Friday, May 12, 2006

Is America really the knowledge economy?

The recent nationalization of Bolivia's energy assets by the government of Evo Morales calls into question one of the main beliefs of current economic orthodoxy, i.e. the preeminence of American or more broadly western "knowledge" workers. Is America really the knowledge economy without which the rest of the world cannot prosper?

The answer to the question will determine the eventual resolution of the current conflict over resource profit flow. To the extent American or more broadly western "know how" is still required to manage resource extraction and export, the flow of funds associated with such activities will not change dramatically. However, if nations seeking to gain greater control of profits associated with resource extraction are capable of managing their assets then the future flow of funds associated with such activities are likely to shift dramatically, with the west losing out in the deal.

A century ago, western technological superiority in the field of resource extraction was evident. Whether the issue was mining in South America or pumping petroleum in the Middle East, western techniques were a quantum leap ahead. However, a century of contact including educational reform has eroded the gap in the intervening decades. Moreover, it is far easier to copy something you have seen working than to invent it yourself. People in non-western resource rich countries have been watching and learning western techniques for generations now.

Beyond the technology question there is the trade component. When the west was the biggest consumer of such exports even if a nation had the know how, they were stuck with their customers. The ascension of China, both with respect to the nation itself and the Asian nations which are commercially dominated by the Chinese, Singapore, Malaysia and Indonesia to name a few, has changed that dynamic. There's a new customer in town.

As China's growth continues to raise demand for raw materials, China, flush with dollars which the US will not accept in trade for key assets, will more and more be the swing consumer. On the trade front, the prospects for resource nationalization are robust.

This leaves the open question of western technological superiority as the swing factor. I don't know the answer to the question, but having traveled around the world quite a bit, I think the gap between the west and the rest of the world is less than a read of popular rhetoric suggests.

As was the case in the inflationary seventies, the terms of trade between the west and the rest of the world is under negotiation. The west will soon learn if the rhetoric of technological superiority is matched by the facts on the ground.