By Antoine van Agtmael and Fred Bakker
September 19, 2017

In interviews with hundreds of local scientists, university presidents, business executives, startup entrepreneurs, and local officials all over the country for our book, we found a sharp contrast with the political mood in Washington, DC. Instead of despondency, we found widespread excitement about major breakthroughs in innovation that were beginning to translate into transformational new products. Moreover, this innovation is not the preserve of the Silicon Valley-Cambridge-Austin triangle. There are well over 35 of these “brainbelts” all over the country, many of them in forgotten Rust Belt cities that once had been industrial and manufacturing powerhouses, like Akron and Pittsburgh. Today, many of these rustbelt cities are reinventing how we make things and, as a result, are becoming vibrant again after decades of decline. And yes, these cities that had been successful in becoming brain belts had not voted for Trump.

How have they done it? First, their universities, legacy companies, startups, and local officials have learned how to closely collaborate in a process we call “sharing brainpower.” That usually requires a life-threatening situation—like the loss of an anchor industry—that forces an openness to climb out of restraining, old silos and seek multidisciplinary solutions to today’s complex issues. It also requires someone to play the role of “connector”—an individual with the vision, will, energy, and contacts to bring disparate groups together.

Second, they are fusing their old manufacturing skills with automation and 3D printing, new discoveries and new materials. In fact, they are creating a whole new branch of the economy by using cheap, tiny sensors to integrate wireless information technology and big data analytics. Think not only of self-driving cars, wearables that monitor health, new cancer cures, smart grids, and smartphones of ever-greater functionality, but also of “smart” shoes and shirts that can soon be made in the U.S. again—in a competitive and customizable way. In all of this, we see the emergence of a new paradigm of global competition.

Pittsburgh is moving from steel to robotics with Google and Uber reenergizing the city. Akron lost its tire industry but not its world-class research expertise in polymers and other materials, and is now creating tires designed for self-driving cars, contact lenses that sense the onset of diabetes, coatings that reduce wear and tear on bearings, and special films for flexible LCD screens. Over 1,000 polymer companies in the region employ more people than all the big tire companies combined did in their heydays. And Akron’s town center has become a vibrant community—replete with retail shops and trendy restaurants—that attracts talent from around the world. Indianapolis lost 40,000 jobs in the automobile industries but regained a similar number of jobs in aerospace manufacturing and drug research, becoming the fourth fastest growing high-tech hub in the country.

For decades, China has been pummeling the “old” Western economies by making things as cheap as possible. Now the U.S. is responding by making things as smart as possible. Smart innovation is replacing cheap labor as the hottest source of global competitive advantage as “old” economies take advantage of their unique (and often overlooked) assets such as world-class universities, freedom of thought (out-of-the-box thinking is indispensable for innovation), and a reliable legal system.

President Donald Trump was absolutely right that many middle-aged workers felt displaced and ignored—and this helped him win the election. But his diagnosis that China was the main culprit is wrong, and protectionism is not the answer. Automation and, much later, the impact of the dramatic 2008 financial and economic crisis turn out to be more important causes of the job losses than the erosion of competitiveness. Protectionism is a form of laziness that would relegate the U.S. to second-rate economic status. American politicians on the left and right may complain of Chinese competition, but on our travels to Asia we were struck hearing their CEOs complaining about American competition. Asian wages had risen, fracking had made energy abundant and cheap in the U.S., and, most importantly, they were having trouble keeping up with American research and development.

Rather than turning to protectionism as a kind of economic chemotherapy, we should focus on the precision medicine of retraining older workers and training young workers in the skills needed for the future. If we let go of our college obsession, we could learn from the German example of work-study programs and bring together businesses to provide apprenticeships (and later jobs), community colleges and post-secondary vocational training programs to focus again on much needed skill training, and workers to seek more educational opportunities. As president, Trump could use his bully pulpit to push all parties toward this promising (and revolutionary) new social contract.

All of this is excellent news for the U.S. Even if politicians and pundits still declare that America has lost its greatness and tirelessly bemoan our economic and social weaknesses, we have witnessed this trend first-hand and it is real. We have a great feeling of optimism and a strong conviction that the U.S. is not in decline, but is on the cusp of a new wave of competitiveness.

Antoine van Agtmael coined the term “emerging markets” and founded the investment firm Emerging Markets Management LLC, which he led for 25 years. He is now senior adviser of FP Analytics, part of the Foreign Policy Group. Fred Bakker is the former editor in chief of Het Financieele Dagblad in the Netherlands. They are authors of The Smartest Places on Earth: Why Rustbelts are the Emerging Hotspots of Global Innovation, published in March 2016.

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