The U.S. Is Still Beating China in Human Capital—For Now

There’s one thing U.S. President Joe Biden and Chinese President Xi Jinping agree on. As Biden said in July, “as we compete for the future of the 21st century with China and other nations, we have to stay on top of the cutting-edge developments of science and technology.” Xi voiced similar sentiments to a group of scientists and engineers in May: “Scientific and technological innovation has become the main battlefield of the international strategic game, and the competition around the commanding heights of science and technology is unprecedentedly fierce.”

Yet the focus on technology in the U.S.-China conflict has often obscured a crucial nuance: Technological strength is the product of national capacity for innovation, and at its core, innovation is powered by high-skilled individuals. Without a domestic ecosystem of entrepreneurs, scientists, and engineers, no amount of public investment or industrial policy will yield the technological breakthroughs needed to boost productivity or fight and win the wars of the future. In other words, as Remco Zwetsloot, a Center for Strategic and International Studies U.S. workforce expert, argues in a new study, “technology competition is talent competition.”

China’s most obvious advantage in this struggle is the sheer size of its population. This gives the country an absolute advantage in the talent pool it can draw from, with Chinese universities expected to graduate nearly twice the number of STEM doctorates as the United States by 2025. The rapidly rising quantity and quality of STEM graduates in China provides a significant tailwind to the country’s efforts to elevate the global competitiveness of its workforce. Beijing then steers state subsidies in the direction of this talent to concentrate resources on the development of cutting-edge technologies, such as semiconductors, robotics, 5G telecommunications, and biotechnology.

These efforts are supported by Xi, who has made boosting China’s human capital pipeline a priority over the past several years in service of his overall agenda of building a “modern socialist nation” by 2035. As he argued in a speech earlier this year, “the competition of today’s world is a competition of human talent and education.” At a special two-day meeting in late September that all of the eight highest-ranking Chinese Communist Party officials attended, Xi called for the development of a strategy to transform China into a “major world center of professional talent and innovation.”

But these advantages exist alongside significant headwinds. First, China is already well into a pronounced demographic slowdown, one that will act as a structural drag on the economy for decades to come. According to a recent study published in the Lancet, China’s population will decline by nearly 50 percent by mid-century. Recent efforts by the Chinese government to arrest this decline will do little to bend the population growth curve.

Second, by virtue of restrictive immigration policies and a relative lack of appeal, immigrants make up far less than 1 percent of China’s total population, in comparison to 14 percent in the United States. Of course, the staggering size of China’s population might well obviate the need for a more robust immigration program, but in the technological fields where China is attempting to achieve dominance, even small numbers of high-skilled immigrants can make a sizable difference.

Finally, and most importantly, China’s rural areas are experiencing a “human capital crisis,” in the words of Stanford University’s Scott Rozelle and Natalie Hell. Despite its impressive strides in producing STEM graduates, education levels in the countryside are among the lowest for middle-income countries. Although nearly 80 percent of Organisation for Economic Cooperation and Development member populations between the ages of 25 and 65 have attended high school, this number is just 30 percent in China—though it is somewhat higher among the young. According to research by Rozelle, chronic malnourishment in rural areas left more than 50 percent of eighth grade students in poorer areas with lower IQs than their urban counterparts. Because much of China’s future workforce will come from the countryside, transitioning this relatively low-skilled labor pool into staff for the industries of the future is a major challenge.

The United States, on the other hand, is uniquely positioned to win a competition over human talent if plays to its strengths and gets serious about further reforms and investments. To be sure though, the speed of China’s strides in this talent competition makes it imperative that the United States gets serious about fully realizing its potential.

To begin with, the United States’ greatest asset is its openness, which has positioned it as a magnet for the best ideas and brightest minds from around the world. Leading U.S. companies, such as Google, Intel, AT&T, Pfizer, and Tesla were launched by immigrants. Indeed, one recent study found nearly half of all Fortune 500 companies were founded by first- or second-generation immigrants. More than one-third of all Nobel Prizes won by Americans since 1901 have gone to immigrants or foreign nationals studying or working at U.S. universities. Immigration is a critical edge not only for the economy but also for building advantages in critical technologies, such as artificial intelligence (AI). According to research by the Paulson Institute, “more than two-thirds of the top-tier AI researchers working in the United States having received undergraduate degrees in other countries.”

Welcoming foreign talent is just one part of the United States’ equation for success. The country’s deep and liquid capital markets, transparent legal system, strong intellectual property protections, and flexible labor laws create a conducive environment for individuals to take risks and scale ideas into multinational companies. In the annual Global Innovation Index conducted by the World Intellectual Property Organization, the United States came in third—behind only Switzerland and Sweden—while China ranked twelfth. The United States controls 30 percent of global wealth and 35 percent of world innovation, despite having less than 5 percent of the world’s population. As Tufts University political scientist Michael Beckley observes, the United States also “is home to nearly 600 of the world’s 2,000 most profitable companies, and 50 of the top 100 universities globally.”

Yet to sustain this innovation edge, the United States will need to do much more than rest on its laurels if it wants to summon the national will to create technologies of the future. As the final report of the National Security Commission on Artificial Intelligence concluded, “the United States risks losing the global competition for scarce AI expertise if it does not cultivate more potential talent at home and recruit and retain more existing talent from abroad.” The recent trend of falling international enrollments and greater outflows of foreign-born talent from the United States should thus serve as a warning light. In addition to making concerted efforts to demonstrate that the United States continues to welcome foreign-born talent, Washington also needs to urgently remove backlogs for green card applications and advance immigration reform.

It will also need to invest in the underlying infrastructure for upgrading the United States’ existing base of human talent. Such an effort would require deliberate planning and policy execution. Issues that long have been viewed as unrelated to the United States’ global standing (such as health and nutrition, workforce training, early childhood education, access to higher education, equitable access to start-up capital, government support for basic science research and development, and modern and durable infrastructure) must be seen as critical components of national power, sitting right alongside investments in hard military capabilities.

Thus, if we shift the lens on U.S.-China competition to one underpinned by a race to attract and cultivate talent, every law-abiding foreign-born STEM student denied a visa blunts the United States’ future technological edge, while every child who goes to school hungry reflects not just a moral tragedy but a long-term national security one as well.

Through their words and actions, China’s leaders already have set a national focus on developing and attracting top talent, which they view as critical to Beijing’s global competitiveness in the 21st century. The United States enters this race in a strong competitive position. Will it take the necessary steps to ensure its lead?