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America as top economy: a fortuitous ride

US ranks No. 1 in 'competitiveness' for first time. Why factory floors hum.

By David R. FrancisStaff writer of The Christian Science Monitor / September 13, 2000



It sounds like a truism, a statement so obvious it merits little discussion: The United States tops the list of the most competitive economies in the world.

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Yet America's path to prosperity in the 1990s has been unusual and generally unforeseen. In fact, economists say the vitality of US industry begs for explanation.

Even Federal Reserve Chairman Alan Greenspan puzzles publicly about the sources of American competitiveness.

Consider that just 11 years ago, Japan was the icon of business success in books such as Ezra Vogel's "Japan as Number One: Lessons for Americans." Today, the title could be reversed: "America as Number One: Lessons for the world."

Among the US strengths other nations would like to imitate are: strong university-business research ties, ample venture capital for start-ups, a government willingness to bust up monopolies - even America's tolerance for failure by business risk-takers.

"The rest of the world is looking at us," says John Yochelson, president of the Council on Competitiveness, in Washington. "We are the benchmark now."

The US is enjoying a record-breaking 10th year of unbroken economic expansion. Productivity rose a remarkable 5.7 percent in the past 12 months. Unemployment remains at a mere 4.1 percent, inflation low.

Behind those numbers is a business and regulatory climate that made America No. 1 last week in "growth competitiveness" rankings put out by the Geneva-based World Economic Forum. The US knocked Singapore out of the top spot it held for four years.

To economist Andrew Warner, who helped prepare the Forum's ranking, the renewed US economic preeminence in the 1990s reflects a fortuitous combination of factors - one that other nations may find hard to duplicate.

In the past, large firms, with superb research-and-development abilities and access to huge amounts of capital, often were keys to success. The firms built the costly steel mills and chemical plants.

This was the ticket to growth for countries such as Britain, Germany, Japan, Sweden, France, and the Netherlands.

Today, though, the US stands in the best position to create and exploit the revolution in computing, communications, and other forms of information technology, notes Mr. Warner of Harvard University in Cambridge, Mass.

It has a rich set of institutions, public and private, to support technological innovation. Government facilities, universities, companies, and some foundations conduct basic research that can lead to products. The federal government alone spends about $85 billion on scientific research.

The resulting goods are protected by strong intellectual-property rights, encouraging more outlays in the case of business.

Meanwhile, America's vibrant financial markets can rapidly funnel money to promising companies - often venture-capital start-ups - to build these products. These mostly small firms don't have concerns about new products replacing - "cannibalizing" - their old products.

"It is difficult to get big firms to innovate," says Warner.

Further, universities allow professors, often tops in scientific fields, to join in enterprises utilizing their research. The universities themselves acquire patents that are providing increasingly significant sources of revenue.

Companies hire the professors as consultants. They employ their graduate students fresh out of school with the latest knowledge, notes Arthur Alexander, president of the Japan Economic Institute in Washington.

Such practices, he adds, don't travel easily across borders.

In much of Europe, business-university linkages are weak. Faculty members are often civil servants with no rights to engage in commercial activities.

Other factors helping the US include its the high level of competition and deregulation.

Americans, Mr. Alexander says, differ from Europeans and Japanese in that they actually believe in antitrust laws. Thus the US can break up huge companies seen as anticompetitive.

Abroad, monopolies and cartels often slow down the introduction of new technologies.

Another advantage he sees for the US is its tolerance of risk and failure. Executives who fail in a job are assumed to have learned something and are allowed to try again. As long as they don't flop four or five times.

"A risk taker in Japan is not looked on highly," says Alexander, whose institute studies the Japanese economy and its relationship to the US. "But this is changing."Immigrants are also seen as a stimulant to US competitiveness. These people strive for the "American dream," says Alexander. The US has lured foreign money, too.

"Globalization is also playing very well to the advantage of the US," says Mr. Yochelson.

American firms can more easily outsource standard parts abroad while keeping creative, innovative activities at home. The costs of American research and development are spread over a larger market. Meanwhile, globalization has resulted in tumultuous cycles of boom and bust in some emerging countries, note Mr. Warner and his colleague, Jeffrey Sachs, in the new Global Competitiveness Report.

While other nations can benefit by adopting technology and innovations from the US or elsewhere, economies differ in their ability to absorb them rapidly.

The report's measure of "growth competitiveness" aims at indicating a nation's growth potential in the medium term ahead. The forum has added a "current competitiveness" index that looks at the immediate scene. It places Finland, with its Nokia cell-phones and Internet activities, as No. 1. America takes second place.

(c) Copyright 2000. The Christian Science Publishing Society