learn.
Enter the Chinese Comet. Knocking the US off the throne, and picking off pockets of the economy in the short-term, will have a net positive effect -- if we choose to respond and build off our strengths. Companies, due to living in a relentlessly competitive environment, will no doubt adapt. However, it's education, K-12 in particular, that will now have the conditions to change.
Since 1890 when the US ascended to #1, our education system has operated in relative comfort. When sitting atop the largest economy there is little urgency to change more than the minimum. In fact the incentive is the opposite -- "we've got a good thing going, let's maintain it" -- the same reason Switzerland is astonishingly beautiful but not a Silicon Valley. When China ascends, the cocoon for US K-12 starts to crack. The 125-year sedative begins to wear off. There will be new conditions that will provide the legions of good people inside K-12 a rallying call: "Let's get it back!" or for the less ambitious "Let's stay relevant!" as they see the official slipping on the global leaderboard, as they see their neighbors', friends' and family's jobs migrate East, as they see the need for all of us to adapt and invent new advantages.
Changing the momentum from sliding-backward into forward-gain is certainly possible. After all, it was China who was #1 over 100 years ago when the US took over, and they've managed to pull it off another time. Actually, I sincerely hope we do learn from China. As they slid in the late 1800s, they chose to turn inward and blame globalization. Blaming the outside is always convenient and politically expedient. Instead of adapting, they closed themselves off. There have already been voices in the US promoting similar protectionist views. Erecting tariffs and penalties to protect jobs is about as effective as early man throwing spears at the comet to change its course. For China, it meant abject poverty for most people between 1890-1970 and delaying real growth for over a century. What will it mean for the US at this time in history?
The debate isn't whether the creative/destructive phase change is occurring. The debate is how do we want to respond. Education, as a service and a sector, is the way forward. How you get involved in education, whether as a student, an entrepreneur, an investor or a service provider, will dictate the quality of life for both you and your kids' generation -- or for your kids' next 4 generations.
