A nation's economic power could once be judged by tons of steel or megawatts of electricity. But we have moved beyond these simple indicators or even updated versions, such as computer chips. All advanced societies now depend so completely on technology that their economic might is often measured by their number of scientists and engineers. By that indicator, America's economic power is waning. We're producing a shrinking share of the world's technological talent. China and India are only the newest competitors to erode our position. We need to consider the implications, because they're more complicated than they seem.
As late as 1975, the United States graduated more engineering and scientific PhDs than Europe and more than three times as many as all of Asia, reports Harvard University economist Richard Freeman in a recent paper. No more. The European Union now graduates about 50 percent more, and Asia is slightly ahead of us. By Freeman's estimates, China has reached almost half the U.S. total and will easily overtake us by 2010. Among engineers with bachelor's degrees, the gaps are already huge. In 2001 China graduated 220,000 engineers, against about 60,000 for the United States, the National Science Foundation reports.
Freeman also documents a second worrisome reality: U.S. scientists and engineers aren't well paid, considering their skills and -- especially for PhDs -- the required time for a degree. This means, Freeman says, that "the job market . . . is too weak to attract increasing numbers of U.S. students." Consider some pay comparisons. From 1990 to 2000, average incomes for engineering PhDs increased from $65,000 to $91,000, up 41 percent; PhDs in natural sciences (physics, chemistry) rose from $56,000 to $73,000, up 30 percent. Meanwhile, average doctors' incomes increased from $99,000 to $156,000, up 58 percent; and lawyers went from $77,000 to $115,000, up 49 percent.
The true situation may be worse. Next to other elites, scientific and engineering PhDs fare poorly. Look at the 891 MBA recipients of the Harvard Business School's class of 2005. At an average age of 27, they command a median starting salary of $100,000. It's true that the two-year cost of a Harvard MBA is steep ($120,000 and up), and four-fifths of the students are left with debts averaging $81,000. But these new Harvard MBAs also got huge one-time bonuses; the median was $43,000. As for scientific and engineering PhDs, they typically require seven to eight years to finish their degrees, notes Freeman.
All in all, the outlook seems bleak. There's already a whiff of media hysteria. After examining these and other trends, Fortune magazine recently headlined a cover story: "AMERICA: THE 97-LB WEAKLING? . . . We're Losing Our Competitive Edge."
Not so fast. The grim prognosis wrongly presumes that another country's gain must be our loss. Hardly. If a Swedish or Japanese company cured cancer or invented a super-efficient car, Americans would benefit quickly -- just as Swedes and Japanese have benefited from technologies first developed in the United States. If Microsoft's research center in Beijing (to take one oft-cited example) develops stunning new software, the advances will soon be incorporated in Microsoft products worldwide.
It's also forgotten that the United States still dominates global research and development. In 1981 American companies and laboratories accounted for 45 percent of research and development among the members of the Organization for Economic Cooperation and Development, which are generally the world's richest nations. In 2000 the U.S. share was still 44 percent -- despite the increase in other countries' scientists and engineers and a decline in U.S. defense research and development.
We must be doing something right. Our decentralized research and development system (corporate, government and university laboratories, venture capitalists, and freelance inventors) excels at moving ideas to market and constantly reinvents itself. Here's an example: In 1980 Congress passed the Bayh-Dole Act to encourage universities to license discoveries to companies. It worked. In 2002 universities earned $915 million from licensing fees, almost four times the 1993 level, according to economists Richard Jensen and Celestine Chukumba of Notre Dame.
Not every new Chinese or Indian engineer and scientist threatens an American, through outsourcing or some other channel. Actually, most don't. As countries become richer, they need more scientists and engineers simply to make their societies work: to design bridges and buildings, to maintain communications systems, and to test products. This is a natural process. The U.S. share of the world's technology workforce has declined for decades and will continue to do so. By itself, this is not dangerous.
The dangers arise when other countries use new technologies to erode America's advantage in weaponry; that obviously is an issue with China. We are also threatened if other countries skew their economic policies to attract an unnatural share of strategic industries -- electronics, biotechnology and aerospace, among others. That is an issue with China, some other Asian countries and Europe (Airbus).
What's crucial is sustaining our technological vitality. Despite the pay, America seems to have ample scientists and engineers. But half or more of new scientific and engineering PhDs are immigrants; we need to remain open to foreign-born talent. We need to maintain spectacular rewards for companies that succeed in commercializing new products and technologies. The prospect of a big payoff compensates for mediocre pay and fuels ambition. Finally, we must scour the world for good ideas. No country ever had a monopoly on new knowledge, and none ever will.