Unfortunately, today’s challenges differ in an important way from those of the last century. The problems the Greatest Generation faced were inescapable, immediate, and existential: the Great Depression, German and Japanese fascism, and Soviet communism. The enemies they had to confront were terrifying, tangible, and obvious: long unemployment lines, soup kitchens, heartless bankers evicting families from their homes, the twisted wreckage of Pearl Harbor, the maniacal countenance and braying voice of Adolf Hitler, the ballistic missiles decorating the May Day parades in Red Square in Moscow—missiles that one day were dispatched to Cuba, just ninety miles from America’s shores. When the Soviets weren’t putting up a wall topped with barbed wire, slicing through the heart of Berlin like a jagged knife, they were invading Hungary and Czechoslovakia to stomp out a few wildflowers of freedom that had broken through the asphalt layer of communism the Soviet Union had laid down on those two countries. These challenges were impossible to ignore.
Whether or not the public and the politicians all agreed on the strategies for dealing with those challenges—and often they didn’t—they recognized that decisions had to be made, endless wrangling had to stop, and denying the existence of such threats or postponing dealing with them was unthinkable. Most Americans understood the world they were living in. They understood, too, that in confronting these problems they had to pull together—they had to act collectively—in a unified, serious, and determined way. Confronting those challenges meant bringing to bear the full weight and power of the American people. It also meant that leaders could not avoid asking for sacrifice. Kennedy also summoned his countrymen to “pay any price, bear any burden, meet any hardship, support any friend, oppose any foe.” Everyone had to contribute something—time, money, energy, and, in many cases, lives. Losing was not an option, nor were delay, denial, dithering, or despair.
Today’s major challenges are different. All four—globalization, the IT revolution, out-of-control deficits and debt, and rising energy demand and climate change—are occurring incrementally. Some of their most troubling features are difficult to detect, at least until they have reached crisis proportions. Save for the occasional category-5 hurricane or major oil spill, these challenges offer up no Hitler or Pearl Harbor to shock the nation into action. They provide no Berlin Wall to symbolize the threat to America and the world, no Sputnik circling the Earth proclaiming with every cricket-like chirp of its orbiting signal that we are falling behind in a crucial arena of geopolitical competition. We don’t see the rushing river of dollars we send abroad every month—about $28 billion—to sustain our oil addiction. The carbon dioxide that mankind has been pumping into the atmosphere since the Industrial Revolution, and at rising rates over the past two decades, is a gas that cannot be seen, touched, or smelled.
To be sure, the four great challenges have scarcely gone unnoticed. But in the last few years the country was distracted, indeed preoccupied, by the worst economic crisis in eight decades. It is no wonder that Americans became fixated on their immediate economic circumstances. Those circumstances were grim: American households lost an estimated $10 trillion in the crisis. For more than a year the American economy contracted. Unemployment rose to 9 percent (and if people too discouraged to seek jobs were included, the figure would be significantly higher).
There is an important difference between the challenge of the economic crisis and the four long-term challenges that America faces. The deep recession of late 2007 to 2009 was what economists call a “cyclical event.” A recession reduces economic growth to a point below its potential level. But the economy, and the country, eventually recover. By contrast, the four great challenges will determine our overall economic potential. A recession is like an illness, which can ruin a person’s week, month, or even year. The four challenges we face are more like chronic conditions. Ultimately, these determine the length and the quality of a person’s life. Similarly, how we respond to these major challenges will determine the quality of American life for decades to come. And it is later than we think.
A few years ago, fans of the Chicago Cubs baseball team, which last won the World Series in 1908, took to wearing T-shirts bearing the slogan “Any team can have a bad century.” Countries, too, can have bad centuries. China had three of them between 1644 and 1980. If we do not master the four major challenges we now face, we risk a bad twenty-first century.
Failure is by no means inevitable. Coming back, thriving in this century, preserving the American dream and the American role in the world, will require adopting policies appropriate to confronting the four great challenges. For this there are two preconditions. One is recognizing those challenges—which we have clearly been slow to do. The other is remembering how we developed the strength to face similar challenges in the past. As Bill Gates put it to us: “What was all that good stuff we had that other people copied?” That is the subject of the next chapter.
THREE
Ignoring Our History
On January 5, 2011, the opening day of the 112th Congress, the House of Representatives began its activities with a reading of the Constitution of the United States. The idea originated with the Tea Party, a grassroots movement whose support for Republican candidates in the 2010 elections had helped sweep them to victory, giving the GOP control of the House. The members of the new majority wanted to drive home the point that they had come to Washington to enforce limits on both the spending and the general powers of the federal government—which they believed had gone far beyond the powers granted to it in the Constitution. Historians said it was the first time the Constitution, completed in 1787, was read in its entirety on the House floor.
The Constitution has served as the framework of American political and economic life for nearly 225 years, a span of time in which the United States has grown from a series of small cities, towns, villages, and farms along the eastern seaboard to a superpower of continental dimensions with the largest economy in the world. For America’s remarkable history, the Constitution deserves a large share of the credit.
But even reverence for the Constitution can be taken too far. Former congressman Bob Inglis, a conservative Republican from South Carolina who lost his party’s 2010 primary to a Tea Party–sponsored opponent, told us about an experience he had speaking to members of that group at the main branch of the Greenville, South Carolina, county library several weeks before the primary. “About halfway into the hour and a half program, a middle-aged fellow stood up to ask his question,” Inglis said. “He identified himself as a night watchman/security guard. Pulling a copy of the Constitution out of his shirt pocket and waving it in the air, he asked me, ‘yes or no,’ if I would vote to eliminate all case law and go back to just ‘this’—the Constitution.”
“‘No,’ I replied. The crowd hissed and the night watchman shook his head in disgust. ‘Well, think about it.’ Pulling my cell phone out of its holster, I held it up and said, ‘The Constitution says nothing about cell phones, but there are lots of cases and some statutes that govern the use of these things. If we eliminated all case law, we wouldn’t have these cell phones.’ I went on to explain that without Judge Green’s decisions in the AT&T breakup we might not have any cell phones, and we’d still be paying outrageous rates for long-distance calls.” Inglis said that his questioner clearly was not impressed or persuaded.
The Constitution’s framers themselves knew that the document they had produced—through protracted and sometimes bitter negotiation—was necessary but not sufficient to secure the future of the country they had founded. And it certainly hasn’t been the only shaper of America’s destiny. We have always relied on something more: not a single document but a set of practices for prosperity that began with our founding and has been updated and applied over and over again. We call it “the American formula.” Although we think its importance should be obvious, it is not obvious today. America has lost sight of this traditional source of strength precisely when we should have been upgrading it. There is no chance—none
—that America can address the great challenges it now faces without renewing, refreshing, and reinvesting in its formula. And yet this formula has been allowed to erode in almost every aspect for the last two decades.
It is in particular jeopardy now because America will have to reduce public expenditure sharply in the years ahead to address the government’s soaring deficits. In an era of retrenchment it will be all too easy to underinvest in our traditional, time-tested formula. We will do this at our peril. A brief history of the American formula makes clear why this is so.
The Five Pillars of Prosperity
There is a business adage that says, “You win in the turns.” That is, when there are big shifts in the marketplace, the best companies gain market share and put distance between themselves and their competitors because they have the vision and flexibility to spot tectonic change and leap ahead when it occurs, while others are simply overwhelmed. They have, that is, a formula for success. Countries face similar challenges. If America were a company, Wall Street analysts would say that it has a remarkable track record. It has thrived at every turning point in its history—with every change in technology and social norms. America built the world’s most vibrant economy and democracy precisely because, in every historical turn since its founding, it has applied its own particular formula for prosperity.
That formula consists of five pillars that together constitute the country’s own version of a partnership between the public and private sectors to foster economic growth. The first pillar is providing public education for more and more Americans. As technology has improved, the country has prepared people to exploit new inventions—from cotton gins, to steamships, to assembly lines, to laptops, to the Internet.
The second pillar is the building and continual modernizing of our infrastructure—roads, bridges, ports, airports, bandwidth, fiber-optic lines, and wireless networks—so that American workers and firms can communicate and collaborate effectively and deliver their goods and services swiftly and cheaply to their destinations. Since the building of the Erie Canal between 1817 and 1825, governments at every level in the United States have financed the infrastructure necessary for commerce to flourish.
The third pillar involves, with a few periods of exception, keeping America’s doors to immigration open so that we are constantly adding both the low-skilled but high-aspiring immigrants who keep American society energized and the best minds in the world to enrich our universities, start new companies, and engineer new breakthroughs from medicine to manufacturing.
The fourth pillar is government support for basic research and development, which not only increases the store of human knowledge by pushing out the frontiers of basic chemistry, biology, and physics but also spawns new products and processes that have enriched American entrepreneurs and workers. For the American economy to keep growing in an information age in which innovation will have a greater economic importance than ever before, research on every front will be more vital than ever before.
The fifth pillar is the implementation of necessary regulations on private economic activity. This includes safeguards against financial collapse and environmental destruction, as well as regulations and incentives that encourage capital to flow to America, lead innovators to flock to this country to lodge their patents and intellectual property—because they know these things will be protected—and inspire small businesses and venture capitalists to start up in America.
Throughout our history, these five pillars have made it possible for Americans to apply their individual energies, their talents, and their entrepreneurial drive to make themselves, and their country, richer and more powerful. Taken together, the five make up a uniquely American formula for prosperity, one in which the government creates the foundations for the risk-taking and innovation delivered by the private sector. This formula has made possible America’s two centuries of increases in living standards. It is what has made America the world’s greatest magnet for dreamers everywhere.
The Formula Builders
For nearly 235 years, America has managed to produce leaders who could sense that we were in a major turn, frame the challenges involved so that people could understand what was happening, and then rally the public to adopt the policies needed to upgrade the American formula to meet the challenges. Here is a sampler of our leading formula builders.
The father of America’s public-private partnership was the nation’s first secretary of the Treasury, Alexander Hamilton. Hamilton saw the need for a strong and active although limited government. We now reside, as the biographer Ron Chernow, put it, “in the bustling world of trade, industry, stock markets, and banks that Hamilton envisioned.” He established a budget and tax system, a funded debt, a customs service, and a coast guard. He encouraged manufacturing and, out of office, drew up plans for the kind of peacetime army that the United States did not field until after World War II. Although he did not live to see it develop, the five-part formula for a public-private partnership that has evolved in the United States over the years descends directly from Hamilton’s vision, at the end of the eighteenth century, of both the character of the country and the role of its government as an enabler of prosperity.
Starting with the founding fathers, government has supported public education. Before he died on July 4, 1826, Thomas Jefferson asked that three of his achievements be engraved on his tombstone—that he wrote the Declaration of Independence, that he authored the Virginia Statute for Religious Freedom, and that he was the father of the University of Virginia. Unlike other major industrial countries, though, the federal government in the United States never has had the primary authority over K–12 public education. That has fallen to individual states and local school districts, which are funded through a combination of local property taxes, state tax receipts, and federal dollars. This combination of government support has transformed education in America from an elite privilege to a universal entitlement. In their book The Race Between Education and Technology, Harvard University’s Claudia Goldin and Lawrence Katz noted that thanks to the steady expansion of primary education, then the high school movement, and then the expansion of two- and four-year colleges and universities, “each generation of Americans achieved a level of education that greatly exceeded that of the previous one, with typical adults having considerably more years of schooling than their parents.” As a result, racial and regional differences in educational resources, educational attainment, and economic outcomes had narrowed substantially.
At the dawn of the twentieth century only about 6 percent of teenagers graduated from high school. By the end of the century that was up to 85 percent. At the beginning of the century about 2 percent of Americans age eighteen to twenty-four were enrolled in a two- or four-year college; by the end of the century 63 percent were going right from high school to some postsecondary institution, according to Department of Education statistics. Goldin and Katz argue that this American investment in mass education paid huge dividends: It both reduced income gaps and ensured that American workers could handle each new advance in technology.
Abraham Lincoln is best known, of course, for presiding over the federal government during the Civil War, but during that conflict his administration passed several landmark pieces of legislation that spurred America’s transition from an agrarian to an industrial society. One was the Homestead Act of 1862, which opened up the West for settlement by anyone who had not fought against the Union. Another was the Pacific Railway Acts of 1862 and 1864, which connected the eastern to the western part of the country and so laid the basis for a truly national economy. A third was the Morrill Act of 1862, which established a system of land-grant colleges, giving rise to institutions of higher education from Georgia to California and from Minnesota to Texas. States received federal land to establish colleges or vocational schools for educating students in agriculture, science, engineering, and other skills the country as a whole needed. Lincoln signed the National Academy of Sciences into being on March 3, 1863, to b
ring together America’s best researchers to “investigate, examine, experiment, and report upon any subject of science or art” whenever called upon to do so by any department of the government. Remarkably, all of this happened while we were fighting a civil war.
Theodore Roosevelt secured his place on Mount Rushmore chiefly through his contributions to the American formula. His experience as a reformist police commissioner in New York City, leader of the Civil Service Commission, and governor of New York taught him that for business to thrive it required consistent and transparent rules, as well as regulators authorized to prevent abuses and hold businesses accountable. As president, he took on large business monopolies in order to foster the free competition on which economic growth depends. American business was often unhappy with the rules and regulations that Roosevelt championed, but the competition, the transparency, and the public confidence that his handiwork helped to foster probably benefited business and investors more than any other group in the country. His concept of the vital role government had to play to regulate markets, as well as to protect public health and safety, not to mention to safeguard our nation’s wilderness, laid the basis for America’s Progressive era.
In 1907, the next-to-last full year of Roosevelt’s presidency, 1,285,349 people came to the United States from other countries, the largest single annual intake in American history to that point. The United States has always been a nation of immigrants, descended as it is from the earliest European settlements in North America in what became Virginia and Massachusetts. In the first half of the nineteenth century, most immigrants came from northern Europe. In the second half and the early decades of the twentieth, a great many originated in southern and eastern Europe. America became a great industrial power after the Civil War by capitalizing on the rapid population growth due to immigration. Many of the people who manned the factories that entrepreneurs built and dug the coal that powered these factories came originally from Europe.
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