Is America keeping up with the competition? Look who's getting ahead of the average American family
Washington — ``Are we keeping up with the Joneses?'' is a relevant election-year concern. More appropriate, however, is the question of whether the Joneses are keeping up with the Japanese - or anyone.
According to the Council on Competitiveness, Japanese families are ahead, and they aren't the only ones pulling ahead of the average American family.
While ``it's wrong to think of competitiveness as though it were a question of coming out on top,'' says Joseph Duffey, an executive member of the council, falling behind does mean ``a diminishing range of opportunities for our children ... a diminished opportunity to deal with the social problems - like health and education - that we've got to grapple with.''
And the United States is falling behind. The council's first index, released last week, shows that US competitiveness compared with other major industrial nations has dropped across the board. (The two-year-old council consists of executives from industry, organized labor, and higher education, concerned with improving the stance of American companies and workers in world markets.)
In real terms, that means a stagnant standard of living, slowed productivity growth, a relatively weak level of investment for the future, and a trade deficit.
The report is ``valuable and sobering,'' says Richard Munsen, executive director at the Northeast-Midwest Institute, a research group focusing on regional economic growth. ``It shows a downward spiral that needs to be reversed if we want our standard of living to improve.''
The oft-mentioned US trade imbalance is merely a symptom of productivity and investment deficiencies that will ultimately lower the standard of living, says council president Alan Magazine.
Compared with the six other nations whose leaders meet with the US president in an annual economic summit, the US has already experienced a steady erosion of its living standard since 1972. The six are West Germany, Japan, Canada, France, Italy, and the United Kingdom.
Basing its figures on gross domestic product instead of gross national product - taking into account that the money the US owes other nations is going to affect its future living standard - the US standard has grown only one-quarter as fast as the six others.
That means, for example, that every American worker's share of the GDP was $6,000 less than that of each worker in West Germany in 1987 dollars. With today's dollar, the difference is even greater.
Even domestically, average weekly earnings of the American worker are lower than they have been since 1978. Put another way, for the past 10 years, real after-tax income has fallen for all but the wealthiest 20 percent of American families, according to the Congressional Budget Office.
Despite a surge in American exports and a jump in productivity last year, the nation's productivity and investment have lagged behind the activity of the major foreign economies.
``The improvement we've gotten so far is not because of any major turnaround in fundamental US competitiveness,'' said Lawrenece Chimerine, president of the Wharton Econometric Forecasting Association, which worked on the index.
``It has happened primarily because of the change in exchange rates and because of wage and cost restraints, but there are costs to these adjustments,'' he says.
Dr. Duffey, president of the University of Massachusetts at Amherst, suggests that the underlying causes of this problem - investment deficiency, for example - could be eased by encouraging a higher savings rate through tax incentives.
``We should also provide ways to discourage using capital in nonproductive ways, like mergers and acquisitions,'' he suggests.
Capital is expensive in the US because of the country's low national savings rate, and the fact that a large percentage of GNP goes for non-business expenses. The US currently saves only 2 percent of its national income. Economists estimate Japan saves twice as much.
``That could spell trouble down the road,'' says Daniel Burton, vice-president of the council. Investment into education, research and development, and plant and equipment provides the infrastructure for productivity, he says.
US productivity has been the worst performer, according to the index, having fallen one-third from its world share in 1972. Though US manufacturers produce more than their global competitors do, industry has lost almost all of its competitive advantage. Japan's manufacturing productivity has increased eight times as fast as America's, West Germany's has grown three times as fast, and the six trade partners' four times as fast.
Though exports did pick up last year, as did investment in capital equipment and education, this was in large part because of the dollar's decline. And American exporters may have difficulty increasing future sales without further reductions in the value of the dollar.
``The world will be more stable as there are more international market situations that are reciprocal,'' says Duffey. ``But we have to adapt to that shift with grace.''