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THE BOTTOM LINE

It's Sputnik all over again

Washington

CALL it the Sputnik Syndrome. Ever since the launching of Sputnik in October 1957, Americans have feared that their economy - which at the end of World War II dominated the globe - would be overtaken by some other country. First was the Soviet Union. Remember (or maybe you don't) that the then Soviet leader Nikita Khrushchev promised to "bury" us economically. When that did not happen, we worried that Japan would crush one US industry after another - steel, cars, machine tools, semiconductors and super computers.

Now, it's China's turn. Or so it seems. There's a "fear in the psyche of Americans that an economy based on intensive government planning will inevitably outstrip a US economy central planning", writes Timothy Taylor, managing editor of the Journal of Economic Perspectives, in a provocative post on his blog (The Conversable Economist).

When you peer into the past, as he has done, the parallels seem inescapable. Anyone old enough to remember Sputnik will recall the shock and dread that it inspired. How could the Soviets have orbited the first space satellite? The military implications seemed obvious. The United States suffered a "missile gap" with the Soviets that made us vulnerable to nuclear attack.

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The economic fear was mainstream. Mr Taylor cites the widely used college economics textbook by Paul Samuelson (no known relation to this author). The fifth edition in 1961 noted that the Soviets' "recent growth rates have been considerably greater than ours". For three decades, college students were miseducated that the "Soviets were likely to catch up and pull ahead", writes Mr Taylor. Similarly, the missile gap turned out to be non-existent.

By the late 1980s, when the Soviet economy seemed less impressive, Japan took its place. Warnings were sounded in books, op-ed columns and magazine articles. Among the best-known was the book Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It by Clyde Prestowitz and an article in the Atlantic Monthly, "Containing Japan", by James Fallows. In many industries, Japanese imports rapidly displaced US production.

According to Mr Taylor, both the Soviet Union and Japan were seen as posing similar threats: They invested more in factories and new technologies than we did, especially in new industries favoured by government economic planners. Instead of investing, we consumed. The Soviet Union and later Japan would come to dominate critical industries. They would become the world's richest and most dynamic economies. This, too, proved an exaggeration.

INSPIRATION TO COMPETE

To some extent, the Sputnik Syndrome inspired Americans to compete harder, including appealing to the government for help. But mainly, the prophecies did not come true, because high investment rates by themselves do not ensure rapid economic growth. In the Soviet Union and later Japan, much investment was squandered on projects with poor returns. Meanwhile, America's entrepreneurial culture spawned new enterprises (Microsoft, Apple, Intel, Facebook, Google, Netflix, Oracle, Qualcomm - and others) that kept the United States in the forefront of innovation.

Will the same be true of the China threat? Maybe. Like the Soviet Union and Japan, China's rapid economic growth (averaging 10 per cent annually from 1999 to 2008, according to the International Monetary Fund) reflected a long period of catch-up by adopting known technologies and management systems. As these opportunities dwindled, annual economic growth has slowed to a 6-7 per cent range. It could go lower, as China needs to rely more on homegrown industries and products.

It is also worth remembering that the gap between American incomes and those of many other countries remains huge. Mr Taylor cites per capita gross domestic product figures in 2016 from the World Bank: US$57,600 for the United States, US$38,900 for Japan; US$8,748 for the Russian Federation and US$8,123 for China.

Still, there are many reasons why it is dangerous to discount the threat from China. The sheer size of its economy - and the determination of its leaders - makes it a powerful player. China's huge domestic market is a perfect platform from which to launch new industries. The Chinese are aggressively pursuing advanced technologies and have condoned the theft of foreign trade secrets. Last but not least: They represent a potential military adversary.

The irony is palpable. Even if exaggerated, the Sputnik Syndrome is a useful antidote to complacency. THE WASHINGTON POST WRITERS GROUP

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