Long Live the American Dream

Why India and China have nothing on America

Americans, hit first by outsourcing and then a recession, are becoming deeply pessimistic about their country's ability to maintain its economic leadership in a globalized world. America's Aristophanes, Jon Stewart, commented during a recent interview with Anand Giridhardas, author of India Calling: "The American dream is still alive—it's just alive in India." Likewise, 20 percent Americans in a December National Journal poll believed that the U.S. economy was no longer the strongest. Nearly half picked China instead.

But there are at least five reasons why neither India nor China will knock America off its economic perch any time soon, at least not by the only measure that matters: Offering the best life to the most people.

America Wastes No Talent

Conventional wisdom holds that America's global competitiveness is driven by geniuses flocking to its shore and producing breathtaking inventions. But America's real genius lies not in tapping genius—but every scrap of talent up-and-down the scale.

A 2005 World Bank study found that the bulk of a people's wealth comes not from tangible capital like raw resources and infrastructure. It comes from intangible wealth: effective government, secure property rights, a functioning judiciary. Such intangible factors put the equivalent of $418,000 at the disposal of every American resident. India and China? $3,738 and $4,208 respectively.

America's vast intangible wealth makes everyone more productive and successful. Personal attributes—talent, looks, smarts—matter only on the margins. Having witnessed the life trajectory of many Indian immigrants, what's striking to me is that, with some exceptions, it doesn't matter whether they are the best in their profession in India or just mediocre. Within 10 to 15 years of arriving, they land in a very similar space. They get good jobs, buy homes, have children, send them to decent schools and colleges and save for their retirement. The differences in their standard of living would have been far greater had they stayed home.

America Does Not Have India's Infrastructure Deficit or China's Civil Society Deficit

India's gap with America extends not just to intangible capital but tangible capital as well. Basic facilities in India—roads, water, sewage—remain primitive. For example, a 2010 McKinsey Global Institute report found that India treats 30 percent of raw sewage, whereas the international norm is 100 percent. India provides 105 liters of water per person per day, the minimum standard is 150 liters. It needs to spend twice the slated expenditures over the next 10 years to deliver basic services.

China, meanwhile, has a major civil society problem. America has made about $100 trillion in Social Security and Medicare promises to seniors that it can't fund. But American seniors face nothing like the kind of destitution that the Chinese do. China's one-child policy has decimated the natural safety net that old people rely on in traditional societies. And China offers no public safety net to the vast majority of village-born. Worse, many Chinese have invested their nest eggs is various asset bubbles that will wipe out their only means of subsistence if they burst, making the Great Depression look like a beach party.

America Does Not Have Grinding Poverty

Despite all the recent hoopla about China becoming the world's second biggest economy and India hoping to follow suit, the reality is that the per capita GDP—even measured by purchasing power parity—in both is pathetic. America's is about $47,000, China's $7,500, and India's $3,290.

Worse, both still harbor medieval levels of poverty with 300 million people in each living on less than $1.25 a day. India's IT boom gets big press, but it—along with all the tertiary industries it has spawned—employs 2.3 million people, or 0.2 percent of the population.

Neither country is a font of opportunity comparable to America.

American Education Is Superior

President Obama claims that America is in an "education arms race" with India and China. Rubbish.

Notwithstanding all the horror stories about American kids underperforming on standardized tests compared to Asian kids raised by Tiger moms, things are worse in India and China. India's literacy rate is 66 percent. China puts its at 93 percent—but between 2000 and 2005, China's illiterate population grew by 30 million. The same may happen in India, thanks to last year's Right to Education Act whose regulations will cripple India's private school market. The fundamental problem is that both countries put their resources into educating elite kids—and ignoring the rest.

College education in both countries, especially in engineering, is also vastly overrated. Harvard researcher Vivek Wadhwa has shown that, contrary to conventional wisdom, not only does America graduate comparable number of  engineers to India and China—American engineers are vastly superior.

But unless more Indian and Chinese kids get access to a quality education, their countries won't be able to actualize their human potential, precisely what America does so well.

America Doesn't Have a Culture of Hype

An important reason why the gloom-and-doom about America is unjustified is precisely that there is so much gloom-and-doom. Indians and Chinese, by contrast, have drunk their own Kool Aid. Their moribund economies have barely kicked into action and they are entertaining dreams of becoming the next global superpower. This bespeaks a profound megalomania—not to mention lopsided priorities. There is not a culture of hope in these countries, as Giridhardas told Jon Stewart. There is a culture of hype.

By contrast, Americans are their own worst critics—always looking for lessons to improve what is working and fix what's not. Alexis de Tocqueville observed that although Americans were the freest and most enlightened men placed in the happiest of conditions, "a sort of cloud habitually covered their features." Why? Because "they were constantly tormented by a vague fear of not having chosen the shortest route that can lead to…their wellbeing."

Indeed, Americans have a grab-the-bull-by-its-horns quality so that they simply don't hang around hoping for things to get better on their own. If the public school monopoly is failing kids, by golly, then they'll homeschool them themselves. (Public schools are dysfunctional virtually everywhere, but which other country has spawned anything equivalent to America's homeschooling movement?) The government responds ineffectually to the recession, modest by historic standards, and Americans go into panic mode. Grass-roots movements such as the Tea Party emerge to rein in the government. Pay Pal founder Peter Theil has even given close to a million dollars to the Seasteading Institute to establish new countries on the sea to experiment with new forms of government. This might be wacky but it puts an outside limit on how out-of-whack Americans will let their institutions get before they start fixing them.

This American spirit, ultimately, is the biggest reason to believe that the American dream is and will stay alive—in America.

Shikha Dalmia is a senior analyst at Reason Foundation and a columnist at The Daily, America's first iPad newspaper, where a version of this column originally appeared.