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05 June 2023

The ‘third worlding’ of America

By Harold L Sirkin


If you look carefully behind today’s economic headlines, a huge story is developing. The short version is this: The United States, through a combination of neglect and various self-inflicted wounds, is undermining its economic vitality.
A number of former Third World economies, meanwhile, are now growing at warp speed. Sometime in the foreseeable future, the US economy – now the most powerful in the world – will be overtaken.

It will not happen overnight. But based on all-important trend lines, such a scenario is not beyond the pale. Nor is it a sure bet; there are many “ifs” still in the equation. Nevertheless, if the US does not get its house in order, it is not too difficult to envision the high-speed China and India Express overtaking the ageing American local.

The US has always prided itself on having more and better of virtually everything needed for modern commerce and comfortable living, from infrastructure to schools. The problem is: While America’s competitors are improving rapidly in these areas, the country is backsliding – and there does not seem to be the political will to reverse things. A good example is the highway system. The US has about 75,640km of interstate highways and some 600,000 bridges.
Much of this, however, is dated and decaying. The Interstate Highway System was started in the mid 1950s. Many bridges pre-date that.

According to the US Federal Highway Administration, more than 75,000 bridges are now “structurally deficient” and a third of America’s urban and rural roads are in poor to fair condition. The highway bridge that collapsed last summer in the city of Minneapolis, Minnesota, for example, had been declared structurally deficient. More than a dozen people died in the incident.

By comparison, China, which is slightly smaller than the US, has added 24,704km of expressways since 2001. It plans to expand its highway network to nearly 85,295km, surpassing the US system.

This story is similar in other areas. Consider air travel. While flying is the preferred mode of long-distance travel, efforts to build new airports or expand existing facilities routinely run into strong opposition from pressure groups concerned with noise, air pollution and other “quality of life” issues. The US air traffic control system, meanwhile, is a relic of the past, relying on 1960s radar technology: a maintenance nightmare. Capacity remains static, while demand grows. The Federal Aviation Administration expects more than one billion passengers annually by 2015.

America’s ports are operating at or near capacity – especially on the West Coast – but political leaders have no apparent interest in expanding them. Many of America’s wastewater treatment plants are ageing, causing serious overflow problems. The electric power transmission grid is congested. The North American Electric Reliability Corporation predicts electricity usage will grow more than twice as fast as capacity over the next decade.

The Department of Energy considers the situation “urgent”. If it is not remedied, more “brownouts” and “blackouts” are likely. This, in turn, will trigger greater reliance on small generators, which are more expensive and less eco-friendly.

There is more. America has one of the most extensive – and expensive – public school systems in the world. Yet, US secondary school students score near the bottom on maths and science tests among students from developed countries, the US Department of Education reports. At the university level, decline is also apparent, particularly in science and engineering, where approximately 78 per cent of all doctorates are now earned outside the US.

On top of this, the US healthcare system seems to consistently deliver less for more. The latest evidence: a new peer-reviewed study from the Commonwealth Fund showing the US ranking last among 19 industrialised nations in reducing premature deaths. The value of the dollar has fallen, down 29 per cent relative to the euro in five years, as of October 2007. Government and private-sector watchdog agencies that in the past helped guarantee financial stability all missed (and may have contributed to) the sub-prime mortgage mess, pushing the economy closer to recession.

The data all indicates that America is moving in one direction while many of its top competitors – especially those from such rapidly developing economies as China and India – are moving in another.
At some point, the paths will cross.

There is a saying in the navy that it is difficult to turn around a battleship. The point is simple: Because of its size and weight, when a large ship is moving in one direction, it takes a long time to slow down and make a turn. The US economy today is that battleship. It is still large and powerful, but it is on a dangerous course that needs to be corrected.

More and more, the US is starting to look like a Third World country. If it hopes to move in a different direction, it needs to start now. Perhaps that is the kind of “change” Americans need to demand of their next president – not a change in style, but a change in substance.  (Harold L Sirkin is a Chicago-based senior partner of The Boston Consulting Group and global leader of its operations practice. Courtesy, The New York Times Syndicate.)