Inner Strength: U.S. Economic Competitiveness and the Lessons of Tonya Harding
What steps must be taken if the United States wants to redeem its role in global affairs?
August 6, 2007
Traditionally, America's global role has rested on three principal domestic foundations: First, an economy secure and competitive enough to provide both global economic leadership and domestic prosperity.
Second, a political system widely seen as the model democracy. And third, a society blending individual opportunity and a shared sense of community.
There is no more globally competitive arena than the Olympics. Back in the 1994 Winter Olympics, the figure skater Tonya Harding tried one strategy for winning: Make your opponent less competitive — even if it means breaking her kneecaps. That didn't work out very well. It's much better, in the Olympics and most other competitions, to work hard to make oneself as competitive as possible.
The United States needs to take the lessons of Tonya Harding to heart in facing up to the economic challenges of this global era. Sure, China and India and other rising economic competitors need to play by the rules.
But for all the focus on what they are doing to become more competitive, the fundamental problems have more to do with what we Americans are doing to ourselves — and not doing for ourselves. Our domestic economic vulnerability is increasing. Our international economic competitiveness is decreasing.
The triple deficits run up during the Bush Administration — budget, trade and international investment — are a major source of America's newfound economic vulnerability — and constitute "the worst financial deterioration in our history," according to Peter Peterson, the chairman of the Institute of International Economics.
Financing this torrent of red ink has meant becoming the largest borrower in the world, becoming what Financial Times columnist Martin Wolf calls a "superpower on borrowed money" — and about which he asks, "How long can it last?"
While so far creditor and debtor interests have been sufficiently shared to maintain equilibrium, sustainability is far from assured: For example, in a future crisis over Taiwan, with China having over 25% of foreign-held T-bonds, who would have leverage over whom?
Even short of such a scenario, U.S. debt profligacy risks so further weakening the dollar as to prompt major shifts away from it as the dominant reserve currency, forfeiting the prestige and privileges that come with that position.
Along with economic vulnerability increasing, economic competitiveness has been decreasing. The U.S. technological edge is being challenged in one industry after another, and not just because of the strides being taken by others — but as a consequence of self-inflicted problems like under-investment.
The Business Roundtable tellingly uses the term "atrophy" to express its concern about what has been happening to U.S. scientific and technological superiority. And the National Intelligence Council points to science and technology as the key uncertainty for whether the United States will remain the world's "single most important actor."
The declining competitiveness of the U.S. automotive industry — which for a century was a driving economic engine and the country's defining cultural symbol — is telling. 2007 has been the year Toyota ended General Motors' reign as first in worldwide sales.
This should hardly be a surprise given that seven of Consumer Reports' top ten cars as determined by performance, safety, reliability, fuel economy and other factors were international. No wonder General Motors and Ford have plummeted from $137 billion in combined market value in 1999 to $28 billion today.
Even the vaunted U.S. high tech sector is showing signs of declining competitiveness. The $15 billion surplus in sectoral trade balance (1999) became a $44 billion deficit.
The U.S. ranking for broadband internet access dropped from first to 16th. While Microsoft and Google may still be in a class of their own, overall only six of the world's top information technology companies are U.S.-based — compared to 14 in Asia. There is very real risk that the next phase of the Internet revolution won't be U.S.-centric.
Such data are disturbing — but shouldn't be surprising in light of underlying measures. Americans rank 24th of 29 in math literacy among 15 year-olds — and have the same low ranking for problem-solving skills. In 2004, the United States already was behind 16 countries in Asia and Europe on the proportion of college degrees in science and engineering.
By 2006, we had fallen further to 32nd. In higher education, over 50% of engineering Ph.D.s in U.S. universities are being earned by foreign nationals. No wonder 35% of 200 U.S.-based multinationals surveyed are planning to relocate at least some of their R&D facilities overseas, especially in India and China.
Technological innovativeness has served us Americans well in the past and can do so again — if supported and facilitated by policies such as those in the bipartisan America Competes Act currently being considered in Congress.
This legislation would substantially increase research and education funding in the public, private and non-profit sectors, emphasizing both basic research and applied, as well as developing a more strategically organized governmental "innovation infrastructure."
Biotechnology is a good example where U.S. competitiveness has been sustained by business, finance, universities and government working together. In this case, states such as California which have fought back against the religious-political "war on science" sufficiently that the University of California is the second-largest biotech patent holder in the world.
Green technologies are another area of unfulfilled, yet enormous potential. The Manhattan and Apollo projects demonstrated what the United States can do to meet major scientific-technological-economic-political challenges.
Were a new administration to launch a national "Project Earth" with comparable priority, the results could be equally successful. With environmental protection increasingly seen as a growth industry, at least some of the private sector is being incentivized.
NGOs, with their impressive capacity to mobilize — and be policy entrepreneurs in their own right — provide networks for collaboration and innovation.
A commitment to making the United States a leader rather than the laggard on an issue that so much of the world is giving so much importance could simultaneously enhance both competitiveness at home — and leadership abroad.
There is not much we Americans can do about other nations' focus on strengthening themselves. But there's a lot we need to do about our self-weakening. The history of what the National Academies of Science called "world economies that once were dominant, but declined because of myopic, self-determined choice" is not one that we should want to repeat.
The Global Economy: Not on Autopilot
August 3, 2007