How Can We Revitalize America’s Global Competitiveness?

Today I had the honor to speak on a panel “Power Play: How Can We Revitalize America’s Global Competitiveness?” at the Pacific Council’s members’ weekend. It was a terrific debate – below are my opening remarks and some conclusions:

U.S. competitiveness is a big topic, with several possible definitions – each of which may lead one to somewhat different conclusions. To kick our conversation off, I would like to offer three comments:

First, while there might be reasons to worry about our competitiveness, there are many reasons to celebrate. Consider that:

  • Our corporations are the most productive and resilient in the world
  • Our tech companies are global trendsetters that not only have revolutionized industries, but also created entirely new ones
  • We have figured out the technology to tap into new energy sources that reduce our energy costs
  • We are home to 27 of the 30 universities that produce the most-cited scientific research

We also do exceedingly well in indices that can be seen as proxies of our competitiveness:

In other words, there are many parts of America that work.

Second, if we adopt the definition of competitiveness as the extent to which our companies compete successfully in the global economy, we are well-placed for two reasons:

The first reason is that the global economy of the 21st century is a digital economy. It is an economy where goods and services are digital and bought and sold on digital platforms, with transactions concluded with digital payments. It is an economy where companies that leverage technologies riding on the Internet, such as 3D printing, ecommerce, Big Data, and virtual wallets dramatically reduce the costs for companies to make, market, and move products and services.

The United States is set up for this economy: we have the technologies and our companies and consumers are adopting them. We have the capital and market to scale technologies. Contrast this to Europe: Europe has gone from digital leader to laggard, not least because it is not yet a single digital market. While physical goods travel freely across borders in the EU, digital goods and services still do not. For example, in the U.S., Netflix can stream content just as easily in Alabama as in Alaska; in EU, Netflix is blocked from streaming online content in any of the 28 EU nations without country-specific licensing deals.

EU’s being fragmented into different digital markets I would imagine stifles investment in tech companies. It is not accident that Google, Facebook, Twitter, Uber, and many others grew up in the United States, a single digital market, or that Alibaba took off in China, similarly a single digital market. It is also no accident that 54 percent of online services in Europe are provided by American companies.

The next frontier in our digitization is ensuring that our originally “non-digital” companies – companies in manufacturing, food and beverage, financial services, retail, and so on – adopt and use digital technologies.

The second reason why I feel optimistic about our ability to compete is our trade policy is also setting us up to compete. Like many others, I was concerned about the statements of candidate Obama on the campaign trail in 2008, when he talked about the need to renegotiate NAFTA, hit the pause button on trade negotiations, and focus on trade enforcement.

Positively, our trade policy has become very forward-looking and strategic. TPP was just concluded, opening vaster access to the Japanese market, and once TTIP gets done, we have carved new market access in countries making over half of world trade. We will also have set the de facto multilateral trade rules for the 21st century. The Trade in Services Agreement (TiSA) talks that we are leading and that encompass 50 nations will bolster these gains further in services, the high-growth sector of our economy. Our trade policy has also been very strategic, forcing BRICs to choose between market access in the liberalizing coalition of willing we lead, or the status quo.

In a tennis analogy, in our trade policy, we are taking ball on the rise, and playing smarter than any other nation.

Of course, trade deals we lead like TPP and TiSA are also helping other member economies succeed and gain competitiveness. Just like we do, Japan, Vietnam, and Australia will all gain from TPP, as will 8 other members (and so in fact do other trading partners due to the growth gains in the TPP countries, which boost their overall demand). This is good news: when one stops looking at the world economy as a mercantilist zero-sum game and sees the connections between our and other nations’ prosperity, our trading partners’ growth and prosperity is hugely positive to us.

The third comment is the “however”. What, then, worries me?

First, I worry about creeping regulations and taxes – that one day, after many reactionary moves as in financial regulations after the financial crisis, we wake up and find ourselves having sapped the vigor of our innovation economy and the quintessential American opportunity to make it big here. The debate here must be about smart regulation, not black-and white no regulation vs. lots of regulation.

Second, education is and is not a source of concern. Education is investment in human capital, a driver of total factor productivity and growth, and typically also of incomes of individuals. In other words, quality K-12 education fuels our upward mobility. At the same time, we want to be mindful of keeping investing in our higher education and the best and the brightest, the captains of industry. It is also always useful to talk about STEM – but we should not lose sight of the bigger picture that tech and math are not everything. Even if we get STEM right, we still need 21st century workers – and they are not only statisticians or engineers, but also savvy negotiators, strategic thinkers, great designers, and good collaborators with sound judgement and poise and flair to persuade.

Steve Jobs stressed that Apple products had not only technology but also humanities and liberal arts in them. The best tech companies do not turn on tech alone. Computers  meanwhile, handle many things we do need to get right in the 21st century – math, logic, and shifting through massive amounts of data – I only wish I could scan thousands of journal articles within seconds! But computers are and will be pre-schoolers in the softer tasks that winning in the emerging economy requires. We need STEM, but we need a lot more: measuring the ROI of our K-12, fueling our higher ed to ensure the best ones can truly soar, and educating for the manifold types of roles workers play in the 21st century knowledge economy.

Third source of worry for me is our leadership in the world economy. In the aftermath of the financial crisis, there was a great deal of talk about “American decline” and about the idea that BRICs and other emerging economies would be the locomotives of the global economy. I was so frustrated that I wrote an entire book called Peerless and Periled: The Paradox of America’s Leadership in the World Economic Order (Stanford University Press, 2012), where I argued that emerging markets had structural and institutional defects that would make them run out of steam at some point – and that they were not able to exercise the kind of global, benevolent leadership we have exercised all these years.

Rather, I argued, it is our economy that must power the world economy, and it is out leadership in global trade, finance, and macroeconomic issues – and certainly in other areas as well – that is critical in years to come, in order for us and the world economy to prosper and grow.  I worry that at some point we stop seeing the critical role of American leadership in the world, how peerless it is, and without which how periled our futures can be.

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