America Can Compete Successfully, But we need a Comprehensive Strategy

Much national debate over the last year has been about how the United States, its companies and its workers can compete successfully in the world. The theme was clear in President Trump’s inaugural speech. And, most observers agree that America has what it takes to succeed, but it needs to deploy an array of improved policies and tools to face global competition. We must draw on the best ideas from across the political spectrum and agree on a comprehensive strategy.

Some seek to push ahead aggressively on select reforms without trying to build a broader coalition. Yet there is clear potential for President Trump and his allies to forge wider agreement around an ambitious agenda for making the United States more competitive globally. Agreements that cross party lines would make it more likely that the programs America needs to excel in global markets are enacted, funded and well implemented.

The work to find common ground and take action should focus on nine areas:

1) Worker training and support;

2) Education improvements;

3) Innovation and entrepreneurship;

4) Infrastructure renewal;

5) Tax reform;

6) Revitalized trade and investment policies;

7) Systematic review of regulations;

8) Specific immigration reform measures; and

9) Managing national debt.

America’s Workers: There are many causes behind globalization and the outsourcing and job losses in the U.S. They are not just the result of trade or tax policies. The strategy to strengthen the US economy for global competition also needs to be multifaceted to give US workers, companies, and communities the best chance of success. While trade and Mexico get a lot of public blame for manufacturing job losses, for example, the biggest culprit for job losses has been automation and new technology, followed by trade with China.

Trade in North America, on the other hand, looks closer to a wash for job loss/creation. In the cases where jobs moved to Mexico, parent companies often created new higher paying, higher skilled jobs in the US. NAFTAspurred mutual growth of the three economies, was a boon for sectors such as US agriculture, and created 5 million US jobs dependent on sales to Mexico, and exports to Canada support millions more US jobs. However, the lack of effective worker retraining and other programs to help those who lost jobs to automation, China trade and NAFTA left millions of US workers and their communities in dire straits. We harmed our nation by not effectively supporting these workers to get the skills needed for the new jobs being created or to otherwise adapt well to the shifts in the marketplace. We left sectors exposed to “unfair” international competition, and we did not incentivize investment in communities, which lost sources of employment.

Overall, the US manufacturing sector is producing more output per worker than ever before but with fewer workers. Many jobs being created require different skills, and the lower-skilled service jobs available pay less than manufacturing jobs lost. In general, however, consumers got lower prices, better paying skilled jobs were created, and companies competed successfully with international rivals. Though, these benefits did not satisfy workers or communities left behind. US government programs, as well as the “market,” were insufficient. The US spends far less than most other developed economies to help workers hit by job loss. And the impact of new technology, including on service and white-collar jobs, will continue to grow, magnifying the need to help displaced workers.

Now is the time for a serious expansion of programs offering retraining, job placement, and longer-term support to help those workers left on the sidelines by market changes. The Administration and Congress should craft a package of measures to give US workers a world class set of re-training opportunities to gain the skills needed to succeed in today’s and tomorrow’s marketplace. This should include tax breaks and other income supporting measures to help those who have lost jobs because of technology or commerce, but who are unlikely to be retrained. They should also agree on steps to incentivize private investment in communities which have suffered large employment losses.

America’s Youth: Investing in our human capital is essential for long-term success. The US has many strong points, especially our research universities, and has been making progress on test results and graduation rates. However, while we once led the world in educational attainment, we are now in the middle of the pack among developed economies, and gains in learning have stalled compared to others. Over half of the candidates for advanced degrees in key STEM fields are foreign. We have serious gaps in preschool enrollment and relatively high college and community college dropout rates. We lag in apprenticeship programs to teach technical skills, which have contributed to Germany’s export successes. We see skyrocketing costs for higher education (11 times higher than in 1980) and growing student debt. The opportunity gap between the poor and the rich is large and not shrinking. The Administration, Congress, and state governors should come together to agree on programs and policies to help our young people acquire the skills needed for them and our economy to prosper. Without action, America will fall further behind.

America’s Innovators and Entrepreneurs: America has a great advantage: its business environment favors innovation and entrepreneurial spirit, its financial instruments support risk-taking, and its research and development (R&D) system is well supported by public and private effort. The U.S. has the largest gross R&D spending in the world. It produces much innovation and successfully attracts entrepreneurs and innovators from around the globe. But the US faces increased competition. Japan, South Korea, and Taiwan spend a higher percentage of GDP on R&D than does the US, and China will soon likely surpass our total R&D spending. The Administration and Congress must agree to expand basic research with federal funding and policies that encourage R&D across scientific fields, as part of a systematic approach to US economic success. They should review tax laws and regulations affecting the small firms and start-ups where so much innovation and job creation is happening, and further improve our patent and intellectual property rights protection system. Immigration reform can encourage bringing and keeping the world’s best and brightest here to study and innovate.

America’s Infrastructure: Despite the widespread agreement that we need to invest in infrastructure to bolster competitiveness and generate jobs, our political leaders have not been able to reach a consensus on how to proceed. For the last 20 years, the US has spent less on infrastructure as a percentage of GDP than other developed countries. Our infrastructure now ranks poorlycompared to the quality found in other developed economies. One result: greatly increased road congestion costs individuals and businesses dearly. We need to reform the way we finance our transportation infrastructure. The current gas tax is not covering costs. A range of creative solutions exist, including expanded public-private partnerships, a national infrastructure bank, national commissions to help prioritize and review projects to assure long term strategic benefits, and adjustments to the gas tax to help pay for the investments. President Trump has made infrastructure a priority. Congress should approve a well-funded, strategically designed program to develop infrastructure that will meet the long-term needs of the economy. An infrastructure bank or other institution to help oversee and guide this multi-year effort could help assure that this program does not get diverted into projects with limited impact.

America’s taxes: There is broad agreement that corporate tax reform is overdue and that concerted action is needed to counter international tax havens. The US should ensure that its tax rates are competitive with others, that corporations have incentive to bring profits home, and that our system does not incentivize moving businesses overseas. Many favor moving our regime to a territorial tax system, which is used by most countries in the world. Others suggest adding a Value Added Tax, also used by most countries, to bolster revenue and to discourage off shoring. The current House Republican proposal includes a border adjustable tax that seems effectively similar to a VAT tax but that would only affect imports (and which may be incompatible with international trade rules). Sorting this out will be complicated. It will not be easy to find the right balance that encourages US companies to invest at home and foreign companies to invest in the US, while also allowing for legitimate international investment and following international norms. A coordinated push to reach agreement with other governments to eliminate unfair tax practices, especially in overseas tax havens, is essential, working through the G20 and other international forums. Despite the challenges, with hard work Congress can forge agreement on reform that bolsters US jobs, spurs growth, respects trade rules, provides federal revenue, and maintains the valuable presence of US companies overseas. One example of international investment’s value: 33% of US exports to the European Union and 60% of imports from the EU are trade within the same firm.

America’s Trade and Investment Policies: The United States is a trading nation. Trade has brought many advantages to Americans through high paying jobs in export industries and lower prices. The US also benefits from successful US investments overseas and from foreign businesses investing in the US. However, trade negotiations and related tools are only one part of a national strategy for growth and global competitiveness. Rather than demonizing trade, we need a clear-eyed review of what works and doesn’t work in existing agreements and why. We can then use legitimate trade remedies to counter “unfair” practices, such as subsidies, non-tariff barriers, and tax and currency manipulation. The US can support exports and domestic sales with the range of policies to achieve improvements. We need a “whole of government” approach to trade agreements which takes a vigorous look at all vital US interests in forging and implementing agreements, includes a “job impact” study, and uses many policy instruments to keep our economy strong and our workers ready for the future. We should not endanger the millions of jobs tied to exports in the process. Those jobs on average pay significantly more than non-export jobs.

For example, trade and investment in North America with Mexico and Canada has created much wealth for the US economy: it has allowed US firms to compete effectively against Asia; it has created millions of new US jobs, and it established a production platform that can serve well all three major economies in North America for future competition. Big job losses were not the fault of North American trade and investment per se, but rather a public policy failure by leaders who did not provide the kind of policies and programs to address the multiple effects of global competition and technological change. We can, however, update NAFTA to the benefit of all three partners. Energy deserves special attention: North America has abundant, low cost energy and opportunities fueled by reforms in Mexico and new technology. Well-crafted policies and regulations will lower costs and boost the continent’s future energy security.

The US should focus aggressively on those who unfairly distort trade, investment rules, taxes or exchange rates for their own advantage. However, we must also aggressively target openings for our goods and services where the US has competitive advantages. We should actively promote sales through export credits and loan guarantees (via EXIM and OPIC), as do our competitors, while also doubling down to attract new foreign investment, which can help communities recover jobs. Our strategy should not neglect the major economic and job gains from foreign trade and investment, nor should we neglect the significant influence we gain by having other countries integrated into shared economic networks, norms and rules. We will lose strategically if we forgo those ties.

America’s Regulatory System: Representatives of industry and members of Congress are identifying regulations they see as anti-competitive and proposing additional barriers to new regulations. The US still ranks eighth of 195 countries in the World Bank’s yearly Doing Business report and as the third most competitive economy in the world, according to the World Economic Forum, but those reports also identify areas for improvement. The challenge is to discern regulations that produce good results for society from those whose net impact is negative. Establishing a systematic way to assess the impact of regulations once they are in place, in addition to estimating their costs and benefits when they are first proposed, and creating a workable way to repeal or adjust the regulations based on their effects in practice would be a good start. Congress and the Administration should forge and fund a reform to do that. They can learn from recent regulatory reforms in the UK, Australia, Canada, and others.

America’s Immigrants: There are very divisive issues here, but clear economic and competitiveness benefits that will come from well-crafted reform. First, immigrants are a source of innovation and entrepreneurship. A 2011 study found that immigrants formed one in four new businesses, and another argues that immigrants or their children founded some 40% of the Fortune 500 companies. Steve Jobs father was a Syrian immigrant. The 2016 Silicon Valley Index shows that 34% of the Valley’s workforce is foreign born. Many reports cite the high percentage of foreign students in US science and technology graduate programs and the value of keeping them here. From another perspective, a series of reports document that in the agriculture, hospitality, and construction industries there are serious needs for regular supply of at least temporary foreign labor. The key point is that the United States can reap significant economic benefits if Congress and the Administration can forge agreement on immigration reform.

America’s Debt: A number of the reforms cited above will cost a lot. The US already has some $20 trillion in national debt and faces projected growth of that debt that could make us one of the world’s most indebted developed countries. A growing debt burden will hinder future growth prospects unless tackled. The new Administration and Congress need to incorporate plans to bring debt down over time, while introducing new programs to boost America’s competitiveness.

The bottom line is that if America is going to succeed in global competition, our representatives must forge a strategic agenda that incorporates a wide range of policy areas and mobilizes the programs, funds and tools needed for systematic and structural reforms. This won’t be easy, but President Trump, his team, and key Congressional committees, can bring together key actors from across the political spectrum, the private sector, and state and local governments to explore options, identify the best ideas and find areas of agreement. Forging a broad national agenda and putting it into action quickly is the best way to help America become more competitive in the world and to reap the prosperity that will follow.

The opinions expressed here are solely those of the author.