Director’s Corner | On American Competitiveness

Our friends at the Council on Competitiveness have just released their Competitiveness Index: Where America Stands—116 pages chock full of highly relevant information and analysis about what the Council calls “strategic differentiators” in education, entrepreneurship, research and development and other critical indices. It should be required reading for American policymakers. In fact, especially in light of the many challenges confronting the country, they should be made to commit it to memory. You too should read it. It is a critical reminder of the things that we should be emphasizing in the United States as we scan the more distant horizons. It also reminds us about popular misconceptions that can lead us far astray.

“The rapid entry of emerging markets into the global economy, the restructuring of global corporations to leverage those new opportunities, and the growing value of innovation, services and intangibles have transformed the competitiveness environment for the U.S. economy, American companies and American workers” (Index, p. 13). So begins the step-by-step look at how the United States fares relative to the rest of the world in the foundations of competitiveness and the sources of future prosperity.

The results, as you would expect, are mixed. On the one hand, the United States stands apart as the only developed economy with substantial growth; it alone has been responsible for one-third of global output growth over the past 15 years, the Index observes (p. 15). Since 1995, it notes, rapid adaptation of information technology has created productivity gains that are the envy of the rest of the developed world (p. 15). Despite increased competition from abroad, the country still sets the global standard when it comes to a number of critical factors—a lead in science and technology, the largest number of world-class companies with high innovation rates, internationally recognized universities and research laboratories, and high workforce participation and lower unemployment levels than other developed countries (Index, p. 16). On the other hand, the same country suffers from worker imbalances, growing inequities, significant financial imbalances, its high school and college students are falling behind their counterparts in other countries, and the country has a profound reliance on foreign energy sources (Index, p. 17).

These pluses and minuses will play themselves out in the context of tremendous shifts in global economic production. Emerging economies, the Index maintains, have seen their share of global output rise from 12% of 1986 to 19% in 2005 (p. 20). According to research from CSIS-GSI Advisory Council member Paul A. Laudicina, Chairman of A.T. Kearney, the number of middle-income consumers across the world could increase from 1.3 billion in 2005 to 2.3 billion by the year 2020—with 90% of the number in the developing countries.

Net net, the many powerful conclusions contained in this report cannot be ignored. The United States still enjoys a good number of advantages, but its capacity to remain competitive in the changing global system will diminish unless leaders can engage more effectively in addressing core problems: strengthening education, promoting research and innovation, pursuing responsible economic and financial policies, and maintaining productivity gains. This goal should be achieved though sound policy and systematic thinking about maintaining U.S. advantages and addressing those areas in which the country is falling short.