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Podcast: Seven Ways Nations Attain and Keep National Competitiveness, With Michael Mazaar

Podcast: Seven Ways Nations Attain and Keep National Competitiveness, With Michael Mazaar

Rob and Jackie sat down with Michael Mazarr, a senior political scientist at the RAND Corporation, to discuss his report identifying characteristics that are associated with competitive advantage. They touch on how the U.S. is currently lacking most if not all of them, and potential steps moving forward.

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Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, Founder and President of the Information Technology and Innovation Foundation.

Jackie Whisman: And I’m Jackie Whisman. I head development at ITIF, which I’m proud to say is the world’s top rank think tank for science and technology policy.

Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF, from the broad economics of innovation to specific policy and regulatory questions about new technologies. Today we’re going to talk about US competitiveness and more specifically, what enables countries to be competitive and what leads them to lose being competitive.

Jackie Whisman: Our guest is Michael Mazarr, he’s a senior political scientist at the RAND Corporation. Previously he worked at the US National War College as President of the Henry L Stimson Center. He was a senior fellow at CSIS, a Senior Defense Aid on Capitol Hill and a Special Assistant to the Chairman of the Joint Chiefs of Staff. He’s the author of two new reports related to US competitiveness. One is The Societal Foundations of National Competitiveness and the other is The Sources of Societal Competitiveness: How Nations Actually Succeed in Long-Term Rivalries. He concludes that the United States has begun to display classic patterns of a major power on the far side of its dynamic and vital curve. Welcome Michael. We have a lot to cover, clearly.

Michael Mazarr: Thanks a lot. Very glad to be here.

Jackie Whisman: And maybe we’ll start, could you tell us why the Defense Department commissioned RAND to do this study and what was your charge when you started?

Michael Mazarr: So I think the basic insight was that as we’re moving now into what’s generally accepted to be the current phase of US National Security Strategy, which is managing these large scale rivalries with Russia, but particularly China. We think a lot in terms of weapons systems, defense budgets, international military posture as part of these kinds of rivalries. But we don’t think about the national basis of success. History actually suggests that countries that have more dynamic societies, that generate the requirements of successful competition tend to do better. Almost regardless of the military systems they have or even sometimes the battles or wars they win. So this office, the office of that assessment is in the business of net assessing US power versus others. I think the director in particular came to a point where he thought we should do a societal net assessment, which is something that’s not typically done.

Jackie Whisman: Your report lists seven ways nations attain and keep national competitiveness. It seems that the US is lacking all seven at the moment. The first is national ambition and will, and you write, “This drive to express a society’s ambitions and creative potential is not limited to scientific and technological applications. It also finds expression in a desire to demonstrate a society’s cultural superiority to the world.” Given that many on the left now argue that rather than having cultural superiority, America’s past is actually shameful. Do we still have this drive?

Michael Mazarr: There are some measures we looked at that suggest the majority of the work of the study was trying to identify characteristics that are associated with competitive advantage. But then we did apply that sort of framework to the United States. In looking at this one national ambition and will, we looked at a variety of proxy variables that would give us a sense of how it’s doing.

I think what you’re talking about in terms of a more discouraging view of American history is a symptom of a larger issue. I mean, that’s not something we looked at in particular in the study. I’m certainly not an expert on that cultural dialogue. But if you look at polling data and a lot of other evidence, it’s clear that a much higher proportion of Americans is kind of skeptical of the potential for the United States to have strong ambition and will in the international system. The value of the United States broadcasting its norms and standards to the world. There just isn’t the same kind of sense of national self confidence in that sense that existed before. So I think it’s a much broader phenomenon than just that one narrative.

Rob Atkinson: Yeah, we certainly had that. I remember my father-in-law came to Washington after World War II and I remember him talking about the Kennedy era. There was a sense of global purpose that America was a great country, was a unique country in that one of the reasons he came to Washington was to do that.

Michael, you mentioned the second factor is a unified national identity. I would say that one, no, we don’t seem to have that one anymore. What’s your thoughts there?

Michael Mazarr: Well, yeah, I mean obviously this is one where there’s abundant empirical evidence for the challenges the United States faces. One of the difficult things in a study like this is making historical comparisons. In 1860, we weren’t particularly unified. In 1870, 1890, during various waves of immigration. There are different times when you could question relative to today how unified we are.

But there is this evidence, clear evidence of polarization and fragmentation, a time in which people increasingly view folks who disagree with them, folks of other political parties as the enemy as opposed to somebody they just disagree with. People that believe that other groups in society have malign intentions, that they’re doing things that are undermining the future of the country.

So it has become more of an open question whether the United States will be able to regain any sense of truly unified identity in the same way that maybe we had it during much of the 20th century. The report is not a prediction, it doesn’t say what that’s likely to look like in another 10 years. But the current evidence is very dismaying on that. I think that this is part of the discussion in foreign affairs circles now, is if we’re that divided at home, how in the world can we go to other countries and give recommendations on what their policies should be? Talk about the importance of unifying fragile states. Or just in general ways, how could we lead when the domestic basis for that leadership has become so fragmented?

Rob Atkinson: I have talked to people, both Democrats and Republicans. Democrats who say the Republican party is trying to fundamentally change America away from what it really is, in the sense of almost malevolence. And I’ve talked to Republicans who say the exact same thing about the Democratic party. That is not a good sign that we can’t ... I’m going to sound like an old folkie here, Jackie. But when I came to Washington and started at NIST way back when, there really wasn’t that culture in Washington. You didn’t demonize your opponent or somebody you disagreed with, you disagreed with them. Now I see that even in the spaces that we’re in, just an enormous amount of demonization. And well, there’s something that matter with you, you’re evil, you’re corrupt, whatever. And can’t just have a regular conversation anymore.

Michael Mazarr: Right, and one of the implications is that it undermines the potential for policy making. Is the Congress simply can’t ... I mean, there’s a few things that ... there’s the semiconductor bill that’s about to get out and there was an earlier compete with China bill. There’s some competitiveness oriented steps that do end up getting enough bipartisan support to get through. But in a wider sense, taking the actions that address some of the other sources of national competitiveness like equal opportunity and things like that, it just becomes extraordinarily difficult because no party wants to allow legislation to be passed that will give credit to the other side.

So, you get a stagnating process of policy making, which gets to ... and you may be mentioning it. But one of our other factors that we talk about that’s so important to national competitiveness is an active state. A national governance structure that can take positive steps to turbocharge the competitive advantage of the country in whatever way that is. All of these factors are interrelated with one another. So when you have this kind of division at home, you undermine the working of your active state and you become less competitive in that way, as well. So in a lot of ways, one characteristic of unified national identity is most certainly, at least from my standpoint, in a totally nonpartisan way, the one of the seven that I’m most worried about from the United States going forward.

Rob Atkinson: On that point, we did a survey of stakeholders in Washington and what they thought of us a few years ago. I think 60% of people thought we were centrist and 20% of people thought we were conservatives and 20% of people thought we were liberals. So I’m going to channel my liberal side of ITIF in this next comment. I couldn’t agree with you more that you need an active state. In the 1960s, the US government spent more on R&D than the entire rest of the world combined, business and government.

And yeah, we had great entrepreneurs. We have a private sector that drives IT growth. I get all that. Absolutely. We’re not talking about Stalinist dictatorship here. But we are talking about an active state that plays a key role. I see the rise of this really deep ideological libertarianism that’s emerged now as really a key crisis for the US. There are people on the right who I remember debating somebody once on a Fox business show and I supported the research and development tax credit. Which by the way, President Reagan supported. Virtually every economist who studies it, supported it. And he accused me of being essentially a socialist, almost. The government was picking winners. And as you know, the R&D tax credit doesn’t pick winners, it picks R&D.

You never would’ve heard that discussion 20 years ago, but you have this deep libertarianism. There were a number of Republicans who didn’t vote for the competitiveness bill, the CHIPS act, and others. Largely because of this libertarian view, well who are we to pick semi-conductors and shouldn’t. Potato chips, computer chips, what’s the difference? What are your thoughts on that? By the way, it’s not to excuse the left for sometimes being overly regulatory and wanting to spend money on spending rather than investment. I get that. But does seem like that’s a challenge for the United States to become a more developmental state.

Michael Mazarr: Well, it does. I mean, I’m very attracted to the work of Mariana Mazzucato, who’s done a lot of great stuff about the way, just as you say, that federal government interventions through DARPA, through general R&D support, R&D tax credits, promoting research and development hubs, all of that is a critical support system. As you say, it’s the mixture of, one of the clear messages of our historical cases is that the best recipe for competitive advantage is always based on essentially open system, a grassroots system, a market based system.

So central planning just doesn’t work. But we have abundant examples as you’re suggesting, of ways in which governments throughout history have intervened at the margins of the market to create a better competitive situation. Partly it’s a better competitive ... I mean, just establishing rule of law is a governance act that creates a better context for private sector activities. So in all of the historical cases we looked at, I mean if you look at industrial era, Great Britain, you have specific trade policies, some support for research and development, a continuing effort to develop the legal framework around business and investment. Eventually a whole series of reforms in the Victorian era that establish bounds around industrial activities to make it more sustainable.

Just dozens of kinds of activities of what you would call the active state that never changed the essential open market based nature of the society. Japan sent almost half the senior officials of their government on an, I think, an 18 month tour around the world to gather lessons from other countries, bring them back and inform investments in new industries post-war Japan. That, of course, becomes famous for providing direct support to a variety of industries, not even in their case to pick winners. But to create competitive landscapes that catalyze the development of world class multinational corporations. Which are then allowed to compete on their own hooks.

So this idea that it’s a binary choice. It’s either the market or it’s the state. History suggests exactly the opposite, that it is the ideal mix between the two. I would just say that one of ... as is mentioned in the essay and the larger report. One of the big themes of our study is balance, is that in each of these areas, the idea of an active state is not to bring it to its natural conclusion and take over the society. You need a balance in national ambition and the active state.

The other side of the coin is that in certain areas, not only at the federal level. One of the things we document is the way that societies on the far side of their competitive peak become over bureaucratized. They’ve become over regulated, too weighed down by rules, some of which are promoted by special interests. So there’s that side of the story too, which is that you need these not entirely competing agendas of what can the government at various levels due to promote research and development, innovation, opportunity, shared opportunity for all the talent in the country. And what can we do to thin out the bureaucratic barriers to more innovation? You can do both those things at the same time and it sort of transcends the partisan debate on that. Our historical lessons suggest that you need elements of both.

Rob Atkinson: Yeah, that’s exactly why we recently created ITIF’s Hamilton Center on Industrial Strategy. You go back and look at the US history, US governments including a lot of state governments, but then with the Civil War and the Land Grant Colleges and the Transcontinental Railroad.

I took my daughter, my family out to Harpers Ferry recently to visit the armory there. It’s a great tour if you ever want to go out there. There was an armory there that was instrumental, both it and the Springfield one, in advancing metal working technologies and precision metal working in the US. So yeah, I couldn’t agree with you more. It’s getting that balance. There was a recent op-ed by former Senator Phil Gramm from Texas Republican, decrying the CHIPS Act and USICA and implying somehow that it was socialistic and stylistic. It’s like, come on. Everything he said that the government was doing was what his home state of Texas was doing with the Republican governor, Governor Abbott. They supported industry university research, they supported workforce training, they recruited firms to come to their state. So Republicans didn’t do this at the state level, but sometimes when they get to the national level, they go kind of off the deep end with Adam Smith.

Michael Mazarr: Well, and the other issue with USICA of course is that it’s ... we’re talking about the lifeblood of modern economies in terms of semiconductors. So if you are dependent on a couple of the most advanced fabrication sites in the world and it suddenly becomes apparent that in the event of a conflict or for other reasons, that you might be denied access to those CHIPS. That’s a national security issue. We don’t step back and say the market should automatically produce B21 and F35 aircraft. We make the national decision that they are essential for our national security or that they are part of our defense enterprise. And we choose to procure them as part of a national strategy of self protection. I think that’s more than some of these other things we’re talking about. I mean, general support for R&D is maybe a different thing. But the semiconductor emphasis has a very specific justification.

Rob Atkinson: Absolutely.

Jackie Whisman: This is a good segue to your sixth factor on policy innovation. You write, “A learning and adapting society, highly dynamic and competitive nations are typically thirsty for new ideas and are eager for fresh policies and approaches.” One of the goals of ITIF is to help policy innovation. While there’s some policy innovation at a federal level compared to some leading nations, we lag way behind. There seems to be a resistance to wanting to do new things, generally. Both the right and the left want to resurrect old policy approaches. Would you agree with this?

Michael Mazarr: One of the limitations of our study is that we stop short of specific policy recommendations. But by choice. So our perspective on this is to highlight the historical and general context for what makes a competitive country and even beyond the general theme of innovation to talk about what some of the elements of a learning and adapting society look like historically.

So as the specific policies toward innovation on the left and right today, our study didn’t really get into it. I certainly agree with you that ... and this relates back to ... and again, how all these things are interrelated, relates back to the ambition and willpower. This sense of a urgent driving need to make the country better, more competitive to innovate, which can become excessive. Again, this issue of balance. But that connected with an emphasis on the most vibrant kind of intellectual environment. The issue of education comes up in regard to this trend and there’s endless debates about the situation of American education today and what kind of reforms are needed. Our report doesn’t really get into that.

But it does suggest that ... I mean, I would say in answer to your question. It’s been a while since we have heard, I think, senior political or business leaders talk about this idea that the United States needs to find ways of super charging its intellectual, innovative drive. There’s a lot of specific things that can look like in practice, a lot of policies. But the general sense of need to do that is lacking right now, I think.

Now we have, as we tried to assess that, that was one of the trickier factors to assess in regard to the current United States. You can look at some general statistics about education. But there’s a lot of debate about how meaningful some of those numbers are. You can look at R&D funding, you can look at a number of other measures. But that’s one of the characteristics that has the most indefinable penumbra around it. That it is something about the intellectual energy of a country. It’s related in some of the other factors that we assess. Some of the other evidence that, this is a broad generalization. But some countries on the far side of their historical curve become more interested in reaping the gains of the path dependent system they’ve put into place through rent seeking and other kinds of profit making as opposed to new learning, new discovery, new kinds of innovation.

There are definitely hallmarks of the current US situation that suggests that we’re joining these great powers that have become a little bit tired, a little bit interested in just finding ways to re-profit on what we already have. And some of the measures of R&D and the focus of R&D, the nature of economic investment and where it’s going, the role, for example, in stock buybacks as opposed to new productivity investment. There’s a bunch of measures you can look at that give some measurable flavor to that general sense we have, that our intellectual energy is just flagging. And we don’t have a lot of senior leaders that I think are putting emphasis on that.

Rob Atkinson: I couldn’t agree more. We had on a recent podcast, we had Ben Horowitz from Andreessen Horowitz Venture Firm and Catherine Boyle. They’re trying to raise this whole awareness of investing again in American dynamism. If you look at the US, a lot of our capital is just basically going into finance and then recirculating in finance. I was struck in the last couple of months by, there was an article in the poster, the Wall Street Journal this morning, and it was actually talking about how some people had “invested in Bitcoin, their retirement savings and they didn’t understand the risk and they lost.” Bitcoin’s not an investment. It’s a scam. It’s a scam. It’s not an investment. An investment is something that produces returns. This is a greater fool investment, if you will.

I guess I’m just saying, I couldn’t agree more and we need to get back to again, real investment in the future. I’m struck by our co-chair, Senator Coons, our democratic co-chair in the Senate, along with Todd Young, a Republican from Indiana. Senator Coons has a bill to create a NASH ... I’m not asking you to comment one way or the other on it. But it’s just an interesting bill. It’s basically kind of like an EXIM bank, but for hardcore manufacturing investment, patient capital to get more of that in the US. Do you see this awareness of that issue becoming more and more that we have to get our investment oriented to the future of America?

Michael Mazarr: Yeah, I mean, I think so. I think that across parties there’s been, in the last five years or so, probably more discussion of industrial policy than we saw in the previous 20. Partly this is prompted by the China challenge and our study is in the context of international competition and we don’t want to make it all about ... the first rationale for doing this is for our own productive outcomes and our own country, regardless of whether it makes us compete. But if the competition causes a good discussion, that’s useful.

So yeah, I mean, I think an interesting sign of this, although it’s just one journal is ... and it has some unusual origins. But there’s this journal, American Affairs, which has been publishing a lot of interesting pieces by self-identified conservatives who are making a variety of arguments for some version of an active state, some version of industrial policy as we’re talking about. And doing a lot of diagnosis of exactly what you’re saying. And there’s some very, very specific data and numbers that support this idea, that much higher proportions of available capital are going into profit making off of financialized tools. And efforts to boost short term stock price as opposed to, as you’re saying, sort of patient long term investment in really productive sectors of the economy. So I think there’s a more broad understanding of that. But I don’t know, from where I sit, it’s still a ways away from becoming a real national priority.

Jackie Whisman: I know your report doesn’t prescribe policy solutions. But maybe as we close you can point to any examples from history of a nation turning its weaknesses around and once again becoming competitive.

Michael Mazarr: Yeah, that’s a great question. We’re actually doing some follow up work and that’s one of the things we’re trying.

Jackie Whisman: Oh, great.

Michael Mazarr: To tackle in a little more specific sense. Unfortunately, the numbers of states that do that are relatively small. But I think one of the best examples is Victorian Britain. People think about Britain as the industrial hegemon by the end of the 19th century. But in 1830, 1840 Britain had tremendous problems. It had an industrial sector that was polluting the country, it was rife with child labor and terrible working conditions and living conditions for the working class. The women did not yet have the vote. Education was limited to a small proportion of the population. You had emerge coalitions on these various issues led by members of the British aristocracy, the British establishment. This is another theme we draw out, which is the importance of having a public spirit elite, an elite class that is dedicated to this kind of reform. That built ideas of ways to drive the country forward by improving living conditions, improving working conditions. Eventually moving in the direction of greater gender equality and giving women the vote. Investments in certain kinds of innovative industries.

So there’s a half a century period of British history that gives us some clues about what that would look like. I think we are almost where they started in 1830, 1840, which is that we now have this roster of social challenges that we know we need to solve. You’re beginning to see different groups, sort of bipartisan, nonpartisan, centrist groups coming up, trying to begin to address some of these things. There are also, although we don’t make policy recommendations, there’s a variety of low hanging fruit in these different areas. In the area we haven’t talked about the issue of shared opportunity, but in terms of expanding opportunity to underrepresented areas and groups, a lot of interesting examples that already exist with empirically validated results that you could begin to look at in terms of the issue of shared, national identity. A variety of efforts to draw people together in local communities around the country to try to overcome that.

So you could just look at both what are some of the big social directions we need to go and can we begin to see the coalitions forming to bring us in that direction? Then you could look at 10, 20, 30, 50, 100 specific policy innovations that are readily available that have already been tried at local or state or even national levels. The raw material of an agenda of national dynamism and renewal is absolutely there. The question, I think ... so to that extent, we don’t make policy recommendations. But our work does allow you to identify things that could be done. Then the question is just, do we get enough of a critical mass of political, business, other social leaders and activist Americans to make the kind of needed change? And on that score, we’ll just have to wait and see. But these historical examples do give you the kind of portrait of the type of renewal that you would see. As I say, the raw material is there for us.

Rob Atkinson: On that note, I should also mention, you mentioned American Affairs and I would just also give a shout out to that, if folks who are listening haven’t checked it out. It’s definitely worth checking out. It’s a great journal and it really brings together both people on the left and the right around an agenda for how to move America forward. In fact, Mike Lind and I, my co-author. Mike and I had a piece in there about a year and a half ago called National Developmentalism from Forgotten Tradition to New Consensus. So I think there is a growing awareness of that.

Michael Mazarr: Yeah, I love that article, by the way. We cited it in the main report of this study.

Rob Atkinson: Thank you.

Michael Mazarr: So yeah, it was very helpful.

Rob Atkinson: Thank you. Well, thank you for that. And also, thank you, Michael for joining us today. This was great. I’m really looking forward to seeing the next report when you finish it on what the next steps might be and what some lessons from the UK might be. So thank you. Really appreciate it.

Michael Mazarr: Great to have been you. Thanks very much.

Jackie Whisman: That’s it for this week. If you liked it, please be sure to rate us and subscribe. Feel free to email show ideas or questions to [email protected]. You can find the show notes and sign up for our weekly email newsletter on our website ITIF.org, and follow us on Twitter, Facebook and LinkedIn @ITIFdc.

Rob Atkinson: We have more episodes and great guests lined up. New episodes will drop every other Monday, so we hope you’ll continue to tune in.

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