How do you measure a country’s wealth? It used to be primarily by looking at a country’s industrial strength, how many hard and fixed assets it had, how many steel mills, auto factories, or oil wells.
Today, a nation’s wealth, and its potential is as likely to be measured by its knowledge-based industries, or the percentage of that country’s economy that replicates Silicon Valley instead of the amount of factories it has.
Unlike auto or steel, the key assets of the knowledge-based industries are not fixed. Rather, they are highly educated engineers and entrepreneurs. People who, if the political climate in the country becomes too arduous, or the rule of law a sham, can easily get on an elevator in their building, go to the ground floor and go the airport.
Economists and business executives call moveable assets such as these “elevator assets.” In a world where a nation’s rival is also its joint venture partner, where economic sustainability and competition for markets and technology are determinants of success, the proper maintenance of elevator assets is vital to a nation’s future. But equally important, a country needs to be wise enough politically to accept these fleeing people and their children.
This had been true especially in the United States where its presumptive culture of meritocracy, together with the melting pot of immigration, blended with a strong jolt of intellectual freedom, was one of America’s major comparative advantages. In the new era where human capital not manufacturing is the important value, it was this blend of diverse thought and multiculturalism that had acted as America’s catalyst for creativity — and for prosperity.
Control of knowledge-based capital has always been an important consideration in international rivalries. There are few better examples of this than when the United States and the Soviet Union competed with each other to “capture and attract” various German scientists at the end of World War II, such as the renowned rocket scientist Wernher von Braun.
The difference today is that with the fusion of technology and globalization, countries are much more dependent than ever on intellectual capital, while at the same time, this same capital has become easily transferable, moveable.
It is as though the 18th century concept of mercantilism has been revived. But instead of a nation acquiring and maintaining as much gold as possible as in traditional mercantilist theory, the goal today should be to acquire and retain as much intellectual capital as possible. High-tech engineers and entrepreneurs are the new high-priced commodity.
There are four basic guidelines to maintaining these elevator assets: (1) guarantee the rule of law over the rule of personality, group or ideology, (2) keep knowledge open and transferable, while at the same time protect rights to ideas, (3) ensure peace and tranquility, and (4) have a private and transparent venture capital system that will make investments — and reap the benefits from those investments — based on the value of the project not on whether the project is politically well-connected. America has been the leader in following and maintaining these guidelines over the last 25 years.
Adhering to these guidelines has given the United States a tremendous advantage over Russia, and more importantly, China. The inability of these two countries to deliver on the above points puts in doubt how much further they can grow their knowledge-based industries. In addition, assuming that emigration remains possible in these countries, at what point — given that the brain drain is already a major problem that the Russian government tries to ignore — does the elevator factor click in?
Ironically, and very foolishly, the United States has the opposite problem with elevator assets. America is the place that skilled engineers and technology entrepreneurs want to immigrate to, but where they are becoming less welcomed day by day.
And the Trump administration appears to be doing everything possible to discourage highly educated engineers and entrepreneurs from immigrating to the United States. Take the administration’s new custom enforcement procedures. Last weekend, French historian Henry Rousso, who was invited to speak at Texas A&M University, was held for 10 hours by U.S. customs officials at the George Bush Intercontinental Airport in Houston. This is a clear signal that coming to the United States might be problematic.
Combine this with President Trump’s refusal to use the bully pulpit to express outrage when two Indian engineers were shot in Kansas, the administration is clearly tweeting to the world that the best and brightest are no longer welcomed here. It is essentially saying that how much wealth and how many jobs these people might create in America is now irrelevant.
Then there is Congress, which has not caught up with the importance of global movements in human intellectual capital and with how that ultimately affects the geo-political standing of the United States. Congress doesn’t understand that knowledge-based elevator assets are the new hot commodity and represent an inflow of investment into the country.
Although the United States in general allows unrestricted flows of actual capital into the country known as foreign direct investment (FDI), Congress has limited the flow of modern-day capital — skilled engineers and technology workers — by putting a cap on H-1B visas, at a level that is believed to be too low by many, if not all, American technology companies.
Globalization and technology has partly redefined what capital is as it relates to the wealth of nations. Knowledge-based and elevator assets are now equivalent in value to auto plants and steel mills. By preventing these people from coming to the United States both by intimidation and by legislative caps, it appears that our government has made a very foolish decision to reduce America’s comparative advantage in technology, and possibly cede tomorrow to someone else.
Edward Goldberg teaches international political economy at New York University’s Center for Global Affairs. He is also a scholarly practitioner at Baruch College’s Zicklin Graduate School of Business, where he specializes in globalization. He is the author of The Joint Ventured Nation: Why America Needs A New Foreign Policy. This essay was first published in The Hill on March 1, 2017