In the intro this is series, I said that in our globally connected economy the only two things that differentiate the contenders from those left behind are opportunity and ideas. In today’s post, I want to talk about opportunity and the role that government policy plays in enhancing or detracting from a nations opportunity to succeed.
Recently, the World Economic Forum released their annual Global Competitiveness Report and the United States continued to fall in the rankings. In this years report, Switzerland ranks #1 with the United States coming in at #4 (‘#2-’10, #1-”09) behind Singapore and Sweden. While the United States continued to be the world’s most innovative economy, the US fell behind in most other measures including infrastructure, higher education, health care, and technological development. The reasons for these declines vary, but the Forum notes falling public faith in government institutions, high concerns about public spending and deficits, and concerns about governance in private markets.
The Forum also raises deep concern over the long-term economic stability of the United States (#87), due to apparent disregard for trade imbalances, fiscal deficits, and the lack of a clear exit strategy from these policies. In particular, the 787 billion dollar stimulus package was renounced because of the long term impact it would have on macroeconomic growth policies and the deficit. Close examination of the ranking shows that the United States lags significantly behind its western peers in nearly all aspects except for market size, innovation, and university funded research potential. Should the United States lose its edge in one of these sectors, the effects on our global competitiveness would be profound.
Now, it is clear that the financial crisis has had a deep impact on America’s ability to compete globally, but I believe that much of this is due to a declining faith in the American model of business rather than infrastructure or declining labor productivity. That said, it is clear the massive shift in governmental economic policy, e.g. stimulus, health care, and financial regulations, has had a negative impact on America’s long term growth prospects and discouraged investment and research in those aspects of the economy. While the true impact of these policy changes will take years to calculate, the slow recovery of the US economy in comparison to other top ranked nations suggests that these changes are having a noticeable impact on labor and growth standards domestically.
The question of opportunity in the macroeconomic sphere is an interesting one because it is so closely tied to political notions of equality and government planning policies. The rise of the global economy has transformed our notion of economic opportunity and raised into question the factors at play. Is geographic location still critical to economic opportunity? In a world with telepresence video conferencing centers, global on site delivery, and relative financial mobility does where you start your company really help or hurt business substantially? Do large libraries and research institutes still matter? When someone anywhere can simply wikipedia or google scholar knowledge or gain the collective knowledge of thousands through crowd sourcing? Is access tocapital still highly restrictive? When you can reach out to banks across the globe or appeal to millions of investors via the internet? These are the kinds of questions that are constantly being examined but they all focus upon this revelation that no longer are entrepreneurs and organizations tied permanently to a geographic location but are free and willing to relocate to areas that value their work. Gone are the days when it was unfathomable for Coca-Cola to relocated key corporate functions outside of the protected sphere of the United States.
Nations long used to holding the upper hand over corporate and business interest due to their geographic monopoly are having to cope with the realization that its a buyers market for the first time. Nations no longer can expect corporations or organizations to put up with excessive intervention or lagging bureaucracies. Nations now have to sell their state to business interests or risk losing those sources of revenue and prestige. While the situation on the ground is not nearly this clear cut the basic effects of this movement are visible. Across the developed world, pressure is on governments to limit their private sector interference and improve their service operations so that local corporations can compete with competitors from less restrictive nations. This trend is causing governments to race to the bottom and in the process disband all previous notions of public-private sector interactions.
America is losing this race because rather than limiting these restraints on businesses we are handicapping American businesses ability to compete against global competitors. America can not compete on price, so we have to compete on opportunity for growth and value which is why higher education and innovation are so critical to our continued success. These are the engines that give America the technological edge necessary to charge premium prices. The moment we lose these advantages, we lose because it is only through increased productivity and prospects for future development that we can charge American wages.
President Obama’s policies have America heading in the wrong direction. If economic growth and higher wages are the key policy goals of this nation, we need to be limiting our restraints on businesses and focusing on reducing the burden that debt is having on our national economy. Our current policies though do nothing to promote these ideas but rather increase our national debt and thus the burden upon businesses and the population in the future while increasing government involvement in private industry. These policies build speedbumps on America’s economic highway at a time when China, India, Germany, and Switzerland are smoothing our their economic drivers. If this course is not corrected, businesses are going to start taking a different route.
It will be interesting to see how America’s economic competitiveness will change in the coming years as these changes in policy begin to spur economic decisions and businesses have time to change strategies. If the status quo continues, I fully expect to see America fall further in relation to our global neighbors and for our ability to maintain and demand high paying jobs to decrease.
Stay tuned for Part 3
