A just-released Harvard Business School study of American competitiveness makes for a classic good-news-bad-news story.
The good news – and it’s genuinely good: The Harvard authors emphasize that real national competitiveness means an economy that is boosting not only business’ fortunes, but workers’ living standards. This point is so crucial that the original presidential commission formed in the 1980s to call attention to American failings on this score defined the concept as “the degree to which a nation can, under free and fair market conditions, produce goods and services that meet the test of international markets while at the same time maintaining or expanding the real incomes of its citizens.”
The importance of enriching the public as well as the corporate sector seems screamingly obvious, until you realize that in the decades since the Young Commission made the argument, it’s been almost completely forgotten. The conventional wisdom nowadays is that competitiveness stems mainly from Darwinian business cost cutting along with dramatic deregulation and tax reductions – in order to succeed against much lower cost and lightly regulate countries become impossible.
This race-to-the-bottom thinking has become so popular even outside the ranks of hard-core conservatives and flinty-eyed business leaders that the logical corollary is almost never brought up: The United States could attract every last dollar of global investment by permitting China-scale pollution and setting a legal maximum wage of a dollar a day. It’s hard to imagine a better definition of a pyrhhic victory.
In fact, as I’ve recently posted, corporate success is so obsessively lionized that even leaders at the Federal Reserve have been (unwittingly, to be sure) wondering in effect whether the United States actually can keep prospering as a nation despite continuing wage stagnation – that is to say, without financially healthy customers.
So hurray for lead authors Michael E. Porter and Jan W. Rivkin for reminding the U.S. leadership class that concern for worker well-being isn’t simple (and possibly outdated) sentiment. Business, they write, “has a profound stake in the prosperity of the average American. Thriving citizens become more productive employees, more willing consumers….” And although they don’t say this, the logical extension of their remarks would hold that the rise of consumers in so-called emerging market countries like China and India can’t offset for the corporate sector the erosion of Americans’ real (as opposed to debt-supported) buying power.
Unfortunately, this is where the good news ends and the bad news begins. The authors and a crew of distinguished contributors ostensibly believe that a raft of purely domestic policy changes will set the nation right – especially that old standby, fixing America’s schools. Despite the wealth of contrary evidence presented in works like my own The Race to the Bottom, they’re still propagating the myth that Americans are the only folks in the world smart enough to appreciate the importance of moving workers up the knowledge and skill ladders.
These trade policy blinkers are especially odd given the authors’ understanding that U.S. job losses during the recession were heavily concentrated in industries substantially exposed to foreign competition, while job gains during the recovery have been heavily concentrated in sectors largely insulated from the global economy.
Clearly, recognition of the U.S. economy’s fundamental problem is much better than the denial that still prevails among American elites. But the new Harvard report makes clear that denial about the most important solutions seems as firmly and widely entrenched as ever. The study is titled An Economy Doing Half its Job. Unfortunately, that’s an apt way to describe its prescriptions.