What we’re being asked to believe is that if another country (say Japan) pioneers a new technology, we won’t benefit. This defies logic and history. After World War II, the United States led in most technologies. That hardly prevented Europe and Japan from rapidly raising their living standards. Just the opposite: the availability of proven U.S. technologies accelerated their economic growth.
Taking competitiveness too seriously as a guide for public policy risks distracting us from genuine national problems-poverty, runaway health spending, racial tension-and spawning waste. The beguiling promise of the competitiveness lobby (a hodgepodge of business leaders, academics and commentators) is that government can somehow solve these problems by stimulating economic growth through support of “strategic” industries or technologies. Economist Lester Thurow of the Massachusetts Institute of Technology writes approvingly of Germany’s industrial subsidies in his new book (“Head to Head”):
“If the United States were to spend what Germany spends (2.5 percent of GNP), it would be spending more than $140 billion to help its industries in 1991.” Whoa. In fact, most German subsidies have gone to declining industries that are uncompetitive in world markets (steel, shipbuilding, coal mining). The Germans are trying to cut these subsidies to finance the rebuilding of eastern Germany.
The competitiveness obsession is mostly nostalgia. We Americans like to think of ourselves as economically self-sufficient and superior. But the understandable urge to recapture past glories is a mirage. The standard model of superiority in specific technologies is (as Robert Reich of Harvard has argued) too simple. All advanced societies will increasingly share capability in new technologies-some more, some less-precisely because multinational companies need to produce and sell around the world.
The fact that some new technologies and products are initially developed abroad may wound our pride, but it doesn’t cripple our economy. The rhetoric of competitiveness is misleading, because economic growth–unlike war or a race-can benefit everyone. Even if our growth lags behind Japan’s, we can still be much better off than today. (But don’t bet on inexorable Japanese superiority. Japan’s economy is now in a slump, and its annual growth rates have steadily slowed. The average was nearly 11 percent in the 1960s; projections for the 1990s are for 4 percent or less.)
The pervasive mistake of the competitiveness crowd is to equate the fate of individual companies (or industries) with our national economic well-being. True, General Motors has lost ground to Toyota. But it doesn’t automatically follow that the United State-the country-is worse off. Our car companies now make better cars more efficiently than ever. American consumers can buy improved vehicles from either U.S. or Japanese firms.
Our economic well-being ultimately depends on productivity growth: the increase in worker output. Contrary to the competitiveness dogma, the manufacturing sector is not our weak spot. Between 1980 and 1991, manufacturing productivity grew nearly 3 percent annually, while productivity in the service sector (three times as large as manufacturing) grew less than 1 percent. If the rest of the economy did as well as manufacturing, our incomes would be rising more than twice as fast as they are.
As for dropping living standards, the competitiveness crowd never explains how this is to come about. The only plausible theory is that repaying our overseas debts-which would require us to run a trade surplus to generate export earnings-would impoverish us. But this is nonsense as long as our productivity rises.
Consider a simple example. An economy has $1,000 of annual output and its productivity rises 2 percent a year. That’s about $20 of higher output each year. Now suppose it has to run an annual trade surplus of $40 to service its overseas debts. That’s about two years of productivity growth. After that time the country’s living standards (the local production available for people to buy) will begin rising again.
Everyone wants U.S. companies to excel in global markets. Many do-and will. Microsoft is the titan of the world’s software industry; Intel dominates computer microprocessors. Our trade fortunes have fluctuated with the dollar’s exchange rate. In 1991, the United States was the biggest global exporter, with 12 percent of world exports compared with Germany’s 11.1 percent and Japan’s 8.9 percent. But we ought to remember that our trade balance is only a modest influence on the economy. Although the trade deficit has dropped $53 billion since 1988, unemployment has risen.
Growing foreign competition has hurt some U.S. industries and workers. It requires us to oppose other countries’ discriminatory trade practices or subsidies. The loss of our huge technological superiority also poses some tricky policy issues: how, for example, to ensure competence in defense technologies? But it’s a delusion to think that these issues constitute the basic challenges facing America.
As a society, our competitiveness with other nations and our standing in the world will depend on much more than a dry comparison of economic statistics. What matters more is our social cohesion, a sense of civility and confidence. Crime, poor schools and AIDS threaten our future more than losing the status (as we have) of having the world’s largest bank or steel company. It matters more that we control health costs than regain global dominance in machine tools. Our social and political problems are slowly compromising our economic potential and tearing our social fabric. The race we need to win is not against others but against ourselves.
