On Tuesday I continued to discuss the American Challenge, a book from 1968 in which author Jean Jacque Servan-Schreiber argues that the American economy is growing at such a rapid pace, it will quickly outpace most of Europe and enter into a neo-colonial system with the European countries, extracting their wealth and talents while leaving them without the ability to develop new industries on their own.  The big question that has yet to be answered is why was America’s economy so powerful in 1968?  I don’t know what the boomers think, but I don’t know of many Americans who look back on the 60s with fondness for its booming economy.  But according to Servan-Schreiber America’s economy was indeed booming, rapidly outpacing Europe, the USSR, and the vast majority of the world, steadily increasing the technological and quality-of-life gap between America and the rest of the world.

A discussion of America’s boom years should encompass both where it started and where it was going.  By 1968 America already amounted to 1/3 of the world’s GDP while encompassing just 1/17 of its population.  It controlled the majority of the world’s production in high tech goods, including chemicals (60%), electronics (68%), and automobiles (76%).  In addition to this strong base, America’s economy seemed poised for continued rapid expansion.  American companies were on average more profitable than European ones, and more profit was re-invested into new technology and ideas.  Servan-Schreiber’s thesis appears to rest at least in part on profits from big business as drivers of technological innovation.  The fact that IBM made over a hundred million dollars in profit and re-invested roughly half of that would guarantee it continued dominance of semiconductor technology in the years ahead.  I’m unsure of the validity of this thesis, many of the most profitable high-tech companies today didn’t even exist when Servan-Schreiber wrote his book, so it appears that a full study of startups and their position in the tech eco-system may be lacking from this book.

Regardless, it is clear that in Servan-Schreider’s time, American companies were making more money and re-investing more into new technology than their peers, and to Servan-Schreider and others this was causing a widening gap between the standard of living in America and the standard of living elsewhere in the world.  But we still haven’t answered why America was so able to do all this.  Why were its companies so profitable?  Servan-Schreider has a simple answer: education

According to Servan-Schreider’s data, in 1965 44% of University aged Americans were enrolled in education.  By contrast, France had 16% of University-aged young people enrolled in education, Italy had 7%, Germany 7.5%, Britain 7%, Belgium 10%.  The highest enrolment in Europe was the USSR with 24%, just barely half of the American enrollment.  Not only did America have more students enrolled, it had more poor students, the author states that working class children in France make up 56% of the population but just 12.6% of students.  By contrast, the author makes special note of the following: “In the United States, on the other hand, from three to five times as many children of workers and farmers have access to higher education as in the Common Market countries.  His conclusion is that social mobility was far more available in America than in Europe.

Finally, in addressing the education gap the author quotes Robert McNamara, who at the time was the US Secretary of Defense. McNamara strongly agrees that the growing gap between America and Europe is due largely to education, not just the education of scientists and engineers but of managers as well.  We may best remember that McNamara was a former business executive at Ford, and so he probably thought of most everything as a management problem.  Still, he argues that good management is required to take advantage of new technologies and ideas, as well as the new organizations to promulgate them.  The gap, he reasons, is because America has had the corps of trained managers capable of utilizing computers, logistics, and new methods of measurement in order to create better and more efficient companies, and that if Europe wants to catch up it needs to train managers of its own.  In a way this is precisely what Servan-Schreider lamented earlier in the book, that modern European countries are constantly looking to America for their managers and highly skilled employees, and this in turn makes Europe become more dependent and “colonized” by the American economy as it is unable to staff its own companies and build its own ideas separately from America. McNamara’s solution is blunt: train better managers.  Get more people into higher education, more people skilled in using and building off of new technology, and then you won’t have to import so many Americans.For me, a modern person reading the book, all this sounds very surprising.  I was not aware that in 1965 fully 44% of the college-aged Americans were in school, or that the number was so low in Europe.  A quick search says that for America this number has barely changed, 42% of Americans 18-24 years old are enrolled in college or graduate school.  I can’t find equivalent data, but in the UK 38% of 18-year-olds are going into University and in Europe 41% of 24-35 year-olds have a degree.  Although these numbers aren’t directly comparable to each other, they do seem to demonstrate that the gap in higher education has been all but erased between America and Europe.  Servan-Schreider’s book is in some way a clarion call for action, and his most direct solution presented thus far is an increase in higher education for Europeans.  That exact increase seems to have occurred. Perhaps this is why our two economies never diverged as he predicted, maybe Europe took his advice.