Saturday, June 02, 2007

Sending Biotech to China: Nano to Follow?

In some meetings in April, Tom Kalil, the chair of our Center's National Advisory Board, raised a policy issue that is on my mind all the time. He said that an issue that causes policymakers to lose sleep at night is where the next wave of middle-class jobs is going to come from.

In our context, will the commercialization of nanotechnologies support lots of well-paid knowledge workers? Will future nano-related revenues pay for good skilled and semi-skilled blue-collar jobs of the kind that not only make companies function well but that helped create the American middle-class?

An article in today's Los Angeles Times is one of a growing series of reports that brainwork is following manufacturing jobs to countries with lower wage costs - in this case, China. The example is a San Diego biotech firm called Ascenta, which is following the now widely-discussed strategy of "creating a new breed of biotech start-up that marries U.S. and Chinese scientific talent with China's cheap labor and resources." The key detail here is that China appears in both terms of the low-cost equation - not only as cheap labor but as high-tech labor as well.

Business and educational leaders try to interpret these moves through the "work of nations" paradigm, which was the title of a 1991 book by the man soon to become Clinton's Secretary of Labor, Harvard professor Robert B. Reich. Reich updated Ricardo's classical idea of "comparative advantage" in international trade, in which countries should make only what they have a special advantage in making and get everything else through trade. If Brazil has lower labor costs than Germany, then Germany should design Volkswagens in Wolfsburg, Germany, with Germany's unique engineering expertise, and manufacture the cars in Brazil, with that country's cheaper labor. Germany and the world get brilliantly designed and yet cheaper Volkswagens, and Brazil gets new manufacturing income, which it can use to build new schools to train its own engineers. Ricardo's idea was that through free trade of goods made with careful calculation of each country's comparative advantage, everybody is better off.

Reich's wrinkle was to assert that brainworkers, or "symbolic analysts" - people who manipulated information for a living like medical researchers and architects - would thrive by creating high value that would support their high wages. Even if blue-collar workers were screwed - as they clearly were by the early 1990s - they could recover by becoming white-collar workers, or by making sure their kids became white-collar workers. The high-end brain workers, in Reich's model, would be just fine. And the whole country would be just fine by steadily increasing the brainworker share of its population.

That is the theory. But the theory has three major problems.

One is that the demand for brainworkers is limited - the U.S. won't soon need 17,800,500 patent attorneys, thanks be to Baal.

Second, training brainworkers is expensive, and the U.S. has not shown itself interested in the public outlays that are required to make brainworkers in large numbers. We spend a lot of money training a fairly small elite - on a per capita basis it's not as small as France's or Germany's but is in the ballpark - but over the past three decades have steadily cut the share of national income that goes into mass higher education.

Third, poor countries produce brainworkers that are pound for pound as good as ours. We have been renting them for years - from Taiwan, India, Hong Kong, Turkey, etc etc. - but now more are staying put or going back. Now U.S. companies are sending work to them offshore, where labor and resource costs are indeed lower.

Reich and the Clinton Dems have wanted to reconcile Ricardian "free trade" with increasing wages. But fifteen years later, it's still not clear how this can work, since brainwork can be outsourced and cheapened too. It's also not clear how nanotechnologies would change that equation.

Intellectual property and professional protections do work to some extent - American doctors make vastly more money than their Indian counterparts because the latter can't dispense direct advice in the U.S. without passing American medical boards. But these sanctioned monopolies don't fit easily with the free-trade "work of nations" paradigm.

Nanotechnologies thus are going to require a rethinking of a range of scientific and social policies.

The picture is of IBM's China Research Laboratory, in operation since 1995.

1 comment:

  1. chris-
    interesting post which gives me some things to think about...thanks for posting it