Marginal Revolution: One of America’s biggest “export” industries is declining

It’s good to see that economists are finally considering the gravity of some of the ways that America has dealt with terrorism. A 28% decline in international student applications to U.S. may not seem very important in the short run, as long as university cash flows aren’t affected, but in the long run, this has dramatic ramifications.

Diplomacy is not just what the State Department does. In fact, the State Department, for all its self-importance, has little to do with winning over the hearts and minds of the rest of the world. Winning the War on Terrorism requires demonstrating to the world that America’s role is both benevolent and inevitable (unlike many a liberal, I believe it is both, and I reject the claims of any Republican who believes that I would “blame America first”). But frankly, I would no sooner call myself an expert on Islamic culture without having been to the Middle East than I’d expect them to be experts on American culture. Educating international students is a key part of promoting international understanding and improving cooperation, and that can only help us.

Moreover, we are shooting our economy in the foot. *puts on economist hat and talks in big words* The Republicans believe in free trade, generally speaking (as do I). But we are a country with heavy regulation and high labor costs. In the long run we will and must be a service-based economy, and in order to balance our payments we will have to export as many services as we import manufactured goods. Education has long been one of our strongest service exports. We have the best higher education system in the world, giving us a huge comparitive advantage, that unlike most other industries, is difficult for developing economies to emulate. (can you say tech support from Bangalore?) *takes off economist hat and tries to look normal again*

Simply put, as long as the “trade” in education is free, no one can leapfrog our higher education system and take our place. This is one of the few places left where we have that guarantee, and we can’t squander it.

But immigration laws and perceptions of America are imposing costs on that trade. International students that don’t go to the U.S. will go somewhere else, and in the long run those countries (England, the E.U., Australia, and others) will take our place. And the impact of professional education doesn’t end when a student gets her degree. I promise, an executive trained in Germany about German markets in German will do Germany a lot more good over the course of her career than she will the U.S. If we want to remain the world’s premier economic power, we cannot let other countries replace our educational system.

“Respected abroad” is a terrible campaign slogan for John Kerry. I’ll be the first to admit it. But that doesn’t mean that it isn’t important. It’s time we recognize that isolation cannot cure terrorism, and that the Bush doctrine of preemptive unilateralism is essentially isolation. It’s also time that we understand that free trade means the mobility of people as well as goods, and that keeping students out of the country will seriously damage our economy in the long run.

Maybe I should give up on the U.S. and just go back to Cambridge for grad school.

Posted on September 9th, 2004 by Lee
Tagged: Economics, Politics