I just snatched this little exchange out of the transcript of Paul Volcker‘s recent interview with CNN. The greatest Fed Head in history gives us his take on the competitiveness of America and what we must figure out how to do to become great again.
Volcker and I share the contention that having the majority of our best and brightest off in a corner trading with each other is not a good long-term trend for society…
ZAKARIA: You feel that the longer term issue, the big issue is really this issue of how do we get real growth. How do we get exports, manufacturing — not growth that’s based on borrowing, not growth that’s based on each of us selling each other our own houses in a kind of ascending spiral…
ZAKARIA: … of asset inflation.
VOLCKER: We’ve got to produce something that somebody else wants to buy.
ZAKARIA: How do you do that? What should we be doing?
VOLCKER: Well, you really want to get — fundamentally, I think we spent a — more than a decade — we spent 20 years inducing some of our brightest people, our most energetic people to go to Wall Street. And nobody wants to be a mechanical engineer or a chemical engineer or a civil engineer. They want to be a financial engineer.
If you go to a university graduation these days, and you get to the advanced degrees in mathematics, engineering, physics, you’re rather hard pressed to find an American. There are Chinese, there are Indians, they’re Taiwanese, they’re from the Middle East.
Look, it’s not easy to answer your question, because there’s no easy answer.
ZAKARIA: When you look at American industry, making it more competitive again, do you think that when you compare it to industry in China, or in India or in South Korea, is part of the problem that there is — our corporate tax rate is now the second-highest in the industrialized world?
We probably have more regulation. There’s the issue of tort, you know, and the way in which the liability system…
VOLCKER: All of those things add up to some extent. And some of it is kind of a mystery, in a way. I hate to pick a particular industry, or whatever, and just anecdotally. But I understand that the cost of shipping a ton of steel from China to the United States, one ton, is about the same as the total labor cost to produce a ton of steel in the United States.
So, if, in effect, it’s not all our labor costs, they’re offset by the transport cost, why are we still importing so much steel?
The challenge is very substantial. I think we can do it. I mean, we used to be, not so long ago, the world’s greatest manufacturer. And we haven’t got any big cost disadvantage relative to Europe or other developed countries. But the emerging world certainly has a big competitive advantage.
It’s a great interview, read the rest below: