Breedlove liked the idea of moving to a more rural community with less pollution, a shorter commute, and safer schools. Menlo Park, like many urban areas at the time, did not seem to be heading in the right direction. In the end, Breedlove quit his job, sold the Silicon Valley house, packed, and moved the family to Visalia. He was not the only one. Many well-educated professionals at the time were leaving cities and moving to smaller communities because they thought those communities were better places to raise families. But things did not turn out exactly as they expected.

In 1969, both Menlo Park and Visalia had a mix of residents with a wide range of income levels. Visalia was predominantly a farming community with a large population of laborers but also a sizable number of professional, middle-class families. Menlo Park had a largely middle-class population but also a significant number of working-class and low-income households. The two cities were not identical—the typical resident of Menlo Park was somewhat better educated than the typical resident of Visalia and earned a slightly higher salary—but the differences were relatively small. In the late 1960s, the two cities had schools of comparable quality and similar crime rates, although Menlo Park had a slightly higher incidence of violent crime, especially aggravated assault. The natural surroundings in both places were attractive. While Menlo Park was close to the Pacific Ocean beaches, Visalia was near the Sierra Nevada range and Sequoia and Kings Canyon National Parks.

Today the two places could not be more different, but not in the way David Breedlove envisioned. The Silicon Valley region has grown into the most important innovation hub in the world. Jobs abound, and the average salary of its residents is the second highest in America. Its crime rate is low, its school districts are among the best in the state, and the air quality is excellent. Fully half of its residents have a college degree, and many have a PhD, making it the fifth best educated urban area in the nation. Menlo Park keeps attracting small and large high-tech employers, including most recently the new Facebook headquarters.

By contrast, Visalia has the second lowest percentage of college-educated workers in the country, almost no residents with a postgraduate degree, and one of the lowest average salaries in America. It is the only major city in the Central Valley that does not have a four-year college. Its crime rate is high, and its schools, structurally unable to cope with the vast number of non-English-speaking students, are among the worst in California. Visalia also consistently ranks among American cities with the worst pollution, especially in the summer, when the heat, traffic, and fumes from farm machines create the third highest level of ozone in the nation.

Not only are the two communities different, but they are growing more and more different every year. For the past thirty years, Silicon Valley has been a magnet for good jobs and skilled workers from all over the world. The percentage of college graduates has increased by two-thirds, the second largest gain among American metropolitan areas. By contrast, few high-paying jobs have been created in Visalia, and the percentage of local workers with a college degree has barely changed in thirty years—one of the worst performances in the country.

For someone like David Breedlove, a highly educated professional with solid career options, choosing Visalia over Menlo Park was a perfectly reasonable decision in 1969. Today it would be almost unthinkable. Although only 200 miles separate these two cities, they might as well be on two different planets.

The divergence of Menlo Park and Visalia is not an isolated case. It reflects a broader national trend. America’s new economic map shows growing differences, not just between people but between communities. A handful of cities with the “right” industries and a solid base of human capital keep attracting good employers and offering high wages, while those at the other extreme, cities with the “wrong” industries and a limited human capital base, are stuck with dead-end jobs and low average wages. This divide—I will call it the Great Divergence—has its origins in the 1980s, when American cities started to be increasingly defined by their residents’ levels of education. Cities with many college-educated workers started attracting even more, and cities with a less educated workforce started losing ground. While in 1969 Visalia did have a small professional middle class, today its residents, especially those who moved there recently, are overwhelmingly unskilled. Menlo Park had many low-income families in 1969, but today most of its new residents have a college degree or a master’s degree and a middle- to upper-class income. Geographically, American workers are increasingly sorting along educational lines. At the same time that American communities are desegregating racially, they are becoming more segregated in terms of schooling and earnings.

Certainly any country has communities with more or less educated residents. But today the difference among communities in the United States is bigger than it has been in a century. The divergence in educational levels is causing an equally large divergence in labor productivity and therefore salaries. Workers in cities at the top of the list make about two to three times more than identical workers in cities at the bottom, and the gap keeps growing.

Cities with a high percentage of skilled workers offer high wages not just because they have many college-educated residents and these residents earn high wages. This would be interesting but hardly surprising. But something deeper is going on. A worker’s education has an effect not just on his own salary but on the entire community around him. The presence of many college-educated residents changes the local economy in profound ways, affecting both the kinds of jobs available and the productivity of every worker who lives there, including the less skilled. This results in high wages not just for skilled workers but for most workers.

I consider the Great Divergence to be one of the most important developments in the United States over the past thirty years. The growing economic divide between American communities is not an accident but the inevitable result of deep-seated economic forces. More than traditional industries, the knowledge economy has an inherent tendency toward geographical agglomeration. In this context, initial advantages matter, and the future depends heavily on the past. The success of a city fosters more success, as communities that can attract skilled workers and good jobs tend to attract even more. Communities that fail to attract skilled workers lose further ground.

The growing divergence of American communities is important not just in itself but because of what it means for American society. While the divide is first and foremost economic, it is now beginning to affect cultural identity, health, family stability, and even politics. The sorting of highly educated Americans into some communities and less educated American into others tends to magnify and exacerbate all other socioeconomic differences. For example, there are vast differences in life expectancy among inhabitants of American cities, and these differences have been expanding for the past three decades. The divorce rates, crime rates, and political clout of different communities have also been diverging. These trends are reshaping the very fabric of our society.

The United States is not in particularly high spirits these days. Fear of economic decline is widespread, and insecurity about America’s standing in the world and its economic future is growing. Talk of the “death of the American dream” is everywhere, from well-articulated op-ed pieces to crude talk radio shows, from casual barbershop conversations to highbrow academic symposia. In a nation sharply divided along political lines, concern about the economy is shared almost equally by those on the left and on the right.

On the surface it seems we have good reason to be worried. Middle-class salaries are declining. Good jobs are scarce. Take the typical forty-year-old male worker with a high school education: today his hourly wage is 8 percent lower than his father’s was in 1980, adjusted for inflation. This means that for the first time in recent American history, the average worker has not experienced an improvement in standard of living compared to the previous generation. In fact he is worse off by almost every measure. On top of this, income inequality is widening. Uncertainty about the future is now endemic.

But the economic picture is more complex, more interesting, and more surprising than the current debate suggests. America’s labor market is undergoing a momentous shift. While some sectors and occupations are dying, others are growing stronger, and still others, just born, promise to alter the landscape dramatically. Most of all, the geography of jobs is changing in profound and irreversible ways. While these trends are national, even global, in scope, their effects are profoundly different in different cities and regions of the country. For example, the effects of globalization, technological progress, and immigration on American workers are not uniform across the United States. They favor the residents of some cities and hurt the residents of others. As old manufacturing capitals disappear, new innovation hubs are rising and are poised to become the new engines of prosperity. An unprecedented redistribution of jobs, population, and wealth is under way in America, and it’s likely to accelerate in the decades to come.

Some of the changes in the economic map reflect long-run forces that are outside our control. Others can be shaped and managed. But none of them are random, chaotic, or unpredictable. In the end, they all reflect clear and rather basic economic principles. Unfortunately, they tend to be obscured by the flood of data on the fluctuations of the stock market or the latest employment numbers. The focus on short-term events often results in information that is incomplete, irrelevant, or both. What happened today, this week, or even this month is not very illuminating, because the fundamentals of an economy evolve at a much slower pace.

But if we take a step back and look at the big picture, the forces that have been driving these changes reveal themselves very clearly. They are far more fascinating and much more important than the daily movements of the Dow Jones. This book examines the long-term trends that really matter to our lives—the vast changes that have taken place in the American labor market over the past three decades and the economic forces underlying these changes. But it also looks forward, seeking to provide insight into the trends that will shape our economy over the next three decades.

Economists like to distinguish cyclical change, the ups and downs of the economy driven by the endless cycle of recessions and expansions, from secular change, the long-run developments that are driven by deep-seated but slower-moving economic dynamics. Most of the current public debate on the economy—in the media, in Congress, in the White House—focuses on the former. The time horizon in this debate is six months or a year at most: How do we end the recession? What should be in this year’s budget? How will unemployment affect the next election? In this book, the focus is almost entirely on the forces that drive long-run trends. Understanding why these changes are taking place, where they are occurring, and how they are affecting individual Americans is crucial. Our jobs, our communities, and our economic destiny are at stake.

The changes taking place in the United States can be seen around the globe. New economic powerhouses are displacing old ones. What used to be tiny, barely visible dots on the map have turned into thriving megalopolises with thousands of new companies and millions of new jobs. Nowhere are these changes more obvious than in the Chinese city of Shenzhen. If you have not heard of it, you will. It is one of the fastest-growing cities in the world. In just three decades it has gone from being a small fishing village to being a huge metropolis with more than 10 million residents. In the United States, a fast-growing city like Las Vegas or Phoenix may triple or quadruple in size over a thirty-year period. Shenzhen’s population has grown by more than 300 times in the same period. In the process, Shenzhen has become one of the manufacturing capitals of the world.

Shenzhen’s rise is truly remarkable because it parallels almost perfectly the decline of U.S. manufacturing centers. Thirty years ago Shenzhen was an unremarkable small town that no one outside of southern Guangdong Province had even heard of. Its fate—as well as the fate of millions of American manufacturing workers —was sealed in 1979, when the Chinese leadership singled it out to be the first of China’s “Special Economic Zones.” These zones quickly became a magnet for foreign investment. In turn, that flow of investment led to thousands of new factories. These factories are where many American manufacturing jobs have gone.

As Detroit and Cleveland have declined, Shenzhen has grown. Massive production facilities of all kinds carpet the region. Every year the skyline adds new high-rise offices and apartments, and its workforce swells as more and more farmers leave rural areas to look for better-paying jobs in its cavernous factories. The Chinese call it the city with “one high-rise a day and one boulevard every three days.” As you walk along its wide streets, you feel the city’s energy and optimism. Shenzhen has been China’s top exporter for the past two decades and has built one of the world’s busiest ports, a sprawling facility dotted with huge cranes, enormous trucks, and containers of all colors. Twenty-four hours a day, seven days a week, 365 days a year, these containers are loaded onto enormous cargo ships bound for the West Coast of the United States. Twenty-five million of these containers leave the port each year, almost one per second. In less than two weeks that merchandise will be on a truck headed for a Walmart distribution center, an IKEA warehouse, or an Apple store.

Shenzhen is where the iPhone is assembled. If there is a poster child of globalization, it is the iPhone. Apple has given as much attention to designing and optimizing its supply chain as to the design of the phone itself. The process by which the iPhone is produced illustrates how the new global economy is reshaping the location of jobs and presenting new challenges for American workers.

Apple engineers in Cupertino, California, conceived and designed the iPhone. This is the only phase of the production process that takes place entirely in the United States. It involves product design, software development, product management, marketing, and other high-value functions. At this stage, labor costs are not the main consideration. Rather, the important elements are creativity and ingenuity. The iPhone’s electronic parts—sophisticated, but not as innovative as its design—are made mostly in Singapore and Taiwan. Only a few components are made in the United States. The last phase of production is the most labor-intensive: workers assemble the hardware and prepare it for shipping. This part, where the key factor is labor costs, takes place on the outskirts of Shenzhen. The facility is one of the largest in the world, and its sheer size is extraordinary: with 400,000 workers, dormitories, stores, and even cinemas, it is more like a city within a city than a factory. If you buy an iPhone online, it is shipped directly to you from Shenzhen. Incredibly, when it reaches the American consumer, only one American worker has physically touched the final product: the UPS delivery guy.

At a superficial level, the story of the iPhone is troubling. Here you have an iconic American product that has captivated consumers everywhere, but American workers are involved only in the initial innovation phase. The rest of the process, including the making of the sophisticated electronic components, has been moved overseas. It is therefore natural to wonder what might be left to American workers in the decades to come. Is America entering a phase of irreversible decline?

Over the past half century, the United States has shifted from an economy centered on producing physical goods to one centered on innovation and knowledge. Jobs in the innovation sector have been growing disproportionately fast. The key ingredient in these jobs is human capital, which consists of people’s skills and ingenuity. In other words, humans are the essential input—they are coming up with the new ideas. The same two forces that have decimated traditional manufacturing, globalization and technological progress, are now driving the rise of jobs in the innovation sector. The Great Recession has temporarily halted this growth, but the long-term trend points upward.

Globalization and technological progress have turned many physical goods into cheap commodities but have raised the economic return on human capital and innovation. For the first time in history, the factor that is scarce is not physical capital but creativity. Not surprisingly, innovators capture the largest share of the value of new products. The iPhone is made of 634 components. The value created in Shenzhen is very low, because assembly can be done anywhere in the world. Even sophisticated electronic parts, like flash memories and retina displays, create limited value, because of strong global competition. The majority of the iPhone’s value comes from the original idea, its unique engineering, and its beautiful industrial design. Essentially this is why Apple receives $321 for each iPhone—much more than any part supplier involved in physical production. This matters tremendously, not just for Apple’s profit margin and for our sense of national pride, but because it means good jobs.

The innovation sector includes advanced manufacturing (such as designing iPhones or iPads), information technology, life sciences, medical devices, robotics, new materials, and nanotechnology. But innovation is not limited to high technology. Any job that generates new ideas and new products qualifies. There are entertainment innovators, environmental innovators, even financial innovators. What they all have in common is that they create things the world has never seen before. We tend to think of innovations as physical goods, but they can also be services—for example, new ways of reaching consumers or new ways of spending our free time. Today this is where the real money is. A part of the $321 that Apple receives ends up in the pockets of Apple’s stockholders, but some of it goes to Apple’s employees in Cupertino. And because of the company’s great profitability, it has the incentive to keep innovating and to keep hiring workers. Studies show that the more innovative a company is, the better paid its employees are.

You might think that the rise of innovation is pretty exciting if you work for, say, Google or a biotech company but that it doesn’t matter all that much if you’re a teacher or a doctor or a police officer. After all, the majority of Americans will never work for a high-tech startup. Why should they care about the rise of innovation? As it turns out, however, innovation matters not only for the well-educated workers who are directly employed by high-tech firms—the scientists, engineers, and creators of new ideas—but for most American workers.

If you take a walk in one of America’s cities, most of the people you see on the street will be store clerks and hairstylists, lawyers and waiters, not innovators. About a third of Americans work either for the government or in the education and health services sectors, which include teachers, doctors, and nurses. Another quarter are in retail, leisure, and hospitality, which includes people working in stores, restaurants, movie theaters, and hotels. An additional 14 percent are employed in professional and business services, which include employees of law, architecture, and management firms. In total, two-thirds of American jobs are in the local service sector, and that number has been quietly growing for the past fifty years. Most industrialized nations have a similar percentage of local service jobs. The goods and services in this sector are locally produced and locally consumed and therefore do not face global competition. Although jobs in local services constitute the vast majority of jobs, they are the effect, not the cause, of economic growth. One reason is that productivity in local services tends not to change much over time. It takes the same amount of labor to cut your hair, wait on a table, drive a bus, or teach math as it did fifty years ago. By contrast, productivity in the innovation sector increases steadily every year, thanks to technological progress. In the long run, a society cannot experience salary growth without significant productivity growth. Fifty years ago, manufacturing was the driver of this growth, the one sector responsible for raising the wages of American workers, including local service workers. Today the innovation sector is the driver. Thus, what happens to the innovation sector determines the salary of many Americans, whether they work in innovation or not.

A second reason that the rise of innovation matters to all of us has to do with the almost magical economics of job creation. Innovative industries bring “good jobs” and high salaries to the communities where they cluster, and their impact on the local economy is much deeper than their direct effect. Attracting a scientist or a software engineer to a city triggers a multiplier effect, increasing employment and salaries for those who provide local services. In essence, from the point of view of a city, a high-tech job is more than a job. Indeed, my research shows that for each new high-tech job in a city, five additional jobs are ultimately created outside of the high-tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones (waiters, hairdressers, carpenters). For each new software designer hired at Twitter in San Francisco, there are five new job openings for baristas, personal trainers, doctors, and taxi drivers in the community. While innovation will never be responsible for the majority of jobs in the United States, it has a disproportionate effect on the economy of American communities. Most sectors have a multiplier effect, but the innovation sector has the largest multiplier of all: about three times larger than that of manufacturing.

Excerpted from The New Geography of Jobs, by Enrico Moretti. Copyright © 2012 by Enrico Moretti. Reprinted by permission of Houghton Mifflin Harcourt Publishing Co. All rights reserved.

Chinese automakers must overcome this credibility problem as they ramp up exports and build new assembly plants in Africa, in an attempt to maintain growth despite sluggish car sales back home.

Call it the “fong kong” curse — a slang term in South Africa for cheap made-in-China products that fall apart soon after purchase. Zimbabweans similarly call low-quality Chinese products “zhing zhong.”

While China’s auto industry is the world’s biggest, new vehicle sales in the Middle Kingdom have slumped due to the country’s cooling economy, and manufacturers are making a push overseas, according to a 2012 report by the international consultants KPMG.

Africa, along with Latin America and Southeast Asia, are seen as key markets with long-term growth potential.

Companies like Geely, Chery and Great Wall are betting that their low-cost cars will be a hit with a growing class of African consumers in countries including Kenya, South Africa, Nigeria and Ethiopia. In the last year there has been a rash of announcements about new African assembly plants for Chinese cars and trucks, as manufacturers look for ways to keep prices low.

In March, Chinese automaker Foton Motor group opened an assembly plant in Nairobi, aimed at boosting sales of its pickup trucks and light vehicles in East Africa.

The assembly plant will keep Foton prices low because it means the company will avoid paying a 25 percent duty on fully built imported units.

At the plant opening, Kenyan Prime Minister Raila Odinga urged manufacturers to produce cheaper cars to enable more Kenyans to afford new vehicles, Chinese state media reported.

In South Africa, China’s First Automobile Works (FAW) is investing $25 million to build a light truck and passenger car plant in an industrial development zone near the southern coastal city of Port Elizabeth. Construction began in February on the plant, which is jointly financed by the China-Africa Development Fund.

New vehicle sales in China slowed to a growth rate of just 2.5 percent in 2011, after hitting growth rates above 30 percent in the two previous years, due to factors including the removal of government incentives and limits on new car purchases.

Exports, on the other hand, soared by nearly 50 percent to a record 849,900 vehicles in 2011, according to the China Chamber of Commerce for the Import and Export of Machinery and Electronic Products.

The global appeal of Chinese cars is the rock-bottom price — ranging between $6,000 and $15,000. But a reputation for poor quality remains a major sticking point.

“Africa” magazine, a Chinese state-run monthly, described the “constant contact and frictions” experienced by automaker Gonow in exporting cars to Africa.

Early shipments of cars were beset by problems: cooling components in engines didn’t work in the hot African climate, and strips of rubber trim fell off car bodies after being exposed to salty air during the journey across the ocean.

“A client took some pictures and sent them to Gonow, asking if the company was selling them used cars,” said the report, which noted that the automaker has grown stronger from its experiences in Africa.

Chinese carmakers also fall short in after-sales care. Customers in Africa complain of a lack of available spare parts.

Andrew Thomson, co-head of automotive for KPMG China, said that in a recent global survey of auto executives, a “striking” 74 percent said that excellence in customer service is the key to successful car retailing, adding: “This is an area where there is some room for development in China.”

From the Atlantic to the Pacific, Argentina to the Philippines, here are the six areas of conflict — all tied to energy supplies — that have made news in just the first few months of 2012:

* A brewing war between Sudan and South Sudan: On April 10th, forces from the newly independent state of South Sudan occupied the oil center of Heglig, a town granted to Sudan as part of a peace settlement that allowed the southerners to secede in 2011.  The northerners, based in Khartoum, then mobilized their own forces and drove the South Sudanese out of Heglig.  Fighting has since erupted all along the contested border between the two countries, accompanied by air strikes on towns in South Sudan.  Although the fighting has not yet reached the level of a full-scale war, international efforts to negotiate a cease-fire and a peaceful resolution to the dispute have yet to meet with success.

This conflict is being fueled by many factors, including economic disparities between the two Sudans and an abiding animosity between the southerners (who are mostly black Africans and Christians or animists) and the northerners (mostly Arabs and Muslims).  But oil — and the revenues produced by oil — remains at the heart of the matter.  When Sudan was divided in 2011, the most prolific oil fields wound up in the south, while the only pipeline capable of transporting the south’s oil to international markets (and thus generating revenue) remained in the hands of the northerners.  They have been demanding exceptionally high “transit fees” — $32-$36 per barrel compared to the common rate of $1 per barrel — for the privilege of bringing the South’s oil to market.  When the southerners refused to accept such rates, the northerners confiscated money they had already collected from the south’s oil exports, its only significant source of funds.  In response, the southerners stopped producing oil altogether and, it appears, launched their military action against the north.  The situation remains explosive.

* Naval clash in the South China Sea: On April 7th, a Philippine naval warship, the 378-foot Gregorio del Pilar, arrived at Scarborough Shoal, a small island in the South China Sea, and detained eight Chinese fishing boats anchored there, accusing them of illegal fishing activities in Filipino sovereign waters.  China promptly sent two naval vessels of its own to the area, claiming that the Gregorio del Pilar was harassing Chinese ships in Chinese, not Filipino waters.  The fishing boats were eventually allowed to depart without further incident and tensions have eased somewhat.  However, neither side has displayed any inclination to surrender its claim to the island, and both sides continue to deploy warships in the contested area.

As in Sudan, multiple factors are driving this clash, but energy is the dominant motive.  The South China Sea is thought to harbor large deposits of oil and natural gas, and all the countries that encircle it, including China and the Philippines, want to exploit these reserves.  Manila claims a 200-nautical mile “exclusive economic zone” stretching into the South China Sea from its western shores, an area it calls the West Philippine Sea; Filipino companies say they have found large natural gas reserves in this area and have announced plans to begin exploiting them.  Claiming the many small islands that dot the South China Sea (including Scarborough Shoal) as its own, Beijing has asserted sovereignty over the entire region, including the waters claimed by Manila; it, too, has announced plans to drill in the area.  Despite years of talks, no solution has yet been found to the dispute and further clashes are likely.

* Egypt cuts off the natural gas flow to Israel: On April 22nd, the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company informed Israeli energy officials that they were “terminating the gas and purchase agreement” under which Egypt had been supplying gas to Israel.  This followed months of demonstrations in Cairo by the youthful protestors who succeeded in deposing autocrat Hosni Mubarak and are now seeking a more independent Egyptian foreign policy — one less beholden to the United States and Israel.  It also followed scores of attacks on the pipelines carrying the gas across the Negev Desert to Israel, which the Egyptian military has seemed powerless to prevent.

Ostensibly, the decision was taken in response to a dispute over Israeli payments for Egyptian gas, but all parties involved have interpreted it as part of a drive by Egypt’s new government to demonstrate greater distance from the ousted Mubarak regime and his (U.S.-encouraged) policy of cooperation with Israel.  The Egyptian-Israeli gas link was one of the most significant outcomes of the 1979 peace treaty between the two countries, and its annulment clearly signals a period of greater discord; it may also cause energy shortages in Israel, especially during peak summer demand periods.  On a larger scale, the cutoff suggests a new inclination to use energy (or its denial) as a form of political warfare and coercion.

* Argentina seizes YPF: On April 16th, Argentina’s president, Cristina Fernández de Kirchner, announced that her government would seize a majority stake in YPF, the nation’s largest oil company.  Under President Kirchner’s plans, which she detailed on national television, the government would take a 51% controlling stake in YPF, which is now majority-owned by Spain’s largest corporation, the energy firm Repsol YPF.  The seizure of its Argentinean subsidiary is seen in Madrid (and other European capitals) as a major threat that must now be combated.  Spain’s foreign minister, José Manuel García Margallo, said that Kirchner’s move “broke the climate of cordiality and friendship that presided over relations between Spain and Argentina.”  Several days later, in what is reported to be only the first of several retaliatory steps, Spain announced that it would stop importing biofuels from Argentina, its principal supplier — a trade worth nearly $1 billion a year to the Argentineans.
As in the other conflicts, this clash is driven by many urges, including a powerful strain of nationalism stretching back to the Peronist era, along with Kirchner’s apparent desire to boost her standing in the polls.  Just as important, however, is Argentina’s urge to derive greater economic and political benefit from its energy reserves, which include the world’s third-largest deposits of shale gas.  While long-term rival Brazil is gaining immense power and prestige from the development of its offshore “pre-salt” petroleum reserves, Argentina has seen its energy production languish.  Repsol may not be to blame for this, but many Argentineans evidently believe that, with YPF under government control, it will now be possible to accelerate development of the country’s energy endowment, possibly in collaboration with a more aggressive foreign partner like BP or ExxonMobil.

* Argentina re-ignites the Falklands crisis: At an April 15th-16th Summit of the Americas in Cartagena, Colombia — the one at which U.S. Secret Service agents were caught fraternizing with prostitutes — Argentina sought fresh hemispheric condemnation of Britain’s continued occupation of the Falkland Islands (called Las Malvinas by the Argentineans).  It won strong support from every country present save (predictably) Canada and the United States.  Argentina, which says the islands are part of its sovereign territory, has been raising this issue ever since it lost a war over the Falklands in 1982, but has recently stepped up its campaign on several fronts — denouncing London in numerous international venues and preventing British cruise ships that visit the Falklands from docking in Argentinean harbors.  The British have responded by beefing up their military forces in the region and warning the Argentineans to avoid any rash moves.

When Argentina and the U.K. fought their war over the Falklands, little was at stake save national pride, the stature of the country’s respective leaders (Prime Minister Margaret Thatcher vs. an unpopular military junta), and a few sparsely populated islands.  Since then, the stakes have risen immeasurably as a result of recent seismic surveys of the waters surrounding the islands that indicated the existence of massive deposits of oil and natural gas.  Several UK-based energy firms, including Desire Petroleum and Rockhopper Exploration, have begun off-shore drilling in the area and have reported promising discoveries.  Desperate to duplicate Brazil’s success in the development of offshore oil and gas, Argentina claims the discoveries lie in its sovereign territory and that the drilling there is illegal; the British, of course, insist that it’s their territory.  No one knows how this simmering potential crisis will unfold, but a replay of the 1982 war — this time over energy — is hardly out of the question.

* U.S. forces mobilize for war with Iran: Throughout the winter and early spring, it appeared that an armed clash of some sort pitting Iran against Israel and/or the United States was almost inevitable.  Neither side seemed prepared to back down on key demands, especially on Iran’s nuclear program, and any talk of a compromise solution was deemed unrealistic.  Today, however, the risk of war has diminished somewhat — at least through this election year in the U.S. — as talks have finally gotten under way between the major powers and Iran, and as both have adopted (slightly) more accommodating stances.  In addition, U.S. officials have been tamping down war talk and figures in the Israeli military and intelligence communities have spoken out against rash military actions.  However, the Iranians continue to enrich uranium, and leaders on all sides say they are fully prepared to employ force if the peace talks fail.

For the Iranians, this means blocking the Strait of Hormuz, the narrow channel through which one-third of the world’s tradable oil passes every day.  The U.S., for its part, has insisted that it will keep the Strait open and, if necessary, eliminate Iranian nuclear capabilities.  Whether to intimidate Iran, prepare for the real thing, or possibly both, the U.S. has been building up its military capabilities in the Persian Gulf area, deploying two aircraft carrier battle groups in the neighborhood along with an assortment of air and amphibious-assault capabilities.

One can debate the extent to which Washington’s long-running feud with Iran is driven by oil, but there is no question that the current crisis bears heavily on global oil supply prospects, both through Iran’s threats to close the Strait of Hormuz in retaliation for forthcoming sanctions on Iranian oil exports, and the likelihood that any air strikes on Iranian nuclear facilities will lead to the same thing.  Either way, the U.S. military would undoubtedly assume the lead role in destroying Iranian military capabilities and restoring oil traffic through the Strait of Hormuz. This is the energy-driven crisis that just won’t go away.

How Energy Drives the World

All of these disputes have one thing in common: the conviction of ruling elites around the world that the possession of energy assets — especially oil and gas deposits — is essential to prop up national wealth, power, and prestige.

This is hardly a new phenomenon.  Early in the last century, Winston Churchill was perhaps the first prominent leader to appreciate the strategic importance of oil.  As First Lord of the Admiralty, he converted British warships from coal to oil and then persuaded the cabinet to nationalize the Anglo-Persian Oil Company, the forerunner of British Petroleum (now BP).  The pursuit of energy supplies for both industry and war-fighting played a major role in the diplomacy of the period between the World Wars, as well as in the strategic planning of the Axis powers during World War II.  It also explains America’s long-term drive to remain the dominant power in the Persian Gulf that culminated in the first Gulf War of 1990-91 and its inevitable sequel, the 2003 invasion of Iraq.

The years since World War II have seen a variety of changes in the energy industry, including a shift in many areas from private to state ownership of oil and natural gas reserves.  By and large, however, the industry has been able to deliver ever-increasing quantities of fuel to satisfy the ever-growing needs of a globalizing economy and an expanding, rapidly urbanizing world population.  So long as supplies were abundant and prices remained relatively affordable, energy consumers around the world, including most governments, were largely content with the existing system of collaboration among private and state-owned energy leviathans.

But that energy equation is changing ominously as the challenge of fueling the planet grows more difficult.  Many of the giant oil and gas fields that quenched the world’s energy thirst in years past are being depleted at a rapid pace.  The new fields being brought on line to take their place are, on average, smaller and harder to exploit.  Many of the most promising new sources of energy — like Brazil’s “pre-salt” petroleum reserves deep beneath the Atlantic Ocean, Canadian tar sands, and American shale gas — require the utilization of sophisticated and costly technologies.  Though global energy supplies are continuing to grow, they are doing so at a slower pace than in the past and are continually falling short of demand.  All this adds to the upward pressure on prices, causing anxiety among countries lacking adequate domestic reserves (and joy among those with an abundance).

The world has long been bifurcated between energy-surplus and energy-deficit states, with the former deriving enormous political and economic advantages from their privileged condition and the latter struggling mightily to escape their subordinate position.  Now, that bifurcation is looking more like a chasm.  In such a global environment, friction and conflict over oil and gas reserves — leading to energy conflicts of all sorts — is only likely to increase.

Looking, again, at April’s six energy disputes, one can see clear evidence of these underlying forces in every case.  South Sudan is desperate to sell its oil in order to acquire the income needed to kick-start its economy; Sudan, on the other hand, resents the loss of oil revenues it controlled when the nation was still united, and appears no less determined to keep as much of the South’s oil money as it can for itself.  China and the Philippines both want the right to develop oil and gas reserves in the South China Sea, and even if the deposits around Scarborough Shoal prove meager, China is unwilling to back down in any localized dispute that might undermine its claim to sovereignty over the entire region.

Egypt, although not a major energy producer, clearly seeks to employ its oil and gas supplies for maximum political and economic advantage — an approach sure to be copied by other small and mid-sized suppliers.  Israel, heavily dependent on imports for its energy, must now turn elsewhere for vital supplies or accelerate the development of disputed, newly discovered offshore gas fields, a move that could provoke fresh conflict with Lebanon, which says they lie in its own territorial waters.  And Argentina, jealous of Brazil’s growing clout, appears determined to extract greater advantage from its own energy resources, even if this means inflaming tensions with Spain and Great Britain.

And these are just some of the countries involved in significant disputes over energy.  Any clash with Iran — whatever the motivation — is bound to jeopardize the petroleum supply of every oil-importing country, sparking a major international crisis with unforeseeable consequences.  China’s determination to control its offshore hydrocarbon reserves has pushed it into conflict with other countries with offshore claims in the South China Sea, and into a similar dispute with Japan in the East China Sea.  Energy-related disputes of this sort can also be found in the Caspian Sea and in globally warming, increasingly ice-free Arctic regions.

The seeds of energy conflicts and war sprouting in so many places simultaneously suggest that we are entering a new period in which key state actors will be more inclined to employ force — or the threat of force — to gain control over valuable deposits of oil and natural gas.  In other words, we’re now on a planet heading into energy overdrive.

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Now, after nearly a month, ships from the two nations have refused to budge from the waters surrounding the shoal, while populists back home have whipped up a nationalist frenzy.

In the Philippines, the office of the president declared that it was unilaterally renaming the disputed land, “Panatag Shoal.” (Chinese call it Huangyan Island.) In China, a video went viral on Wednesday showing a TV anchor pronouncing — falsely — that the Philippines is “Chinese territory,” and that China “has unquestionable sovereignty” over the island nation. Meanwhile, a major general wrote an op-ed urging the Chinese navy to smash the Philippines “with both fists” next time, generating 174,000 responses — the majority of them supportive.

This scuffle is merely one of dozens of overlapping, contradictory claims for territory in the South China Sea, where the nations of Southeast Asia are facing off against an increasingly assertive China — and against one another.

“China certainly shares much of the blame for the current standoff. Its claims to the South China Sea, based on limited historical evidence, do not provide a significant basis to make sweeping, unilateral assertions,” says Andrew Billo of the Asia Society.

Where does the US fit into this toxic brew of jingoism, nationalism, and disputed territory? Its strategic shift to the Pacific, geopolitical rivalry with China, and alliance with the Philippines have inescapably drawn American interests to the Asian hotspot.

In early May, Secretary of State Hillary Clinton outlined America’s emerging priorities in the South China Sea: freedom of navigation, unimpeded commerce, maintenance of peace and stability, and respect for international law.

Beyond that, the sea plays an enormously valuable role as the international highway of global trade. Half of all the world’s intercontinental goods pass through the South China Sea, amounting to $1.2 trillion in trade with the US every year, according to a January report from the Center for New American Security. And its untapped energy resources are vast: 900 trillion cubic feet of natural gas, and as much as 130 billion barrels of oil are estimated to lie undiscovered beneath the seabed.

“The geostrategic significance of the South China Sea is difficult to overstate,” the authors of the CNAS report write. “The South China Sea functions as the throat of the Western Pacific and Indian Oceans.” Yet, they note, American interests in the region “are increasingly at risk” due to “the economic and military rise of China and concerns about its willingness to uphold existing legal norms.”

Taking any overt action to defend those interests would set off alarm bells in China. Last month, after Americans posted 4,500 personnel to the Philippines — coincidentally during the April standoff over Scarborough Shoal — Chinese critics blasted the US for “meddling” in regional affairs.

Since then, the US has exercised caution, refusing to take sides in the dispute, even as Manila requested support.

Complicating matters further is the difficulty of weighing the validity of the competing claims.

Since the 1940s, Chinese maps have included a “9-dash line” that encircles nearly all of the South China Sea; Beijing has yet to explain what the line means. Vietnam has meanwhile ramped up its naval power, while proceeding to sell oil rights in disputed territory to Western companies. Belatedly, the Philippines has become more forceful in asserting its exclusive rights to areas — such as Scarborough Shoal — that Chinese fisherman have visited for generations.

Even if they looked to the United Nations for resolution, the International Tribunal for the Law of the Seas has no power to settle disputes over sovereignty. And while diplomacy stalls, fishermen and civilian ships from each country are taking matters into their own hands.

“We’re now running a risk of an accident or confrontation arising from lack of clear instructions on how to behave,” says Carlyle Thayer, professor emeritus at the Australian Defence Force Academy. “The South China Sea is like a bathtub: When you put more ships in it, there’s going to be a collision.”

While efforts are underway in ASEAN, the regional association, to create a binding “Code of Conduct” on the seas, it has proved too feeble to stand up against Chinese pressure. “Some nervous nellies in ASEAN don’t want to confront China,” says Thayer.

So where does that leave the US? In the awkward position of being the final backstop against China, while simultaneously trying to maintain an appearance of neutrality. That means honoring its military commitments to the Philippines, Thayer says, while stopping short of endorsing its allies’ assertion of territorial rights.

“The US should continue backing the Philippines,” says Thayer. “That’s the weak reed, and if China breaks the Philippines, it will affect other countries’ claims.”

Other experts say that America’s main focus should be on guaranteeing the freedom of global trade routes, while leaving the mess of sorting out sovereignty to the states themselves.

“The US should take a step back from the issue,” says Billo of the Asian Society, “It has made its point with respect to its support for a key ally, and the region as a whole, but ultimately it is in the US interest to have regional stability and not allow the conflict to escalate further.”

Over email, curator Herb Tam explained the exhibition’s philosophy and themes. Click through the following slide show for a glimpse of the show’s photography.

Where did you get the idea for this exhibition, and why did you choose to put it together now?

The idea for the show came from exploring our collection and noticing how varied and idiosyncratic the photographs in our collection are. Looking at them made me think of the enthusiasm for photography that a lot of Chinese have, and how there’s a stereotype of Chinese as crass tourists constantly taking pictures of ourselves in foreign places. There’s been a growing interest in China and Chinese culture lately, and I wanted to show the Chinese perspective on the idea of America — how we actually see this country, how we picture it now that China is rising, and as America’s global position has become more precarious.

What do these photographs tell us about the Chinese-American experience?

These photos show a palpable tension between the spaces we inhabit and our own understanding of ourselves (identity) — that we’re still in the process of figuring out how we exist here as we move further and further away from urban Chinatowns.

In terms of photography, what types of themes, subjects and situations is the “Chinese lens” most sensitive to?

I tried to cover a range of photographic themes, but one motif that stands out is the automobile, and to me this is an apt symbol of America’s ethos of social mobility and a Chinese sense of class consciousness. New cars represented a step taken towards the American dream, and there are a lot of snapshots in our collection of people posed in front of their gleaming new cars.

To give us some sense of the range of the exhibition, can you describe two photos that sit at opposite extremes in terms of what the show covers?

First of all, there are photographs of poetic absurdity, like Yan Deng’s photograph of two young men with their dress shirts and pants on backwards and their backs facing towards the camera on a generic-looking suburban street [slide 9]. Then contrast that with a photograph from our collection of an unknown couple, probably from the ’50s, standing awkwardly in front of what looks to be their new suburban home [slide 3]. There’s a narrative in the connection between those photographs that speaks to the hopes and idealism of Chinese people as they began moving into the suburbs — and then the realization after a while that the suburban space in America is not just idyllic, but may also be threatening and absurd.

What are the most significant changes you notice in the style or content of the photographs over time? What are the most significant continuities?

Chinese artists who use photography now don’t seem as likely to photograph “about” their cultural identity as they were in the ’80s, when someone like Tseng Kwong Chi was photographing himself in Mao suits in various American tourist locales. Talking about one’s struggles with ethnicity fell out of favor, and we see it in how Chinese artists have photographed themselves in relation to their spaces. Artists don’t take oppositional positions now; in general they are more critically concerned with forms, subjects and processes of art-making.

It was important to me that the artists and photographers, as a group, reflected the diverse backgrounds of Chinese in America. Julie Quon grew up in New York’s Chinatown her whole life; her family is Cantonese. Arthur Ou and Amy Yao were born in Taiwan and grew up in California. Hai Zhang and Yan Deng were new immigrants coming over for college and career opportunities (Zhang decided to stay in America; Deng moved back to Beijing after studying at Parsons The New School for Design). Chien An Yuan and Wing Young Huie were born in and have grown up in the middle of the country. We also feature artists who visit America, but who haven’t established roots here, like Jiajia Zhang, who lives in Switzerland. This shows that the Chinese experience here isn’t a singular one, but that it’s multidimensional and ever evolving.

“America Through a Chinese Lens” will be on display at the Museum of Chinese in America, in New York City, from April 26 through Sept. 10, 2012.

View the slide show