The following story was recounted by Dartmouth alumnus Dinesh D’Souza in a National Review article he wrote about the 10 Things to Love in the United States:

In 1982 CBS aired a documentary titled ‘People Like Us’, showing the conditions of the poverty-stricken in America during the years of the Reagan administration. Soviet officials, with the goal of embarrassing the United States, aired that documentary in the USSR. Yet the broadcast had the opposite effect: Soviet citizens saw that the poorest of America had amenities like television, microwaves, and cars.

His realization was cemented when he asked an Indian acquaintance of his why he wished so badly to move to America. His reply was “I want to live in a country where the poor people are fat.”

If anything, this story is a testament to the might of the American economy, which for the last century has towered over the rest of the globe with its world-beating companies consistently innovating and producing desirable products and services. For America, which emerged largely unscathed from World War II, the post-war period has been one big Bull market punctuated by short recessions. Already the world’s biggest economy, we widened our lead in every decade since while other economies boomed and stalled.

But America is falling behind. Once the world’s biggest creditor, America currently holds a trade deficit of gargantuan proportions, financed mostly by its East Asian competitors. All-American car companies, formerly the symbol of our industrial strength, are in the dumps, outclassed by their Japanese counterparts. Test scores of American students on Math and Science exams are falling relative to other countries. China and India are producing hundreds of thousands of engineers every year, ready to find their place in a global economy.

Yet the drone sounds all too familiar: replace ‘China and India’ with ‘Japan and Germany’ and you’ll rediscover the popular wisdom of the 80s. American competitiveness was a big issue back then as well. We were told that the Japanese are smarter than us, their economy is growing faster, and someday we’ll be left in the dust. Budding executives were advised to learn Japanese and German – the languages of business in the future. Fast forward to today: Germany is the sick man of Europe growing at an anemic 1% per year and Japan is just recovering from a 15-year slump.

The theorists will say that global trade is not a zero-sum game: everyone can be better off if we all just cooperate. That is indeed true. But if want to maintain our standard of living and our position as the world’s premier economic power, we will need to make painful changes. We must understand that declining competitiveness is not a fictional academic construct, but that it has real-world consequences in the form of lower wages, fewer jobs, and a poorer outlook for coming generations of Americans.

During the Cold War era, the unknown threat from the faceless masses behind the Iron Curtain kept us competitive by spurring a national interest in science and technology. We thought if we could outdo the Soviets in space, we’d also win the battle at home and abroad. And we were right. Investing in technology paid off huge dividends and produced the Manhattan project, the Apollo missions, the space shuttle, and, of course, the internet. The positive externalities generated by these ventures cannot be overstated. In a rather perverse twist, the threat of mutually assured destruction helped focus our priorities.

But where are our priorities today? If you go by our elected representatives, they clearly aren’t in the right place. With a $400 billion budget deficit, reduced funding for education programs, large cuts in college loans initiatives, and a President who thinks the jury is out on evolution, the government has shown itself to be uninterested in these matters.

But there is no need for a huge policy shift. Trying to catch the trends or invest heavily in the ‘next big thing’ through government regulation is a trivial strategy. We need to build our human capital and focus on our strengths. In a global economy, it doesn’t matter if you’re hired by a Microsoft or an Indian company that promises to pay the same wages: multi-national companies owe allegiance to no-one.

What’s the government response to this? Protectionism: steel tariffs and reduced Visas to stem the ‘foreign threat’. This is a disastrous short-term response. Our greatest assets are our liberal, flexible labour and capital markets. Western European countries have highly competent, productive workers, but low rates of GDP growth. Why? Their markets are over-regulated. Their famed “social contract” has resulted in record unemployment rates, stagnant wages, and moribund economies. Therein lies our ‘competitive advantage’ – our entrepreneurial culture and a regulatory climate that promotes competition. Outsourcing is just another part of this flexibility. In fact, a careful analysis of the data shows that job losses due to offshore outsourcing have are lower than the rate of job churn in the massive U.S. economy. That is, its effect is negligible, more so over the long-run. Therefore, relaxing Visa requirements for skilled workers and students would be a step in the right direction. Turning away the best and the brightest from other countries is a nonsensical policy.

Most importantly, the idea of Us. Vs. Them must not gain traction, for it is patently dangerous. In fact, the United States must do all it can to assist developing countries – spur them to open their markets, invest in value-creating ventures abroad, allow their companies to compete over here. Berkeley economist Brad DeLong states, "It is very important for the late-twenty first century national security of the United States that, fifty years from now, schoolchildren in India and China be taught that America is their friend, that it did all it could to help them become rich. It is very important that they not be taught that America wishes that they were still barefoot and powerless, and has done all it can to keep them so."

Other countries have been adding to our prosperity for decades. Our graduate schools are packed with foreign students, who greatly outnumber domestic students in the math and the sciences. Over the last few decades the number of Americans majoring in the hard sciences and math declined, but the shortfall was more than made up for by increasing number of foreigners who wished to study at the world’s best universities. In effect, America was drawing the crème de la crème from the labour markets of its competitors; the fact that many of them chose to stay on in the US was doubly beneficial. But the number of foreigners pursuing PhD’s in the US has dropped sharply. This creates a domestic talent shortage. According to surveys conducted by the Association of American Universities and the American Council on Education, inefficiency in the visa-renewal process and other paperwork is to blame for the drops; this needs to change.

It would be ideal if all these problems could be solved by a policy response. Sadly, that is not the case. There is a cultural malaise developing that threatens to affect our future competitiveness. Niall Ferguson, a Professor of History at Harvard University and Senior Fellow at the Hoover Institution, writes in the journal Foreign Affairs, “A rising proportion of Americans may consider themselves to have been "saved" in the Evangelical sense, but they are less good at saving in the economic sense.” The potent mixture of religiosity and unbridled consumption has been disastrous. Only in America is a ridiculous notion like ‘Intelligent Design’ taken halfway seriously by prominent citizens. It’s not a good sign when the world’s most advanced economy is unconvinced of science’s most celebrated theory. No wonder our students look at math and the sciences with a jaundiced eye.

This aversion has led to acute problems in labour markets requiring specialized quantitative and analytical skills in fields like computer science and engineering. “There just aren't as many graduates with a computer-science background. (That) creates a dilemma for us, in terms of how we get our work done,” said Bill Gates, chairman of Microsoft, at an IT conference last year. Echoing his sentiment, the National Science Board has identified "an emerging and critical problem of the science and engineering labor force" in the United States.

But the younger generations too quickly forget the fundamentals of our economic system. At the risk of paraphrasing oft-lampooned greed evangelist Gordon Gekko, capitalism is greed – it cuts through, it clarifies, and, most importantly, it is not patriotic. Outsourcing has tangible benefits, but only for those who have worked to make build marketable skills for themselves. Those big investment banks won’t think twice before taking on new hires with superior quantitative skills that are willing to work for less.

This cultural malaise is reflected in pervasive political shortsightedness. For starters, Federal investment in the physical sciences has seen a significant decline over the last 30 years. We give farmers $20 billion in agricultural subsidies every year, paying them to not grow crops, while spending less than a third of that on basic research in the physical sciences. President Bush’s ‘American Competitiveness Initiative’ promises to reverse that, but its effectiveness remains to be seen. After all, this was the President who announced a Mars mission 2 years ago and then abandoned it without a word; on such matters, his credibility, to put it lightly, is lacking.

But this is our priority. These are steps in the right direction. It’s easier to build a legacy with a war, but the difficulties in cementing an enduring legacy – one that generations to come will benefit from – is a greater challenge. I will go out on a limb here and say that the American Competitiveness Initiative, if implemented competently (always questionable with the fellows in charge), will have a greater impact on the welfare of American citizens than the poorly handled War on Terrorism; it deserves just as much attention. Remember, missiles and warheads didn’t win the Cold War, motorcars and widgets did.