Keeping the US number #1 in competitiveness

KEEPING THE U.S. NUMBER ONE IN COMPETITIVENESS

What Barack Obama or John McCain must doBy Suzanne Rosselet, Deputy Director of the IMD World Competitiveness Center – September, 2008

 

The term “competitiveness” is thrown around in the political discourse now more than ever. Among the many tasks ahead for either John McCain or Barack Obama is keeping the US ahead of other countries in competitiveness. But what is competitiveness? And for either Barack Obama or John McCain, what are the keys to keeping the US as a leader in competitiveness?

In the 2008 edition of the IMD World Competitiveness Yearbook*, the US maintains its number one position out of 55 countries for the 14th consecutive year. However, their lead is quickly diminishing and the next US President faces a significant challenge in maintaining this ranking.

The fundamentals of US competitiveness are still by far the strongest in the world. The economy has grown faster than any other major developed nation over the past decade. Among the many reasons for this is their 20% share of world GDP and almost 10% of exports. The US is the world’s third largest exporter of manufactured goods (first for services) and the world’s biggest importer at a staggering $2 trillion of merchandise from abroad. The US is also the largest recipient of foreign direct investment and holds 40% of global financial assets. With only 5% of the world’s population, America employs nearly one third of the world’s science and engineering researchers, accounts for 40% of global R&D spending, and boasts 30 out of the world’s 40 leading universities. The US remains the most popular destination for the world’s best and brightest, and its financial markets and entrepreneurial culture are still the envy of the world. In addition, 14 out of the top 20 global brands are American companies.

However, not all the data is so positive and either Senator Obama or McCain must pay attention to some of the more troubling information.

Economy
As has been well chronicled, many of the economic problems in the States stem from the decline of the dollar, a subject both candidates have spoken about at length. Despite the dollar’s recent rally, the Euro is increasingly being used in circulation, financial transactions, bond markets and foreign currency holdings. London has become a big competitor to New York in investment banking, while Singapore is challenging the US in wealth management. The US remains addicted to foreign borrowing and the IMD 2008 World Competitiveness Yearbook shows the US losing ground in Government Efficiency – in 18th place (down from 8th place in 2001).

Education
The US is ranked 12th for overall education and American students are falling behind in international test scores. The US is also closing its door to some of the best international students in the world. In 2001, the number of student visas was 200,000 compared to only 65,000 in 2006 (although rules have recently been relaxed to reverse the tendency). Russia, China and India are together producing 14 million students a year – the same as the US – and they are just as intelligent and motivated to work hard and succeed but cheaper and hungrier for success. As a consequence, more US companies are shifting R&D activities overseas. With rising numbers of qualified engineers in China and India, the US risks losing its cutting edge research and development.

Addressing the issues
The new leader of the US must address the general population’s fears of globalization (or appease it) by focusing more on policies that will help workers who have lost jobs rather than trying to keep the jobs at all costs. This implies more generous unemployment compensation and re-training programs. In education, he should address the issue of a dysfunctional system at the primary and secondary levels and promoting post-high school training, especially in technical and IT skills. Both issues are key to maintaining a highly-qualified workforce.

To recuperate lost competitiveness in R&D and technology, the candidates should include in their programs incentives to encourage R&D investment and innovation in private enterprise, especially in sectors where the US is falling behind, such as in telecommunications (the US only ranks 17th for broadband subscribers per 1000 people). In parallel, they should relax restrictions for foreign researchers and high-skilled workers to enter the US and encourage more maths and sciences in school curricula.

Senators McCain and Obama should strive to get the fiscal house back in order, to address budget imbalances and encourage domestic savings. The US has the world’s highest consumption spending at 70% of GDP, compared to 55% in Japan and 40% in China. Both candidates propose some type of “miracle” solution through taxes, incentives, targeted spending or other presumed remedy. The major challenge will be in the strategy chosen: tackle the deficits versus a growth strategy. The new President should focus on keeping the workforce competitive and innovative and help re-build the Made in America brand.

Last but not least, addressing the decrepit state of US infrastructure will help America “catch up” to the world-class infrastructure seen in many European and Asian nations. The US has fallen behind in its basic infrastructure (roads, highways, railroads, airports) and its internet connectivity. There is an urgent need to build state-of-the-art facilities and advanced telecommunications and internet networks. Linked to this is obviously the energy question that both Obama and McCain are emphasizing: how to lower US dependency on oil?

The ability to recognize and deal with America’s real or perceived loss of competitiveness is part of its culture of openness, resilience and entrepreneurship. The US always seems to find the means to re-invent itself and bounce back from adversity. Will 2009 be the turning point where the US falls from its leadership of top competitors in the world economy? Or will the new President grasp the urgency of the situation and, like the Sputnik wake-up call in 1957, take the necessary steps to re-build America’s image as a world-class innovator and global leader?
* The IMD World Competitiveness Yearbook (WCY) is perhaps the most renowned and comprehensive annual report on the competitiveness of nations. It analyzes how nations and enterprises manage the totality of their competencies to achieve increased prosperity based on 331 different criteria, split up into four categories: economic performance, government efficiency, business efficiency and infrastructure.

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