August 15, 1993
"In Competition - It's Tough Out There, But in Key Areas America is Still
San Jose Mercury News
By Timothy Taylor
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AMERICA STILL chants "We're No. 1" when a U.S. citizen wins Olympic
gold. But in the race for global economic leadership, Americans have become uncertain,
even pessimistic. Even as the U.S. economy shuffles forward, we spend a lot of
time looking over our shoulders at tough competitors from Japan and Europe, not
to mention up-and-comers like Mexico and Korea.
Once a year, the Council on Competitiveness publishes a "competitiveness
index," which both considers U.S. economic performance over the last couple
of decades, and in comparison with the other leading industrialized economies.
The Index takes a straightforward view of what determines long-term growth.
Investment in capital, education, and research and development lead to increases
in productivity. Productivity affects exports, and nation's ability to compete
on world markets. Finally, the overall purpose of seeking competitiveness is to
improve America's standard of living.
Of course, these categories are not exhaustive. Even among economic statistics,
they deemphasize job creation, low inflation, reducing poverty, and the overall
balance of trade. Moreover, any set of economic measurements will tend to leave
out non-economic factors like how much time people have to spend with their families,
the cleanliness of the environment, or whether you feel secure walking down the
street at night.
But this is just one group's Competitiveness Index; it was never intended to
be some encyclopedic wish-list for everything that is socially desirable. Its
overall feeling, at least to me, is a combination of reassurance about the present,
and concern for the future.
STANDARD OF LIVING
U.S. citizens continue to enjoy the highest standard of living in the world, at
least on average. The measurements here take the size of a nation's economy, measured
by gross domestic product, and divide by the number of people, to figure per capita
GDP. By this measure, if the U.S. standard of living is set equal to 100, Germany
is in second place at 86, while Canada and Japan lurk just behind at 85.
When you hear someone argue that the U.S. has slipped behind other nations,
one of three things has usually happened:
- They may not know what they're talking about.
- In comparing the economies of the different countries, they may be using some
idiosyncratic exchange rates. The comparison here uses so-called "purchasing
power parity" exchange rates, which is standard method of comparing the actual
buying power of a currency in its home country.
- They may have confused a diminishing lead with actually being behind. As the
bar chart shows, the U.S. standard of living has grown more slowly since 1972.
But we aren't actually behind. Yet.
Total exports is a quirky way for a nation to measure its competitiveness. What
really matters is not the total amount sold, but whether the U.S. is exporting
goods and services that involve sophisticated skills and high technology. In addition,
looking at exports without also considering imports is like talking with Tweedledum
and ignoring Tweedledee.
That said, U.S. exports have actually done pretty well in global markets. The
rate of growth in exports lags behind Japan -- no big surprise there -- but ranges
ahead of other international competitors.
Interestingly enough, the world export leader in 1992 was not the U.S. ($348
billion in exports) or Japan ($334 billion), but rather Germany ($392 billion).
However, European countries tend to have relatively high levels of exports and
imports, because of all the trade they do with their geographic neighbors. By
comparison, U.S. and Japanese exports often have to cross an ocean to find a market.
While certain Japanese industries are surely at or near the top of the world in
their manufacturing productivity -- automobiles leap to mind -- when the broad
average of all industries is considered, the U.S. still heads the list. The method
of measurement here was to take the total production of a nation's manufacturing
sector, convert into dollars using the "purchasing power parity" exchange
rate, and divide by the number of manufacturing employees. On that scale, if the
U.S. level of productivity is 100, then France is second and Japan a distant sixth.
America's lead is decaying, however. Japanese and Italian manufacturing productivity
has grown much more rapidly since 1972, although the U.S. has held its ground
against other nations.
A focus on manufacturing productivity neglects the ever-increasing proportion
of workers in all industrialized countries work in service industries, many of
them high tech professions like engineering, finance, law, health care, and so
on. Measuring productivity is much tougher in service industries. Anyone who can
count can tell whether a manufacturing assembly line turns out refrigerators more
quickly, but measuring the efficiency of a software design project will be a real
No matter which dimension of investment one considers -- physical capital, research
and development, or education -- the U.S. news is not encouraging.
The U.S. invested 10.6 percent of its gross domestic product in plant and equipment
in 1992, a lower amount than any of its leading competitors. Germany invested
14.5 percent; Japan, 20 percent. Since 1972, the largest growth in this form of
investing has been investors have been Japan and Canada have shown the strongest
growth in physical investment, with the U.S. bunched with everyone else at the
rear of the pack.
The intensity of civilian-oriented research and development is higher in Japan
and Germany. The U.S. has spent about 1.9 percent of GDP for the last decade,
while Germany ponied up 2.6 percent (in 1990), and Japan 3.1 percent. When it
comes to government investment in education, the U.S. looks better on then numbers.
It spent 4.5 percent of GDP in 1989, compared with 3.6 percent in Germany and
3.2 percent in Japan. But these numbers mislead, since they leave out considerable
private spending in education in Germany and Japan. Few would argue that America's
K-12 education system is turning out substantially better-prepared graduates than
are its international competitors.
Current standard of living
Total growth in standard of living, 1972-1992
Long-term growth in exports, 1972-1992
Current level of manufacturing productivity
Total growth in manufacturing productivity, 1972-1990
Overall growth in investment in plant and equipment, 1972-1992
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