An economic turning point

Opinion: April 19, 2010 at 12:00a.m.

By Gary Reischel

McClatchy-Tribune

America faces an unprecedented challenge to our long-term prosperity. It is not a foreign power, a new technology, an environmental disaster, or even global terrorism that threatens our prosperity. It is our own policies and inability to see the world as it is.

I write this as a both an expatriate and a venture capitalist who has lived overseas for much of my business career. Since 2004, I have lived in Shanghai, participating in the birth of the venture capital industry in China and living in a country navigating challenges on an unprecedented scale.

I am deeply concerned that the United States is not responding to the reality of the 21st century. Rather, it is still hoping that policies and actions from the last century still apply. For over a generation, the United States could take for granted the following:

The United States was the world’s largest market for virtually every product and service.

U.S. companies that were the largest in the U.S. market were nearly always the largest global companies in a particular sector.

New and emerging sectors (semiconductors, IT, bio-pharma, Internet) developed first in the United States and then were adopted around the globe.

However, the competitive landscape and the global social infrastructure have changed dramatically within the space of just a few decades:

The growth in the global middle class: By purchasing power measures, nearly 300 million people in China and 100 million in India have entered the global middle class in the last 30 years. This is a major rebalancing of the consumer power in the world. China and India do not need access to the U.S. markets for many of their products — the domestic demand alone will drive growth for much of the next decades.

The competitive landscape at a country level: No longer do U.S. competitors like Japan, Germany, UK, France have limited home markets. China and India have become serious threats to U.S. leadership in innovation and technology commercialization.

The U.S. financial markets: In the last 50 years, in every serious economic crisis, foreign countries bought dollars as their downside protection. The vaunted U.S. financial system not only suffered a major loss in credibility in 2008 — it also has accumulated the burden of regulations and costs that make it unattractive for many of the world’s next generation companies.

The flow of technology: Technology decreasingly comes primarily from the United States and then diffuses across the globe.

Powerful threshold

The ability for China to rapidly duplicate much more than basic technologies and content: The goal in China is not to initially develop the very best product in the world but to develop a product or solution that is “JGE” — Just Good Enough. This creates a powerful threshold and base in China from which to expand internationally.

The trap of sole source supply: The United States is becoming dangerously dependent on China for manufacturing goods and materials and shows no signs of establishing any viable second source. Latin America is a logical alternative in many sectors, but we show little inclination to drive that shift.

The United States must begin to move away from the goal of being the world’s largest economy to the goal of being the world’s best economy. This is a major change in thinking for the United States. Economic size has always equated to economic power and prosperity. Even moderate economic success across such large populations as China and India will vault those economies into the first- and second-largest economies in the world in the next 40 years.

This does not imply that the United States cedes anything in terms of leadership, power, wealth or influence. This does not mean that the average American’s quality of life need decline. In fact it is the opposite. The world being a more prosperous, healthy, cleaner and safer place can in no way be a net negative to the United States.

The United States is at a turning point. It can act to modify its policies to the reality of the 21st century, or it can continue to promote policies and actions that look back to preserving the status quo.

Gary Reischel is founder and managing director of Qiming Venture Partners specializing in technology and clean-tech industries. Distributed by McClatchy-Tribune Information Services.