National Competitiveness in the Global Economy: What’s the Plan, Uncle Sam?

In a deeply integrated global economy, with a growing number of goods and services readily tradeable across borders, nations face stiff competition to grow and attract high-value-added, traded-sector industries. Refusing to engage in this competition is not an option; long-term growth depends on developing a winning competitiveness strategy. Unfortunately, the competitiveness debate in the United States is muddled and often completely misinformed. There is widespread confusion not just about what competitiveness means or how to measure it, but even on the question of whether the United States needs competitiveness strategy at all.

On December 6, 2017, the Information Technology and Innovation Foundation hosted an event to discuss a major new report, which examines the issue of competitiveness, explains how conventional economic advice leads policymakers astray, and offers specific steps for the federal government to stem a recent dangerous decline in U.S. economic competitiveness. ITIF President and report author Robert Atkinson moderated the discussion with a variety of expert speakers, including Senator Chris Coons (D-DE).

To begin, Atkinson defined the meaning of competitiveness as the ability of a nation’s non-mineral-based traded sectors to effectively compete in global markets in the absence of subsidies and government protections, while receiving a strong price premium that enables strong terms of trade. In other words, competitiveness runs deeper than just productivity or innovation. Using this definition, Atkinson believes that the United States has become considerably less competitive over the years. For example, the trade-weighted value of the U.S. dollar has not changed since 1998, while the non-petroleum trade deficit as a share of GDP is up by 87 percent.

To become more globally competitive, Atkinson believes the United States needs to develop a national competitiveness strategy. While he acknowledged that the nation already has several competitive policies, it doesn’t have one mission-oriented strategy in place. Atkinson believes the reason is due to ideological differences; for example, many economists believe that competitiveness policy is harmful or that attacking mercantilist policies is essentially mercantilism itself. On the national security front, many experts believe that economic goals must always come second to security ones—in fact, some believe that fighting mercantilism reduces the country’s ability to pursue national security goals.

Overall, Atkinson believes a competitiveness strategy should be a coordinated and strategic array of economic policies specifically designed to boost true competitiveness. Such a plan would include tax and regulatory reform, trade policies, and firm support mechanisms.

Following Atkinson, Mark Muro, fellow and policy director at the Brookings Institution’s Metropolitan Policy Program, shared his views on a competitiveness policy. Like Atkinson, Muro believes a competitiveness policy is a good idea, particularly since many other nations already have a framework in place. Muro, however, said that the policy should focus on different regions within the country and set intentions to improve in many different areas, but especially trade. Lastly, he views competitiveness as not just an economic issue, but also a matter of social and political concern.

Sree Ramaswamy, a partner at McKinsey Global Institute, agrees that U.S. competitiveness is diminishing. In particular, he expressed concern over the industrial base, which has been progressively hollowed out over the past 25 years, a cycle which Ramaswamy feels is feeding on itself. Likewise, Americans have seen a decline in income. In fact, 68 percent of the decline in labor share of the U.S. economy can be traced back to the decline of manufacturing sector itself. He also discussed the trade deficit, which is affecting advanced industries—industries that most would expect the United States to have a considerable advantage in. Surprisingly, this deficit has been getting worse, even during the manufacturing resurgence that has occurred over the last five years.

In order to confront this decline, Ramaswamy said, “Sometimes it’s better to do something rather than nothing. But when a whole lot of somethings add up to more or less nothing, then you have to start asking yourself: What is going on?” He believes that facilitating more coordination and creating a long-term orientation for manufacturing could be effective in fixing manufacturing.

Andrew Reamer, a research professor at George Washington University, provided some historical context on competition. He said that following World War II, the United States faced no global competition, and as such, did not even create a real framework to make a competitiveness policy. Today, he believes there is a need for such a policy. However, there are many roadblocks in the way of effectively creating one. In particular, Reamer discussed the need for more accurate statistical data. In fact, he claimed that the United States does not have a single set of statistics illustrating how many people work in each industry; rather, there are several sets of competing data, since certain laws prevent the Bureau of Labor Statistics from comparing data with the U.S. Census Bureau. He also pointed out that neither major American political party has ever introduced a competition policy before and that any policy should pursue public-private partnerships.

Lastly, Senator Chris Coons spoke on increasing U.S. competitiveness. According to him, the competitive spirit, which is one of the key foundations of America’s capitalist society, is what has propelled the nation over the last two centuries. He also discussed the need to invest more into such a policy, specifically citing how U.S. competitors like Germany and Japan have made significant investments into wages and research and development. He concluded by stating how he looks forward to work across the aisle with many senators on an issue that is so impactful and worthwhile.

In conclusion, the United States is losing its competitive edge in the global economy. Policymakers must create an effective policy in order to bolster American competitiveness, which will ultimately lead to more jobs and greater growth.

Follow the discussion on Twitter using the hashtag #ITIFcompetitiveness.