As is customary at the start of a new year, imposing statistics and trend forecasts are being trumpeted worldwide. For example, in 2016, China is expected to replace the US as the world’s largest economy. And, by 2040, India’s population will have reached 1.6 billion, surpassing China’s, which will have stagnated a decade earlier.
Perhaps the most startling projection is that the US will become an energy exporter by 2020 and will become energy self-sufficient 15 years later, owing to the plentiful supply of inexpensive shale gas and the discovery of massive oil reserves everywhere from North Dakota to the Gulf of Mexico. Despite opposition from environmental groups, these reserves will be easier to exploit than those in Europe, because they are largely located in sparsely populated areas.
As a result, energy will be significantly cheaper in the US than in Europe or China for the foreseeable future. Indeed, shale-gas extraction is so economically favorable that even US gas exported to Europe would cost 30 percent less than what the Russian energy giant Gazprom currently charges.
Cheap energy provides a powerful incentive for energy-intensive industries — from steel and glass to chemicals and pharmaceuticals — to locate in the US. In fact, the decreased cost of manufacturing in the US, combined with the country’s business-friendly regulations, strong rule of law and political stability, will eliminate the competitive advantage that has driven China’s rapid economic growth over the last several decades.
Meanwhile, US universities still attract the world’s best and brightest in many fields, most notably in science and technology. And the country’s other longstanding advantages — flexibility, capacity for renewal, economic mobility, international regulatory strength and the world’s main reserve currency — remain in place.
Given these favorable conditions, the US has already begun “on-shoring” its industry — a process that will most likely continue for several decades. As other advanced economies become increasingly services-based, the US is re-industrializing.
The resulting added value will bolster policymakers’ ability to find long-term solutions to persistent problems, including an inefficient healthcare system, inadequate primary and secondary education, and blatant social injustice. Success in these areas would further enhance the US’ appeal as an industrial center.
As part of the Harvard Business School’s US Competiveness Project, Michael Porter and Jan Rivkin recently published an eight-point plan, which could be implemented within the next two to three years. Each proposed measure has generated broad, bipartisan agreement among policymakers (at least behind closed doors).
The plan highlights the need to take advantage of the opportunities afforded by shale gas and newly discovered oil reserves. Low-cost domestic energy could help lower the trade deficit, spur investment and decrease the US’ economic exposure to volatile oil-exporting countries. A strong federal regulatory framework could help to ensure this result, while minimizing the environmental and safety risks associated with extraction.
Other proposals include easing the immigration of highly skilled individuals, particularly graduates from US universities; addressing distortions in international trade and investment; developing a more sustainable federal budget framework; streamlining taxes and regulations; and initiating an ambitious infrastructure program. By pursuing these strategies, US President Barack Obama could restore the US’ position as the engine of the global economy.