Go East Young Man. Far East

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One of the compensations for the scar tissue accumulated over three decades in the technology business is a chance to interact with young students and entrepreneurs seeking guidance. In return for a whiff of their energy and enthusiasm you get to tell stories about the-way-it-was and opine about the-way-it-will-be.

When I left MIT to join Bell Labs back in the late 70s the United States was poised for one of the most dramatic bouts of innovation the world had ever seen. Belying Jimmy Carter's prediction that America's glory days were over - beset as we were by the energy crisis, the inflation crisis, the environmental crisis, the unemployment crisis, and the Iranian crisis - a muscular form of capitalism emerged that delivered a generation of prosperity. During this time the best and the brightest from around the world flocked to our shores, as they have throughout American history searching for opportunity. Their brains and drive helped fuel our growth.

What a difference thirty years makes. Giving the voters what they asked for - in H. L. Mencken's words "good and hard" - the same forces that undermined prosperity in the 60s and 70s once again dominate American culture and economic policy. Can you hear the ghost of Jimmy Carter telling us to put on our sweaters and accept the fact that our children shouldn't expect to be better off than their parents?

Meanwhile, a muscular form of capitalism emerged in the Far East as earth's oldest dominant civilization cast off its disastrous experiment with Communism. Listen carefully to the stories told by American entrepreneurs working with Chinese engineers and manufacturers to bring their innovations to market. You will be amazed by the energy, hunger, competence, flexibility, and willingness to take risks evidenced by a people who are convinced that the future belongs to them.

China is already a magnet for our consumer dollars as well as the leading underwriter of our runaway government debt. Did you know that China recently surpassed Germany as the world's third-largest national economy and will soon overtake Japan to become the second-largest economy after the U.S.? Last year China had three times as many IPOs as the US, raising twice as much capital. Does anyone think these industrious people are going to start coasting any time soon?

But it's not China's exports that should worry us; after all we get to enjoy all the stuff they make at rock bottom prices. It's their potential imports that should give us the willies. How long will it be before China becomes a magnet for our best innovators and entrepreneurs fed up with a society more interested in harnessing them to the yoke of income redistribution than giving them the economic freedom to pursue their dreams?

The answer is, not long. In fact, the brain drain has already begun measured by the number of Chinese immigrants who don't come here, Chinese students who go back after graduation, and Chinese expatriates returning to a society eager to welcome them home. You may not notice this initial wave but what are you going to say when a promising young graduate from a prestigious U.S. university informs you that he is moving to China to seek his fortune? That's certainly what I'm advising them to do.

Voting between the red tribe and blue tribe may not do much to change a young person's life but voting with their feet most assuredly will. Any entrepreneur who does not have a China strategy is asleep at the wheel. Not only will it serve them well to learn the language, after all it's just a matter of time before Mandarin surpasses English as the most commonly spoken tongue, but for the next decade or so American entrepreneurs will still have an edge over native born Chinese. That's because right now they need us not so much to tell them how to manufacture things but to help them decide what to manufacture. How long will that edge last as the quality of American public education continues its decline and the brightest American students increasingly shy away from the rigors of science and engineering?

The political and demographic forces turning us into just another sclerotic social democracy are so strong that hoping another Margaret Thatcher or Ronald Regan will come along and turn the tide is just wishful thinking. Besides, do you believe a leader of that stature would be welcomed even if our dysfunctional political parties could produce one? Obsessed as we are with government enforced equality, the national preference may well be to become a second rate nation as long as we all become second rate together.

Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

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