The U.S. Can't Import Its Way to Economic Prosperity

(Bloomberg Opinion) -- Much has been written about the shortcomings of China's export-dependent economic model, which has emphasized growth by selling to other countries rather than generating its own domestic demand. But the U.S. has similar drawbacks with its model, some of which have become apparent during the pandemic — specifically, an excessive focus on importing economic activity rather than investing in and developing it locally. This can be seen in universities becoming increasingly dependent on international students, city tax bases relying on suburban commuters and tourists and Sun Belt states emphasizing importing talent and business rather than generating it locally. The U.S. as a whole, and many local and regional economies, would be better off with a more balanced approach by investing more in our own people and communities rather than looking elsewhere for growth.

It's understandable why the U.S. has been focused on importing economic activity; often it passes as a free lunch, like discovering oil in your backyard. But in the same way that countries with an abundance of natural resources skimp on internal investment, the so-called resource curse can lead to broader neglect elsewhere.

Take the case of U.S. universities. Particularly for highly selective public universities, there's been an arms race over time to expand amenities and services so that top talent would continue to be attracted to one school rather than another. But luxury dorms and extravagant sports facilities cost money, and there's a limit to how much schools are able to raise tuition while remaining affordable for domestic students and their families. That's why the growth of international students willing to pay full tuition has been so critical as a source of revenue. The problem is what happens when that international revenue pipeline is cut off, as seems likely amid changes in immigration rules under President Donald Trump and the decline in international travel during the pandemic. Universities are now in the difficult position of deciding which services and programs to scale back to cut costs. Should this reduction in international enrollment be permanent, higher ed won’t be able to offer the same experience and amenities  that it has during  the past decade.

Big cities, for their part, have grown increasingly dependent on importing economic activity from elsewhere rather than generating it themselves as they've transitioned from manufacturing hubs to knowledge centers. Before the pandemic, Manhattan’s daytime population almost doubled every day as suburban commuters poured into the city for jobs at office buildings and shops. But because most non-essential workers now are working from home, the streets of Midtown and its enormous office buildings feel like ghost towns. If working from home becomes permanent -- which seems probable until there is a cure for Covid-19 or an effective vaccine -- those vacant office towers will become problematic for the city's tax base. It may also mean that residents who chose to live in the city just to be close to their jobs decide to move to less crowded and potentially safer places. Whereas cities were once dominated by factories and blue-collar workers, their economies and tax bases have become increasingly dependent on drawing in highly paid professionals and tourists. Although the pandemic-induced lull might be temporary, it's a good reminder of how cities can neglect the needs of their dwindling but longtime working-class residents who rely on city services like public schools.

Other regions, mainly states in the fast-growing Sun Belt, have employed their own version of this import model for decades. Lacking the skilled workforces and industrial base of cities in the Northeast and Midwest, they have dangled cheap land and low taxes to bring in talent and business from elsewhere. Historically, it's been cheaper and easier to attract jobs and skilled workers from outside rather than to develop them organically. And while this template is still working reasonably well in places like parts of Texas, increasingly the costs are becoming tangible in the form of inadequate infrastructure and high inequality between long-time lower-income residents and higher-paid transplants. What's needed here is a pivot from that import model to one that invests more in local infrastructure and services, with the higher tax base to pay for it. The catch is it's hard politically and culturally to leave that the old model that once worked so well behind.

Maybe over time that international student pipeline comes back, urban office buildings fill up again and parts of that old Sunbelt growth model can paper over some of the problems that are now out in the open. But we should take advantage of this crisis to acknowledge these shortcomings and address them as the nation strives to build more resilient and inclusive institutions and communities than before.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He has been a contributor to the Atlantic and Business Insider.

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