The Divided States of America

I learned a lot about the Norman Borlaug story through Juan Enriquez, who you may have read in these pages before. Juan was CEO of Mexico City’s department of Urban development. He was responsible for transforming part of a major city into a flourishing modern day metropolis.

“The Institute that this guy ran,” says Juan of Norman, “has now moved to India.”

“That is the difference between adopting technologies and discussing technologies.”

According to Juan, there’s a bigger picture at play:

“It’s not just that this guy fed a huge amount of people in the world. It’s that this is the net effect in terms of what technology does across the world.”

“Innovation is this very strange seed,” he says. “And it plants itself in different climates and different places. And over the past century… it sprouted in the United States.”

As a prime example, Juan emphasizes, “The area around MIT is equivalent is equal to about the 13th largest economy in the planet.”

Think about that.

If we take that idea seriously, that Cambridge Massachusetts, through the knowledge output of its universities and the economic output of its companies…

…generates more wealth than South Africa, Ireland and Switzerland, combined.

How is this one zip code in the U.S. outperforming multiple developed countries?

In these U.S. zip codes, these clusters of technology and innovation, the government helps an abundance of small ventures, and then gets out of the way.

Contrast that with a place like Detroit, where there’s not an abundance of small, innovative companies… but a small number of big corporations, like GM. When a company like GM goes belly-up… everyone in the area feels the pain, and they don’t recover as quickly.

According to Juan, “This road is splitting quickly.”

In the age of globalization, scientists, technologists, engineers and other “knowledge economy” leaders are not limited by geography. If the government stops giving them a grant, they pick up and move somewhere else. Like Norman Borlaug.

You can see this going as far back as WWII. German rocket scientists didn’t want to come to the U.S. They wanted to stay in Germany. But America had money, and we made it worth their while.

Much of “the dividing road” is cultural. After Sputnik was launched, mothers wanted their kids to be scientists and engineers. And now there’s a divide, even a fear, of science and technology — as if it has to threaten our value system.

Take an example of more recent times. When the Bush Administration halted funding for stem cell research, it moved wholesale to China. Fortunately, there were no limitations on private development, and states like California put up new money for R&D. That was enough to sustain a critical mass for stem cell research.

But probably some of the best medical research that’s done in the world is at Howard Hughes Medical Institute, which housed 550 some scientists at the time. After Bush halted funding for stem cell research, almost 100 went straight to China.

That same scenario could happen in any other field of science and technology.

Our goal is to provide you with the investment opportunities that the heroes of our economy are paving. So stay tuned for future Tomorrow in Review issues by signing up for FREE, right here.

The Daily Reckoning