Business Commentary
It does not matter who is at fault, or which political party is responsible for today’s sinking U.S. competitiveness. In the long run, the issue revolves around getting America out of its present slump, getting people back to work, and showing the world that it not only has the brawn but also the vigor, energy, and determination to win back its number one competitive position.
For years, experts have screamed at the top of their lungs that America’s manufacturing base has eroded and with it the ability to be innovative. Americans are more and more lacking the ability to bring out groundbreaking new products.
“The ingredients of economic growth for the future seem to be at risk in the United States. Without action, there is a real possibility that the country will lose its competitive edge,” said a 2011 report by the Center for American Progress.
The problem is not just the business sector’s outsourcing of American jobs, research capability, and investments but also that the U.S. competitiveness policy is apportioned among many agencies, including the Department of Commerce, the U.S. Trade and Development Agency, the Department of Agriculture, and the Department of State. Each one has their fingers in export promotion, export negotiations, export processes and their execution, and none want to step back and lose part of its empire.
“The problem is that competitiveness policy is very fragmented in the United States by comparison to other countries,” said the Center for American Progress, a public policy research and advocacy organization, report.
For comparison purposes, the report goes into detail about the approaches and coherence by other countries, including Japan, France, Germany, India and Australia, allowing for quick responses and good coordination and cooperation to address competitiveness issues.
U.S. Global Competitiveness Sinking
The prior year’s warning signs were well placed, as the United States dropped to fifth from fourth place in 2010–2011 and from third in prior years, a year-on-year decline, according to the World Economic Forum (WEF) Global Competitiveness Report 2011–2012, rolled out on Sept. 7.
“The United States continues the decline that began three years ago, falling one more position to fifth place,” said the report.
Switzerland outranked every country, as in previous years. Singapore was ranked second, edging up one rank, replacing Sweden, which moved to third place. As a surprise came Finland’s ranking in fourth place, moving up 3 rankings, from the 7th position in 2010. As a consolation to the United States, Germany, considered to be a strong global competitor and stalwart nation, moved from fifth to sixth position, so the United States could at least stay in the fifth position.
“The results show that while competitiveness in advanced economies has stagnated over the past seven years, in many emerging markets it has improved, placing their growth on a more stable footing and mirroring the shift in economic activity from advanced to emerging economies,” said a September World Economic Forum (WEF) press release.
What makes America tick? Read more . . .
What Makes America Tick?
“Many structural features continue to make its economy extremely productive, a number of escalating weaknesses have lowered the U.S. ranking in recent years,” notes the WEF report.
The report had many positive things to say, including that the United States is still more productive than not, its companies are still involved in cutting-edge technology, and innovation is still going strong.
America’s Universities are still considered among the top teaching and research centers, where many bright heads are gathered, and cooperation between the business and academic sector has not suffered, despite the economic meltdown.
The financial sector received a thumbs-up and thus moved from last year’s 31st position to the 22nd position this year. However, the report did not point to what improved in the U.S. financial sector, although the pillars include availability and affordability of such services, ease of procuring a loan, and the soundness of the financial sector.
“Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy—the largest in the world by far—these qualities continue to make the United States very competitive,” said the WEF report.
Then why was the U.S. competitive position lowered? The report points fingers at greater complicity between the U.S. public and private sector since last year’s report and the public has become rather distrustful of those they have elected and those that run the large bureaucracy.
America’s politicians and government sector are riddled with many weaknesses and the arms-length relationship with those it is supposed to govern is questioned. Policy development can no longer be called truly transparent and regulatory efforts have become more bureaucratic.
Most troubling to the report authors is that the U.S. government is not coming to terms with the need to reduce spending habits, and is wasting its resources on issues irrelevant to the countries competitiveness and economic prosperity. America’s government is coming across as a spendthrift and unable to focus on what is truly important to an improvement in its economy.
“A lack of macroeconomic stability continues to be the United States’ greatest area of weakness,” warned the WEF report.
America’s macroeconomic stability troubled the world’s leaders already during prior years, given its ever-increasing trade deficit and public debt.
Slight Competitiveness Improvement
“During the first half of 2011, U.S. markets captured three of the 20 largest global IPOs [Initial Public Offering], an improvement over the last four years (1 in 2010, 2 in 2009, none in 2008 and 2007), but fewer than the 1996–2006 average of five,” according to a mid-August press release from the Committee on Capital Markets Regulation (CCMR), and independent and nonpartisan research organization.
An IPO happens when a firm issues common stock to the public for the first time since its existence.
The reason behind this more positive sign is that a larger number of U.S. firms went public this year when compared to prior years.
Having given a glimmer of hope, the study dashes it by reporting that U.S. and foreign capital is being invested in foreign markets and foreign exchanges, indicating that U.S. and foreign companies have not regained confidence in the U.S. economy and no longer consider the United States a safe heaven for their investments.
“It is a distressing sign that U.S. companies are using foreign markets to go public,” said CCMR.
U.S. market share in the global IPO market dropped by 11.4 percent between January and mid-year. The U.S. market share was 14.2 percent in 2010, 16.9 percent in 2009 and an average of 28.7 percent during the 10 years until 2006.
On the other hand, American Depository receipts (ADRs), which are negotiable certificates in foreign stocks, traded on a U.S. exchange, increased to $1.16 billion during the first six months in 2011. For 2010, ADR’s traded on U.S. exchanges amounted to only $771 million in 2010, $738 million in 2008 and $308 million in 2008.
“This shows that in the private markets where regulation is less burdensome, the U.S. continues to do well,” suggests the CCMR study.
