Sputnik Moment: Does This America Have What it Takes?

The flourishing rhetoric of politicians these days routinely over promises and under delivers. A business probably can’t be run that way, but evidently it works in politics. When President Obama’s inspiring State of Union address rolled out the powerful Sputnik/space race metaphor, he evoked an achievement that should be remembered, but does he or our country have the right stuff to follow through with that challenge?

In 1958, the US was shocked to learn that a Russian satellite, Sputnik had been launched into orbit and was flying over our country freely and unmolested. It was shocking because the US felt it was the unchallenged super power on the planet. Soviet Russia may have been bigger and unconquerable within its own territory, but it had no reach. The United States was dominant politically, militarily and economically. On top of that, Americans believed we had the moral high ground and we that our technology and know-how was second to none. Yet the Soviets had beat us into space and our national security and prestige were at stake.

America rose up to meet the Soviet challenge in space and in 1961 President Kennedy told the nation our goal was to get on the moon within ten years. Less than ten years later, in July 1969, the first NASA astronauts walked on the moon. In eleven years, the US went from being earth bound to putting men and satellites into earth’s orbit almost routinely, then reaching the moon and landing men on it and safely returning.
The space race should be remembered as an extraordinary achievement for this country. Is Obama right to invoke it?

Obama’s Sputnik moment analogy calls us to pull our education system and economy together and to once again be in the first rank of competiveness and productivity. Here are some reasons the call is hollow and we can’t measure up to it.

- Our education system is the most over funded yet unproductive in the world. Achievement in almost every category ranks below average or at the bottom relative to other developed countries yet almost no other country spends so much to educate people. This is a crippling competitive disadvantage. teachers unions, cultural attitudes, policy makers and too many families don’t care.

- Capital investment and returns on investment are overwhelmingly skewed towards financial investment in our economy. At the highest echelons, business leaders, Wall Street and policy makers are too focused on takeovers, financial products and financing and are not serious about investing in the US.

- Never in the history of the country has such a large share of the population been so disenfranchised. The distribution of wealth in the US resembles no other developed nation. Countries like China and Mexico have the same distribution of wealth characteristics. America’s middle class hegemony and thus their commitment to excel have become gravely compromised. Increasingly, we have a culture of defeat.

Income Disparity Graph

- Free trade policies have benefitted the elites and harmed the country. Despite falling relative employment costs in the US, out sourcing of good jobs continues benefitting corporate profit margins. S&P 500 earnings have outperformed the economy arguably at the expense of the domestic economy as the share of jobs that provide an affluent secure middle class lifestyle decline.

- Policy makers and big businesses like Walmart have opened our domestic markets wide open to foreign competition without expecting the same of other nations. China is the worst case and the failure of the last three administrations to hold them accountable for a whole spectrum of dirty trade practices is a gross failure.

Investment Conclusion:
On the margins the President’s goals will be attended to, but really there is little awareness or conviction about what is at stake. There are also too many powerful interests like financiers, self interested politicians and unions who aren’t going to buy into the solutions.
In the short term, a falling dollar and a weak recovery will support US industry, but the issues causing the continuing loss of market share remain.

There is also the reality that many Americans aren’t interested in competing anymore. They are more interested in consuming. The disincentives for small business ownership have multiplied and corporate culture is to get what you can for yourself just like your boss does. Too many Americans have just given up.