A: Well, I did that in part to get people's attention. Somehow, if you don't characterize it in terms that are fairly broad-brushed, somehow people don't see the process that is going on. Nonetheless, I think there is a lot to be said for this, especially for this period of time. There are going to be a series of nations which are going to be, essentially, producing nations, like China. That doesn't mean that they won't eventually develop a head of their own, just like South Korea and Japan did. But I think, for the short term, they are going to be mainly producing things that other people tell them to produce on the basis of marketing strategy and financing strategies that have been devised by other people. So it is going to be a while before they get into high-level services.

People don't realize how important all this is as a part of the gross national product and foreign trade. If you look at the British in the 19th century, the last year in which the British had a surplus in merchandise that was visible trade was 1822. All the rest of the century, right up until 1913, they had a continuing surplus on current account, but it was made up because of a surplus in international services that compensated for their deficits in visible trade. I think this is a direction the United States has to think more and more about going in. Not that we should give up our exports. Of course, those are terribly important. And some of these are even exports of products from the land and are very important to us. But nonetheless, I think we have to think more and more in terms of exporting high-level services. That is why opening up the world economy to things like telephonic transmission, data transmission of all kinds, the information technology revolution -- this is where, in the long term, we are going to earn our surpluses. We are already earning surpluses on services even though we have an overall imbalance on current account. But the services part, the non-physical part of our exports, are definitely in the plus category. And I think they are going to continue in that way.

Q: You mentioned Hong Kong as the archetype of the new virtual state. You suggest that, whereas Great Britain may have been the model for the 19th century, Hong Kong will be the model for the 21st.

A: Well, Hong Kong for years did make textiles and toys and clocks and other things it exported. But then, as its labor costs rose, and as it got more into finance, it began to recognize that it was quite inefficient for it to use its relatively high-wage labor at home to produce these things. So it began to decentralize its production into Dongnan province in China. And now, a great deal of the production in Dongnan province is really owned by Hong Kong or worked out in terms of arrangements with Hong Kong. When I was there in December, they told me it was very interesting because now that wages in Dongnan province were going up, they were shifting their production apparatus further inland, further upstream where wages were lower, which I think is a continuation of the same policy as before. Hong Kong is still designing the products and still saying where those products should be produced. And Hong Kong is still financing them and creating the marketing strategies.

Q: You say a well-trained labor force is the essential resource for the virtual state. This naturally leads to education, which you have argued has been tremendously undervalued in America, socially and economically.

A: It's funny, because normally the assumptions are that anything which is valuable will be priced at the level of the social contribution that it makes.

Blake Harris  |  Editor