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ОглавлениеHow America Became the World’s Smartest Society—And How It Can Stay That Way
HUMAN CAPITAL AND THE SMART SOCIETY
The United States has, over its two-century-plus life, become far and away the world’s most successful society, not only in overall economic well-being, but also in social harmony and individual happiness. As of the writing of this book, the country has emerged from the biggest economic downturn since the Great Depression, a situation that shook many Americans’ deeply ingrained faith in their country’s superiority and dampened their optimism concerning their own and their children’s prospects.1 With all its recent troubles, the United States nevertheless remains the richest, freest, most socially stable, and—yes—happiest nation on the face of the earth. This is not just an empty assertion; it can be documented empirically with any number of positive statistics. The United States still has the highest gross domestic product (GDP) per capita of any country over 10 million in population,2 and in the recently published and well-respected World Happiness Report, the United States scored as the tenth happiest out of 128 nations surveyed—and was the only populous country in the top ten (alongside places like Denmark, Finland, and Switzerland).3
America’s economic and social success rests in no small part on an enviable bedrock of centuries-old political, social, and economic institutions, all of which endure. Ever since the country won its independence from Great Britain in 1783, the United States has been a free-market democracy with secure personal freedoms and property rights, and that is not about to change. In addition, the country has the good fortune to possess abundant natural resources across its vast continental land mass.
Even so, the real secret to America’s phenomenal success—and the subject of this book—is its extraordinarily high level of “human capital.” What, exactly, is human capital? Put most succinctly, human capital refers to the sum of acquired personal abilities that lead any individual anywhere to be economically and socially successful. From that it follows that the greater the sum of human capital possessed by a country’s adult citizens, the more successful that country will be. Thanks to far-sighted private and public investments made in the United States throughout the nineteenth and twentieth centuries, the vast majority of Americans—across lines of class, gender, religion, national origin, even race—long ago attained levels of human capital higher than those found in any other nation. As Harvard economists Claudia Goldin and Lawrence Katz note:
Investment in physical capital became vital to a nation’s economic growth with the onset of the Industrial Revolution in the nineteenth century. But the path to ongoing economic success for nations and individuals eventually became investment in human capital [emphasis added]. Human capital became supreme in the twentieth century and America led the way.4
Despite our stunning past accomplishments in generating human capital, the United States today can ill afford to rest on its laurels. Unless we rapidly revitalize our human capital capabilities we are not only in danger of seeing a growing roster of other countries overtaking us, but we also risk cheating future American generations of staggering levels of opportunity and economic prosperity. One recently published estimate of the “growth dividend” gained by upgrading American human capital (in this case through improved education) is $77 trillion over the next eighty years.5
Let me explain the title of this book. This book focuses entirely on America’s human capital, why we should be worried about it, and how, with some strategic shifts in public policy, we can ensure that coming generations will accrue enough of it. Yet “human capital,” a term first coined by the English economist Arthur Pigou in 1928, is jargon to the average reader, and is poorly understood by all but professional economists. Because it is the subject of the book, I cannot help but use the term, but I also want to cast its essence in layman’s language. Hence my formulation of the “smart society.” Just as individuals can be “smart” (not just in having a high IQ, but in any number of other functional or social ways), so can a country. Thus, I reserve the appellation “smart society” for a country where a majority of its citizens, and not just a privileged elite, possess high levels of human capital and, as will be explained later, put it to productive use. Throughout recorded history, the world’s richer and more successful countries have been, to a greater or lesser degree, “smart” societies; for nearly two hundred years, the United States has been—quite intentionally—the world’s “smartest.”6
How important is human capital? Being a smart society confers huge benefits. The most obvious is material well-being (see table 1.1). Americans have long enjoyed the world’s highest standard of living, however one may want to measure it. Even when compared to affluent nations in Europe and other high-income English-speaking countries (Canada, Australia, New Zealand), Americans always have had more to eat, were the first to have electricity in their homes and streets, the first to have universal telephone service, the first to have universal car ownership, and the first to travel extensively by air. Americans have long had the world’s most spacious and well-equipped homes and highest rate of homeownership. In the last few decades they were the first to enjoy the fruits of the late-twentieth-century technological revolution—computers at home and at work, large-screen and high-definition television, and electronic gadgetry of all kinds.
Rewarding as material well-being is, the more ephemeral benefits of being members of a smart society are just as important: the ability to participate responsibly as voters and officeholders in a robust democracy; the sense of personal fulfillment that comes from having a good education and occupational skills; knowledge of other people and societies that breeds tolerance of diversity and facilitates successful social interaction; the capacity to enjoy fine literature, art, and music; the possession of habits of delayed gratification and self-discipline that lead to better life decisions and happier families—to name just a few.
Table 1.1
GDP Per Capita ($U.S.)—Historical by Country
Source: Angus Maddison, Monitoring the World Economy: 1820–1992 (Paris: Organisation for Economic Co-operation and Development [OECD], Development Centre Series, 1995), and current data from the OECD.
*1870–1973 figures in 1990 $U.S.; 2011 in 2011 $U.S.
Living in a human capital–rich society also confers benefits on the community as a whole. For starters, there is the issue of society-wide financial burdens. Every rich country has long ago instituted “safety-net” programs to provide for its poor, elderly, disabled, and other unfortunates. Many of the richer ones—including the United States and the countries of northern Europe—have also added other costly public “entitlements” for the not-so-poor. There is absolutely no question that the total cost of these programs is directly proportional to the percentage of the population with severely deficient human capital: the un- or poorly schooled, the jobless and the sick (because good health is also correlated with levels of human capital). By one estimate, federal and state governments in the United States today spend about 1 trillion dollars annually on such programs—not counting Social Security, Medicare, and unemployment insurance. Aside from financial considerations, we are all happier if our neighbors, our fellow workers, our children’s classmates, and even the strangers we see in the street every day are well-off.
THE HUMAN-CAPITAL TRIPOD
What constitutes human capital, and how is it created?
Education All economists would agree that education is the single most important determinant of any person’s human capital; thus a country’s human capital will be largely proportional to the educational attainment of its adult population. This means that, for any country, the more years of education or training its people have and the more uniformly education is distributed, the greater its human-capital endowment will be. Maximizing a country’s educational potential requires establishing a national network of schools, universities, and other training facilities that are broadly accessible to the population without regard to income, and whose instructional programs meet the highest standard of the age.
However, economists specializing in the formation of human capital recognize there is more to it than education alone.7
Productivity The human-capital potential conferred by institutions of formal education during the early twelve to twenty years of a person’s life is only realized when it is translated into productivity in a workplace. A country’s productivity is determined by two factors. First, the actual output of workers depends on the tools and technology they have to work with. A well-educated workforce harnessed to primitive technology produces little. Therefore, a country’s total annual productivity also depends on the quality of its productive technology. That, in turn, depends increasingly on a country’s being at the forefront of scientific research and being able to quickly translate research findings into innovative technology for the production of goods and services.
Second, quite obvious when you think about it, but not sufficiently appreciated in practice, is that, to be productive, people have to be working—regardless of their educational endowments. A person’s productivity if he or she is not working is zero. Projected nationally, this means that a country’s total annual productivity is proportional to the number of hours per year that its adults are working.
Immigration Finally, not all human capital needs to be created at home; it can be imported from abroad by welcoming immigrants with strong endowments of human capital. Expanding a country’s human capital through immigration is a no-lose proposition. If immigrants are educated or skilled, the country gains a human-capital windfall without having to pay for it through the costly educational system. If immigrants have less education or fewer skills, the country still gains valuable human capital because immigrants generally possess a more robust work ethic than native workers. As a bonus, immigrants generally arrive with strong family values, and strong families generate higher levels of human capital in the next generation.
Throughout this book, I refer to this mix of policies responsible for the volume and quality of America’s human capital—education, productivity, and immigration—as the country’s human-capital tripod.
THE ROLE OF GOVERNMENT
Who makes human-capital decisions and who pays for it? Obviously, since human capital is a personal attribute, individuals must decide to acquire or use it or, in the case of immigration, decide to leave their homeland. Yet, government plays an indispensable role.
Take education, for example. To begin with, the desire for education varies enormously among families in every society. Certainly, most children would not choose to be educated if the decision were left to them, and we know, from both history and life in many contemporary societies, that a large slice of parents might not care if their children were educated or not. So the only way any country can ensure that all its children get an education is to make them do so. Thus, compulsory education is now a feature of every modern country; the United States was one of the first of the world’s nations to institute it.
Then there is its cost. Education is exceedingly expensive and always has been, and thus, even in affluent countries, it is beyond the financial capacity of most families. This constraint is compounded by the fact that without education, few families are able to become well-off in the first place, which creates a self-reinforcing, vicious cycle: because they lack education, parents cannot afford to pay for the education of their children, ensuring that their children will not be able to pay for that of their grandchildren, and so on. This means the government’s schooling requirement must be accompanied by a willingness to pay for it. Otherwise, as was the case throughout Western history (until the United States led the way to universal, free schooling), education remains the exclusive province of the rich and wellborn, who use it to secure a privileged status for their progeny.
A country’s productivity, at first blush, may not be as dependent as education on government. Most production in the United States and other rich countries is in the private sector. Nevertheless, let’s look at the role of government with respect to the two determinants of productivity noted earlier: the technological quality of a country’s production facilities and the country’s aggregate work effort (i.e., the percentage of the population employed times annual hours worked per employee).
With respect to the former, the role of government is indirect but vitally important. Workplace technology represents intellectual property (a form of human capital) that must be protected by government through the issue of patents. Also, technology is invariably grounded in the latest scientific discoveries; for the last hundred years the pace of scientific discovery in the West has depended on a variety of government subsidies. The United States, even in the nineteenth century, found ways of underwriting scientific research, and this has contributed mightily to America’s huge lead in technology.
Regarding the second, aside from the eagerness to work of a country’s labor force (where the United States has a strong edge), work effort is very much hostage to government policies regarding income support based on disability and unemployment, national old-age pension provisions, mandatory retirement and minimum wage requirements, collective bargaining rules, allowable hours of work, public employee pensions, and a host of other government restrictions on working.
That said, I know that many readers of this book have a visceral distrust of government, or at the very least share a high degree of skepticism as to its efficacy. I share this skepticism. Nevertheless, it is an unarguable certainty, in any country at any time, that if the generation of human capital were left entirely to the decisions and resources of individuals, families, and private enterprises, there would be much less of it. This is not an issue of ideology, but of standard economic theory, subscribed to by economists across the ideological spectrum.
All of these governmental intrusions, especially in education and basic research, involve what economists call “public goods.” Public goods are expenditures that generate enormous benefits to the community beyond those realized by any individuals willing to pay for them in private market transactions. In the instance of education, for example, while it is clearly beneficial to the individuals who possess it, it also confers great benefits on society as a whole: it results in more skilled and efficient workers, better citizens, informed voters, better parents, and so on. Education’s status as a public good is compounded by the fact that, for most of the educational cycle, its immediate beneficiary—the child—has no capacity to pay for it. Well, why can’t parents pay for it? Parents are only indirect beneficiaries of their children’s education, and, while many parents may want the best for their children, they may not have the money, or they may not be willing to forgo a large portion of their own needs to pay for it. Even if all parents sacrificed equally to finance their children’s education, the quality of education any child received would then still be dependent on their parents’ income. Therefore Americans a long time ago, and all developed countries today, have come to accept education as a collective responsibility, to make sure that the lifetime well-being of their children does not depend on the good fortune of having rich—and altruistic—parents.
An even purer instance of a public good is basic scientific research. As will be discussed at length in chapter 6, basic research is one of the most fruitful and cost-effective generators of applied human capital, which is why the United States has for decades invested so much in it, and why China, Japan, Korea, and the most advanced countries of Europe are doing so now. The only alternative funding sources for basic research would be private firms or private universities. However, if industrial firms picked up the tab, its benefits would easily spill over to “free-riding” competitors who would be able to take advantage of its findings (say, in new product development), without having had to contribute anything. If universities paid for basic research out of their own funds (for prestige and as a lure for top faculty and students) they would have to push the cost onto their tuition-paying students, who would receive no direct benefit at all. In summary, nearly all the specific components of human-capital investment involve public goods; as such, they are either paid for by the public (through one or another government action), or they just are not produced at the scale needed or, in some cases, produced at all.
Finally, there is one aspect of American human-capital development, immigration, where we must look to government because government—in this case at the national level—is the sole arbiter of whether to admit immigrants into the country, and under what criteria. Most countries in the world do not permit immigration on any meaningful scale. Others, like the richer countries of Western Europe, have welcomed immigrants only recently, and generally grudgingly, and those immigrants who make it in are likely to become poorly assimilated, second-class citizens. In sharp contrast, America, founded by immigrants, has welcomed them from the beginning (except for some notable but time-limited gaps), with the result that immigration has provided the United States with one of its most unique and long-standing advantages in human capital. However, as chapter 8 discusses in detail, the full human-capital benefit from immigration does depend on the details of which immigrants are admitted, and that necessarily is determined by the Congress and the president of the United States.
Although government has an indispensable role in creating human capital, not everything that governments do is wise. Governments—very much including the federal, state, and local governments of the United States—can also destroy human capital, or hold back its development. In taking the reader through all the ways that American human capital is created or used, this book will show where our governments might do more, but also where they might do less and, most often, where they should do things differently.
THE REST OF THIS BOOK
Given the indispensable role of government in generating human capital and making America the world’s smartest society, it matters a great deal how, specifically, government executes that role. Happily, the United States has long been a leader in developing vast amounts of human capital and for a few more years it can still be characterized as the world’s smartest society. But this is only because it continues to benefit from human-capital investments made in the nineteenth and twentieth centuries. The rest of this book will delve in some detail into each of the three legs of America’s “human-capital tripod”—its schools, its workplaces, and its immigration policy—and recommend important changes in policy that could substantially and rapidly increase the country’s human capital. As noted earlier, most of these changes would neither expand the role of government in the United States—a highly fraught issue these days—nor increase its overall cost.
Education America’s educational supremacy is being threatened by several factors. Large numbers of young Americans, mainly from disadvantaged backgrounds, are getting an exceedingly poor education, and have been for a long time. America’s middle-class youth are getting a middling education that used to be good enough for them to get by but, in the competitive twenty-first-century economy, will soon leave them in the dust. America’s colleges and universities, once the envy of the world, cost too much, teach too little, and are increasingly distracted from their primary mission.
The American adult population is still the best educated in the world (see table 1.2) but only because our older generations (over thirty-five years of age) are better educated than their counterparts in Canada, Europe, or Asia. The sad fact is that the current generation (under thirty-five) is outshone by its peers in a dozen or so countries—including Canada. (Throughout this book I will be using Canada as a comparison for many of the human-capital issues under discussion. Canada is an excellent benchmark for comparative purposes because among all the nations in the world it is the most like the United States. In their history, population composition, primary language, popular culture, economy, housing, civic beliefs, and many other ways, Canadians are like Americans.) Americans used to lead the world in years of school completed, high school graduation rates, college attendance and graduation rates, and international tests of school performance. We no longer do. Even more disturbing, the current generation of young Americans is not doing as well in some key measures as that of its parents. All of these indicators are especially disheartening given the extraordinary efforts directed at educational reform these days.
Behind these unsatisfactory indicators lie several stories. The most compelling is the continuing large discrepancy in academic performance between white and Asian children (higher) and African American and Hispanic children (lower). This performance gap has been receiving public attention—and efforts at remediation—for over half a century now, beginning with the 1954 Brown v. Board of Education Supreme Court case that ended formal school segregation. On its heels, as part of the late 1960s Great Society legislation, Congress instituted federal aid targeted to school districts with large numbers of poor minority children. In the 1980s, publicly funded, privately operated “charter schools” were launched to give poor minority children access to a presumably more effective alternative to their local public schools. Most recently, President George W. Bush persuaded Congress to pass the No Child Left Behind Act, which made federal aid conditional on local districts implementing rigorous annual testing regimes, with the specific—and mandated—goal of closing the ethnic performance gap. The sad truth is that half a century of efforts dedicated to closing this gap have borne only modest fruit. In chapter 3 I will address this issue and put forward policy recommendations that, if implemented, may finally give poor minority children a decent chance of catching up with their more successful white and Asian peers.
Table 1.2
School Years Completed and Percent of College Graduates among Adults in Selected Countries, 2010
Source: R. J. Barro and J. W. Lee, “A New Data Set of Educational Attainment in the World, 1950–2010,” Working Paper 15902 (Cambridge, Mass.: National Bureau of Economic Research, April 2010).
But the ethnic performance gap is not the only reason that American children are losing the global education race. The largely unacknowledged fact is that the majority of white (and some Asian) students in most American school districts are not learning as much as they should, or as much as they are capable of. In other words, a large share of the “not left behind” face a substantial performance gap vis-à-vis their upper-middle-class peers in the United States, and their mainstream counterparts in northern Europe and East Asia. The children subject to this gap fall into two categories. The least worrisome component is made up of the vast cohort of schoolchildren who are insufficiently challenged today because of low academic expectations. Happily, this gap should be relatively easy to close. All it will take is the will, on the part of the fifty American states and their fourteen thousand school districts, to toughen up their school curricula and demand more effort from their schoolchildren.
More troubling is the growing army of white children who perform poorly in school because, like low-income African-American and Hispanic children, they are being raised in single-parent households where they receive insufficient stimulation or motivation. No amount of social engineering, which would not be politically viable in any case, can change these circumstances. But the right kind of school environment and academic program can effectively compensate for them. How to help both subsets of these ostensibly “not left behind” schoolchildren will be taken up in chapters 3 and 4.
The last stage of formal education’s contribution to the smart society is post-secondary education, “college” in ordinary parlance. The importance of a college education in today’s global, information-age economy is now taken for granted. Accordingly, most state governments and our national one are working hard to raise college attendance rates while also increasing student “diversity” (i.e., increasing rates of black and Hispanic attendance). If these efforts succeeded, American human capital would in fact be significantly enriched—assuming the new collegiate enrollees actually graduated and mastered college-level material.
Unfortunately, while the percentage of high school graduates aspiring to a college education, 62 percent, is bigger now than it ever has been, and may be even bigger than in any other country, the United States now lags in college graduation rates. A growing number of young Americans do not even make it out of high school and many of those who do are not ready for college. As a result, only two-thirds of American baccalaureate enrollees today graduate after six years, and less than a third of those attending community and technical college earn any degree at all, including those who transfer to baccalaureate schools.
These low academic success rates can be traced to several root causes. Perhaps the greatest is the inadequacy of the typical student’s high school preparation, something that colleges alone cannot cure—even when they devote heroic resources to “remediation.” Thus, meaningful higher education reform must begin in high school, with a thorough subject-by-subject, college-led integration of high school and college curricula and a refusal by colleges to admit underprepared students. Much of the blame can also be placed on the shoulders of the colleges. Too many institutions are far more interested in the numbers of students who enter (on whose tuition and federal aid dollars they depend for survival) than on the numbers who graduate, and most colleges are hardly interested at all in how well any of their former students do after they leave. How American higher education can become both more accessible and effective as the human-capital foundation of the next generation is the subject of chapter 5.
Productivity It is not enough for the adults in a society to be well educated if their education is not put to good use and if no further growth in their capabilities takes place after they graduate from school or college as young men and women. For a society’s human capital to flourish, it must be applied and strengthened in its workplaces. As noted earlier, this means that as many adults as possible should be working, and their effort should be amplified by high-quality production technology. Consider the dismal productivity of Russia and some countries of the Middle East, where the people are quite well educated, but where the economies are so dysfunctional, and workplace technology so out-of-date, that their societal human-capital investments in the young are largely squandered by adulthood.
As it happens, the strongest leg of America’s human-capital tripod today is its workplace productivity, but that, too, may not be true for much longer. American workplace technology is still the world’s most advanced, but will start falling behind in the years ahead unless the United States maintains its lead in scientific research. American workers, long the world’s “workaholics,” are working less these days, some because of the dismal state of the economy, others due to misguided public policies.
Early on, American civic and political leaders understood that a modern, high-growth economy depended not only on a flourishing free-market economy uninhibited by stifling regulations, high taxes, or restraints on competition but also on the most modern productivity-enhancing technology. To this end, among the U.S. Constitution’s handful of explicitly cited powers of Congress was the “Power . . . To promote the Progress of Science and useful Arts.”
Taking a long historical perspective, we can see that the United States has ushered in transformational workplace technologies for more than two hundred years: mechanized textile production and other basic manufacturing in the late eighteenth century; a range of stunning new transportation technologies (canals, roads, steamboats, and railroads) in the early nineteenth century; scientific agriculture and steel-making in the mid-nineteenth century; electrification, telecommunication, advanced construction (long-span bridges, high-rise buildings, underground transportation), and petroleum extraction and refining in the late nineteenth century; assembly-line manufacturing of automobiles and a wide array of consumer products from the early twentieth century on; highly efficient mass-market media and retailing at all times; and, most recently, information technology and biomedicine in the late twentieth century. From minor innovations such as safety pins, zippers, and soft drinks, to iconic breakthroughs such as telegraphs, telephones, electric lighting, automobiles, airplanes, and the Internet, American inventors and scientists have been responsible for each of these technologies and, just as important, American businesses and consumers have been quick to adopt them. However, in most cases, direct or indirect government subsidies played an important catalytic role.
For America’s human-capital leadership in the workplace to continue, the pace of technological innovation—grounded in scientific discoveries—must accelerate and its businesses must find it profitable to apply new technology rapidly in commercial applications. In his book The Great Stagnation, Tyler Cowen notes the centrality of American-led technological innovation in fueling the economic ascendancy of the United States over the last century and a half—and also suggests (hence the book’s title) that U.S. technological progress since the 1970s has slowed so much that it has led to most of the country’s current economic woes.8 While Cowen may be too pessimistic about U.S. prospects, and also mistaken in believing that we have already maximized potential gains from education and other aspects of human capital (like immigration), he is surely correct in asserting that unless the U.S. technological enterprise is in high gear there can be only limited progress in further workplace productivity—and concomitant rising American incomes.
Unquestionably, high-technology workplaces result from the decisions of far-sighted entrepreneurs. But most entrepreneurs are not inventors, or necessarily even tech savvy (there are very few contemporary Thomas Edisons or Henry Fords). They rely, instead, on the emergence of new technologies arising from research in the nation’s laboratories operated by universities, corporations, and branches of the federal government. Universities are the most dynamic generators of new research and have been since at least the nineteenth century. While universities divert some revenue from their main line of business, teaching undergraduates, to finance faculty scholarship, academic research funding depends heavily on government grants, primarily federal ones. Corporations focused on new product development, like those in the pharmaceutical and computer industries, have a strong incentive to invest in laboratory research but they also count on government support, through both grants and favorable corporate tax treatment. The federal government engages in research more directly through its national laboratories (such as Brookhaven National Laboratory, affiliated with my university), which are overseen by the Department of Energy, the Defense Department, and other federal agencies.
Has federal support for university and corporate research been worth it? Unlike the often uncertain outcomes of government-led educational reforms, when it comes to science and technology, the connection between government inputs and measurable results is much more direct and predictable—albeit less immediately apparent. A nation’s investments in scientific research invariably generate proportional increases in scientific discoveries. A nation’s increment of scientific discoveries spawns proportional gains in technological applications. And, barring excessive or ill-designed taxation or regulation, new technological applications will most quickly be commercially adopted in the workplaces of the nations where they are conceived. This simple syllogism has served the United States well, and, together with the nation’s long-standing (but now eroding) educational leadership, it is the bedrock of the country’s centuries-long economic success. How America’s lead in workplace technology can be sustained, even in the face of fierce international competition, is the subject of chapter 6.
Among workers in the world’s advanced economies, Americans have long exhibited the strongest work ethic. Given Americans’ eagerness to work—at all ages and under nearly all circumstances (for example, while attending school, raising children, suffering from disability)—one of the easiest ways to raise the aggregate human capital of the United States, and American workers’ corresponding income, is to encourage them to work as much as they are able. After all, payment for work is by far the largest source of family income—far outpacing social security, pensions, or any other kind of income transfer, and the longer people work, the greater the lifetime return on initial educational or other human-capital investments to both the individual and society.
Although Americans still (just barely) work longer and harder than workers in most other rich countries (accounting for the United States’ continuing productivity superiority—despite the relative decline in educational achievement), a growing percentage of working-age men are not in the labor force. Adult male labor participation, which in the 1970s averaged 78 percent, fell to 71 percent in 2010 and even before the recent economic collapse was only 73 percent. While some of this is because more men are in college, and the impact of this shift on the overall American labor force is partially offset by a big increase in the percentage of working women, if men returning to the workforce were to join the growing cohort of women workers, the United States would realize a painless human-capital windfall.
The decline in labor force participation is the result of both an institutional “push” and personal calculation “pull” dynamic. Workers are pushed out of the labor force by the impact of periodic downturns in the business cycle, such as the unusually severe one that began in 2008. In response to such economic conditions, too many decision makers in the government and labor unions, guilty of overly simplistic economic reasoning, foolishly subscribe to the “fixed lump of labor” view of the economy: a belief that keeping potential workers out of the labor market is a viable way to reduce the official unemployment rate. This leads them to promote “early retirement” and indiscriminate authorization of disability eligibility. On the pull side, fully capable workers who are laid off or discontented with their jobs are quick to jump at pension or disability stipends when these become too readily available. At the epicenter of these dynamics are federal entitlement programs and state and local public employee contracts. How these can be realistically restructured to let the American workplace take full advantage of our workers’ natural propensity to work—and to work hard—is the subject of chapter 7.
Immigration Immigration has also been one of America’s most singular human-capital advantages; we have always admitted far more immigrants, and assimilated them more thoroughly, than any other country on earth. Now, after years of complacently tolerating immigration policies that are simultaneously incoherent, unfair, and unenforced, ordinary Americans are thoroughly confused about the issue, and their political leaders are having a hard time agreeing on sensible reforms.
Most obviously, immigrants were needed in the nineteenth century to settle the United States’ expanding western frontier and operate its rapidly growing number of farms, factories, and shops. But regardless of the circumstances of the time, immigrants have built American human capital uninterruptedly from the first settlers to the present day, and at every level of the economy. Each year around the Fourth of July, The New York Times carries a full-page advertisement celebrating the contributions of eminent immigrants, past and present. The page is dense with iconic names from Joseph Pulitzer and Andrew Carnegie in the nineteenth century, Albert Einstein, Samuel Goldwyn, and Irving Berlin in the mid-twentieth, to Henry Kissinger and George Soros today. Throughout American history, immigrants were the indispensable Americans, building railroad, manufacturing, financial, and entertainment empires; making the world’s most notable breakthroughs in scientific research and technological inventions; and cementing the United States’ renown in music, the fine arts, and literature. Other immigrants entered politics and throughout American history have occupied every political office, at every level of government—federal, state, and local—except for the presidency.
How well the nation benefits from immigration does depend, however, on the contours of national immigration policy. Until the 1920s, American immigration policy was essentially an open door to any and all who wished to come (with the occasional exception, such as the exclusion of the Chinese in the 1880s). At a time when most of Europe was quite poor, and when migrating meant leaving one’s native land forever, immigrants to the United States were most likely to be Europe’s—and, to a lesser extent, Asia’s—most talented and venturesome people. Further, coming to an America that had not yet instituted a social welfare safety net or labor protections, immigrants had to be extremely hardy and hard-working—highly valuable attributes in a rapidly industrializing society. In other words, America was attracting the world’s best and brightest without even trying.
Because America’s borders are no longer open to all comers, if the United States wants to replicate its earlier success in attracting highly capable immigrants, it must now do so through the design of its immigration quotas. While most debates on immigration policy today concern the not unimportant question of what to do about the country’s 10 to 12 million illegal immigrants, a more fruitful policy discussion would focus on the politically less sensitive issue of which immigrants we should seek to admit in the future. In recent years the United States has admitted, on average, more than 1 million immigrants a year. Among legal immigrants, over 65 percent were sponsored by families, 15 percent were admitted as victims of persecution, and 14 percent were skilled workers sponsored by employers. The small remainder span a number of admission categories including 4 percent selected by lottery. While most family-sponsored and persecuted immigrants are hard-working and many have useful talents, the overwhelming majority are nevertheless poorly educated and unskilled.
That need not be the case, however, for future immigrants. The United States could, by restructuring its immigration admissions criteria, quickly realize an incremental human-capital bonanza. Even holding to current aggregate quota levels, by bending the immigrant admissions trajectory in favor of the hundreds of thousands of better-educated, skilled (and perhaps even English-speaking) immigrants, the United States would gain an instantaneous infusion of talent. This infusion would significantly enlarge the pool of intelligent, creative, and motivated workers to supply American firms on the technological and biomedical frontiers with new scientists, engineers, physicians, and nurses; schools and colleges with new teachers and scholars; the financial industry with new analysts and managers; and the dominant service economy with new supervisors, technicians, and troubleshooters. Some of these immigrants, following in the footsteps of Andrew Grove of Intel and Sergey Brin of Google, are bound to launch the exciting industries and technological breakthroughs of tomorrow.
Beyond dramatically upgrading America’s labor force today, an immigration policy focused on admitting more capable immigrants would reinforce a virtuous human-capital cycle for future generations. All the empirical evidence suggests that an influx of better-educated immigrants, raising their children in predominantly stable families and encouraging high achievement in school, would generate human-capital outcomes much greater than those currently characterizing American immigrant children. These children, in turn, as adults would provide rich human-capital nurturing grounds for subsequent generations. If the United States is ever to meet the educational achievement goals of No Child Left Behind, it must recognize that fully half of the “left behind” are the children of recent immigrants.
In the process of retooling immigration policy, we must not forget the importance of assimilation. As noted earlier, America’s overwhelmingly positive immigration history has depended on the fact the United States was able to, quite uniquely, assimilate wave after wave of its immigrants for centuries. Undeniably, the historical record shows periods when Americans exhibited hostility to certain immigrant groups and, at all times, many immigrants have clung to their native tongues and customs for at least a while. But true assimilation depends much more on immigrants’ acceptance of America’s values than their adoption of all facets of its contemporary culture, and on natives eventually welcoming them with generosity and tolerance. Both of these conditions clearly prevailed—until the 1960s. Since then, America’s assimilation ethos has fallen on hard times because of strong resistance—not from the native-born or even the immigrants themselves—but from America’s intellectual elite and its leading institutions, regrettably including urban public schools. Our long-standing national faith in the assimilation process must quickly be restored because, regardless of the mix of immigrants the United States admits, immigrants will be able to contribute fully as members of America’s smart society only if they are thoroughly assimilated.
The smart-society implications for American immigration policy going forward are crystal clear. Because immigrants at all times and in all places in the United States have invigorated the country economically and socially, the most rapid and certain way to build and regenerate American human capital is to admit more of them and, most critically, to admit them legally under sensible, strategic admissions criteria—and to do everything we can to encourage their rapid assimilation. How this can be done is the subject of chapter 8.
SUMMING UP
Thoughtful Americans are becoming increasingly alarmed by signs that the human capital of the United States is deteriorating, either in absolute terms or relative to our international rivals in the hypercompetitive global economy. And they are right to worry. We should worry that a growing share of young Americans are failing to receive the education they need to succeed—both economically and socially—in the demanding environment of the twenty-first century. We should worry that not enough Americans are working. We should worry that, unless we keep our place at the scientific frontier and invest enough in emerging technologies, we will lose out to the Asian Tigers, the European Union, and eventually China and other emerging economies. Finally, we should worry that someday soon, the flow of immigrants may dry up, and those who still want to come will be drawn increasingly from the bottom of the immigrant pool.
The most concrete manifestation of our human-capital worries can be seen in the bitter partisan debates in Congress and state capitals about growing income inequality, the scope of the American welfare state, and the size of federal and state deficits. What both sides (and the public at large) fail to understand is that all of these problems—and many others—are really caused by the ongoing erosion of Americans’ human capital. Most of the things the American left is exercised by these days—high unemployment, stagnant wages, rising poverty, homelessness, and diminished access to health care—result from human-capital deficiencies of the lower third of the population. At the same time, so do the concerns of the American right—the rising cost of welfare-state entitlements, subpar economic growth, alarming rates of out-of-wedlock child rearing (even among formerly middle-class whites), and idleness and criminality among the young.
Failing to appreciate the degree to which human-capital erosion is at the root of their complaints, both the left and the right look to implement unproductive policies. The income redistribution favored by the left and partial dismantling of the safety net favored by the right are both politically infeasible and economically counterproductive—and they do nothing to make Americans any smarter. Even the favorite nostrums of the political center, best characterized as attempts at social engineering, may be more politically palatable but are equally ineffective.
Americans do not have to choose between diverting a growing share of national resources to the welfare state (displacing other essential government spending and running up the deficit) or inhumanely letting many less fortunate Americans needlessly suffer. In this book, I argue for a third way. We can restore the status of the United States as the world’s smartest society by retooling all three legs of its once invincible human-capital tripod: reform American education, rebuild the American workplace, and welcome to America the world’s most capable immigrants.
The rest of this book is dedicated to thoroughly examining each leg of America’s human-capital tripod, identifying its strengths and weaknesses, and recommending strategic changes for national, state, and local governments to adopt in programs already entirely under their jurisdiction. All of my policy recommendations meet two criteria: they do not expand the scope of American government and they are not too costly relative to the benefits they promise to generate.
