December 6, 2017
WASHINGTON—The United States is losing its competitive edge in the global economy and needs to adopt a comprehensive strategy not just to improve the general market environment but also to meet the specific needs of firms in traded-sector industries, according to a new report from the Information Technology and Innovation Foundation (ITIF), the nation’s leading science and tech-policy think tank. The report, titled, “The Competitive Edge: A Policymakers’ Guide to Developing a National Strategy,” lays out an analytic framework for governments to develop such policies.
“Conventional thinking about national competitiveness is increasingly out of step with the realities of the global economy,” said ITIF President Rob Atkinson, who authored the report. “The prevailing view is that competitiveness is not important and to the extent that it is, it is defined as higher productivity. The reality is that competitiveness is central to national economic wellbeing and relates to the ability of nations to run balanced trade with the rest of the world, while enjoying a relatively strong currency.
“The conventional wisdom says that the most a government can possibly do to make a national economy more competitive is get the broad-stroke policies right—low taxes, conducive regulations, good schools and universities, and so on. But the truth is those are just table stakes—the basic things you have to do to play the game at all. If nations really want to win, they have to do much more. Competitiveness needs to be a principal goal of economic policy, and governments also need to tailor their approaches to the specific needs of firms in traded industries.
“This should be a clarion call for all nations, and the ones that respond first and best will be in the best position. In the United States, President Trump’s call to ‘Make America Great Again’ at its core is a demand to make America more competitive—by getting tough on trade, locating or relocating production in the United States, and creating the right conditions for growth. But to truly boost the domestic economy and make that goal a reality, the United States needs a competitiveness strategy that is targeted, strategic, evidence-based, and well-funded.”
According to the report, the goal of competitiveness policy is to help a country’s economy continually evolve to create and capture more higher-value-added production, which boosts national income and establishes a strong and regular cycle of growth.
The report offers a competitiveness agenda framework focusing on six areas:
- Establishing key framework conditions, such as ensuring the rule of law, making it easy to do business, supporting flexible labor markets, promoting the optimal levels of competition, securing robust intellectual property protections, and creating stable macroeconomic policies;
- Focusing regulatory and tax policy on traded sectors;
- Improving factor input quality, such as a skilled workforce, publicly supported scientific and engineering knowledge, and infrastructure;
- Spurring competitiveness-advancing firm behavior;
- Creating trade policies to limit unfair foreign competition, combat mercantilism, and attract investment; and
- Building institutional capabilities by making higher competitiveness a principal goal of economic policy.
“Increasing competitiveness makes it easier to achieve other economic goals, such as full employment, higher productivity, and a higher living standard,” Atkinson said. “Losing the competitiveness race means fewer jobs and slower growth. Countries that create a targeted policy strategy will win out.”