WASHINGTON—America is slowly losing its competitive edge.
The nation’s declining business environment has been debated during congressional hearings and think tank round tables, discussed by the American and foreign media, and deliberated on economic and industry blogs over the past few years.
“Our industries can compete if the playing field is level, but if foreign exporters are not held accountable, and can freely undercut American producers with dumped goods and government subsidies, this country’s economic future will be at risk,” said Sen. Arlen Specter, D-Pa., during testimony on the Unfair Foreign Competition Act of 2010.
No one factor has contributed to the decline, but the culprits are many—illegal subsidization, dumping of foreign products into U.S. markets, China’s currency manipulation, job outsourcing, trade distortions, and the high trade deficit.
There are now signs that the warnings were well placed, as the United States sank to fourth place in 2010 from second place in 2009, according to the World Economic Forum’s (WEF) Global Competitiveness Report 2010-2011.
“The United States continues the decline that began last year, falling two more places to 4th position. While many structural features that make its economy extremely productive, a number of escalating weaknesses have lowered the U.S. ranking over the past two years,” the report said.
In comparison to the United States, Switzerland has outranked every country during the past few years, retaining first place, while Sweden has moved from fourth to second place, and Singapore has held on to third place. Germany came in behind the United States in fifth place, up two places from 2009.
“Sweden has moved ahead of Singapore and the United States to claim 2nd position this year. The country benefits from the world’s most transparent and efficient public institutions, with very low levels of corruption and undue influence and a government that is considered to be one of the most efficient in the world,” according to the report.
What Makes the US Tick?
“U.S. companies are highly sophisticated and innovative, supported by an excellent university system that collaborates strongly with the business sector in R&D,” according to the WEF report.
Being the world’s largest economy and having a flexible labor force has kept the country from sliding down further on the global competitiveness scale.
What’s ailing the United States is distrust in the country’s politicians, and the business sector is concerned about the cozy relationship between Wall Street and government.
“The business community remains concerned about the government’s ability to maintain arms-length relationships with the private sector and considers that the government spends its resources relatively wastefully,” according to the report.
The WEF found that many of those surveyed questioned U.S. business ethics.
The U.S. financial sector woes, including the distrust of and overall ineffectiveness of financial firms, have been seen as major impediments to U.S. overall competitiveness. Such competitiveness issues in the financial sector led to that sector sliding down 22 points on the rating scale, negatively impacting the overall ranking of the United States.
However, the issue that is troubling the worlds’ leaders the most is the deterioration of the U.S. macroeconomic stability, given its ever increasing trade deficit and public debt. Unless macroeconomic issues are addressed, the report suggests that the U.S. will further slide down the rating scale in coming years.
Doubling Public Debt Within Seven Years
“Continued budget deficits and high public debt are likely to have a negative impact on productivity,” the Global Competitiveness report said.
Analysts link excessive debt to a government’s inability to respond during a crisis. It limits a government’s ability to invest in infrastructure and improve productivity.
America’s debt has doubled since 2003, and there is no sign of it slowing down. This excessive public debt, with its high interest payments, limits the U.S. government’s ability to respond quickly in a crisis situation and sustain future development and growth, having a direct effect on the country’s competitiveness.
As of last week, the total public U.S. debt amounted to $13.5 trillion, according to the National Debt Clock. Since 2003, the public debt has almost doubled (up 97 percent) from $6.8 trillion total debt, according to the U.S. Treasury website.
Around 34 percent ($4.6 trillion) of the debt is owed to government trust funds, with $2.6 trillion owed to the Social Security Trust Fund.
The U.S. government has been borrowing from Social Security funds for years, as Americans have paid less into the fund than they have collected, and according to the Committee on Oversight and Government Reform, these funds may never be repaid.
Corporations Contributing to Woes
Addressing the competitive arena, economists put blame on ballooning health care costs in the United States, preventing companies, especially large global companies, from pricing their product competitively.
High health care costs in the manufacturing, finance, telecommunication, education, and other industries stymied their growth, according to an article by the Council on Foreign Relations (CFR), a think tank.
These industries “showed the slowest amounts of growth between 1987 and 2005 compared to industries with the smallest level of employer-provided insurance in the United States and compared to their industry competitors in Canada,” according to the CFR article.
A posting on the Tax Prof blog suggests that America’s business tax laws are detrimental to America’s international competitiveness. This is especially the case with transfer pricing, which is seen as double taxation of a firm’s income and refers to companies shifting high profits to areas with the lowest tax rates.
Only 1 percent of U.S. firms are export-oriented, while most U.S. companies concentrate mainly on the U.S. market, an indicator of our competitiveness in today’s global economy, according to an article by Brookings Institution, a Washington D.C. think tank.
“Our relatively low export levels represent a lost economic opportunity. While domestic consumers struggle with unemployment and debt, demand in many other countries is booming, and that demand could be translated into U.S. job growth,” suggested the Brookings article.
