Earlier this month, Americans woke up to the bad news that their education system was just "average" in the developed world. Worse news, however, was that Shanghai, China took the top spot. For a country already in a declinist mood, this was a blow. Perhaps not even U.S. President Barack Obama thought the future would arrive so quickly: As he told a group of educators at the White House earlier this year, the "nation that out-educates us today is going to out-compete us tomorrow."
America is rightfully worried about its sinking competitiveness, and does indeed need to improve its education system. But it could win the battle and lose the war, because India's and China's successes aren't due to their education systems, but despite them. You've probably heard of Indian outsourcing hotspots like Bangalore and Chennai, but it's not just call centers and software sweatshops Americans now need to worry about: Technology entrepreneurship is booming all over in China and India, and is beginning to innovate; these startups will soon start competing with Silicon Valley. The next Google could well be cooked up in a garage in Guangzhou or Ahmedabad.
Indian and Chinese children are very much like their counterparts in the United States -- intelligent, open-minded, and motivated to change the world. They receive poor education on average, but many are able to rise above that. And the United States is giving an unintended boost to these countries by sending away highly educated skilled foreign workers.
India and China now graduate three to six times more engineers than does the United States. The quality of these engineers is, however, so poor that most are not fit to join the workforce; their system of rote learning handicaps those who do get jobs, so that it takes two to three years for them to achieve the same productivity as American graduates. As a result, significant proportions of China's engineering graduates end up working on factory floors; Indian industry has to spend large sums of money on retraining its employees, as my research team at Duke and Harvard learned.
Despite this, India has built a $73 billion-per-year information technology service business and has been offering IT services of steadily increasing sophistication. Its engineering R&D industry is now a $10 billion business -- a three-fold increase in four years. It develops sophisticated products for Western firms in the aerospace and automotive industries, and in telecommunications, semiconductors, consumer electronics, and medical devices. And most significantly, there are thousands of new startups that are building web technologies, clean-tech products like low-power lighting, and mobile applications.
China has built world-class universities and state-of-the-art research facilities. The numbers of papers its faculty members publish and patents its researchers file are increasing dramatically. But these numbers are deceptive, as the patents and papers are largely plagiarized or irrelevant. There is also practically no innovation coming from the state enterprises that dominate industry. The big change that has occurred in China, however, is the emergence of technology startups: thousands of them, just as in India.
The first generations of Indian startups focused on selling IT services, and the Chinese developed copycat web technologies such as Baidu, China's Google rival, and Sina, its Twitter clone. But they are going beyond that now. They are gaining the knowledge -- and developing the confidence -- to create innovative products, not only for domestic markets, but also for global ones.