This past summer, Oxford University was again ranked as the topmost university in the world, according to an article in The Wall Street Journal. [1] While the article dutifully numbered the top universities across the globe, one seemingly small statistic stood out (at least to me). “For the first time, China is now spending more money [on higher education] than any other nation...”
The United States has faced other challenges from other nations before. It went to war against the Axis Powers in the middle of the 20th century. It managed its way through a Cold War against the Soviet Union. It responded to the rise of Japan in the latter half of the 20th century. Now it confronts a rapidly rising China. But there is an important difference in this latest confrontation. For the first time in a century, the US faces a rival that is investing more in higher education than the US is itself. And this investment differential is likely to grow wider over time.
Due to its larger geographic size and larger population relative to earlier challengers, the US had a big advantage in its knowledge base to fuel its innovation. Against the Soviets, the US had a larger economy, invested more in higher education, and even managed to attract many of the leading German scientists after World War II. Against the Japanese, the US had a much, much larger economy and a much larger population, as well as more investment in higher education. This advantage gave the US a big edge in innovation, whether it was in developing superior weapons systems and consumer goods relative to the Soviets, or inventing new industries in response to the Japanese challenge.
Today, China’s economy is approaching the size of that of the US, while its population is more than four times the size of the US. And the country has steadily and strongly expanded its spending on higher education to prepare for an even brighter future. Since China knew that it would take many years to strengthen its own universities, it has also provided generous funding for young masters and doctoral students to study at excellent international universities, not only in the US but throughout the developed economies in Western Europe, Canada and Australia. China calculated that allowing its citizens to study abroad would strengthen their knowledge, and that most of them would likely return to China and put that enhanced knowledge to work in the Chinese economy. This meant that China did not need to wait for its own universities to catch up, in order to increase its innovation capability.
As a result, we in the US now face a near-peer in innovation infrastructure. The innovation infrastructure consists of the hard and soft assets in the society to generate, disseminate, and absorb new innovative knowledge. This requires investments in hard assets, like 5G connectivity or up-to-date airports, roads and train stations, as well as investments in soft assets, like training, skills, universities and other forms of human capital development. The infrastructure starts with public investment, which in turn attracts a larger amount of private investment, which culminates in greater innovation capability for the whole society.
While the chattering classes are concerned about trade policies and tariff barriers between the US and China, the competition in innovation capability is the one to watch for the longer term. While the US still enjoys a significant lead, it is clear that the Chinese are catching up in a number of industries. It is also clear that China has the political will and the economic ability to invest in strengthening its innovation infrastructure for the longer term.
In the meantime, we in the US are coasting on the innovation infrastructure investments made decades ago. In the 1940s, the Congress passed the GI Bill that sent millions of returning soldiers to college. In the 1950s, the US built its interstate highway system. In the 1960s, the US reached the moon with the Apollo program, and its military built leading satellite and missile systems that gave rise to Silicon Valley. In recent decades, though, the US has slowed down its investment in its future. Federal government spending on R&D has been flat, and is trending down as a percentage of the GDP of the economy. The US has neglected major parts of its physical infrastructure, whether that be roads with potholes, collapsing bridges, or overcrowded airports. Its primary and secondary education systems are falling behind those of many other countries. Even the excellent US higher education system is providing far too few scientists, engineers, and technicians to the US for its 21st century economy. And much of the funding for higher education has shifted from government support to private funding, saddling millions of students with terrific amounts of debt at the very start of their professional careers.
Perhaps we need to take a lesson from China, which is investing steadily in a stronger knowledge base, without forcing its students to incur large amounts of debt. The most promising path for the US is to renew its investment in its innovation infrastructure, to empower US businesses and US citizens to compete more effectively in the global economy. And, with interest rates approaching historically low levels, the cost of financing this investment is surprisingly affordable.
