Sunday on GPS, I interviewed Ruchir Sharma, author of the terrific new book Breakout Nations: In Pursuit of the Next Economic Miracles. The following is a web-extra portion of our interview where Sharma lays out three reasons he's still confident in America's growth. Here's the transcript:
Fareed Zakaria: You don't deal with America, but you're also saying that in this new landscape, you're pretty comfortable with the United States?
Ruchir Sharma: Yes. I think that the U.S., as I talk about here, has three things going for it.
One, I think, is the exchange rate, that a dollar today, when adjusted for all inflation against its trade-weighted partners, is the most competitive that it's ever been in history.
Fareed Zakaria: Which means American manufacturers and exporters have a huge advantage, because their goods will be cheaper?
Ruchir Sharma: Yes. It's very cheap. We are seeing some signs of a manufacturing renaissance where jobs are coming back to America. It's a slow process. It's slow healing. It takes a while. But that's happening. So that's one very positive factor.
Two is that the wage growth differential is closing, if it hasn't closed. Americans' wages are much higher, but it's closing.
Fareed Zakaria: Because the Chinese wages are going up. Indian wages are going up. Brazilian wages are going up?
Ruchir Sharma: Yes. So if Chinese wages are compounding at 15 percent a year and American wages are - are total cost of compounding at a measly, you know, 2, 3, 4 percent, you know, that obviously leads to a lot of sort of tension at home.
But eventually, there's an equilibrium process which works. The jobs start coming back and that sort of pushes it up.
And the third factor, I think, is technology. And this is where I find that emerging markets and why many emerging markets remain only emerging, which is that the lead that America has in technology is just getting bigger and even more significant, because the world of technology has moved much more toward software and that's where America's competitive advantage lies. And even today, America spends more than one third of global R&D. It is in America.
So America makes like all the big innovative products. And the factories are in Asia, which obviously sort of leads to this distortion as far as the jobs picture is concerned. But it's something which is really a competitive point about America.
I think these three factors and technology is also helping the oil industry, as well, the whole energy complex, in terms of what's happening there in shale gas and other sort of oil resources.
So this is a big change which I think is going on.