Building the Next American Century: The Past and Future of American Economic Competitiveness

The United States does not now have a competitiveness policy adequate to meet the economic challenges of the first decades of the twenty-first century, and it is in danger of losing ground to other nations. If it adapts some of the policies that were developed during the economic debate of the 1980s, however, it might well be able to retain its position as an economic power and leading innovator. That, at any rate, was the conclusion of all three speakers at the Division of U.S. Studies' launch of Kent Hughes' Building the Next American Century, which chronicles the history of the U.S. economy and offers recommendations for the future.

The U.S. entered the 1970s after more than two decades of rapid growth and rising standards of living. Then in 1973, the world changed," in Hughes' words, as the U.S. faced its first oil embargo, which was followed by another in 1979. By the late 1970s, the country faced an era of rising prices and stagnating productivity growth, otherwise known as stagflation. It was also challenged by increasing international competition that included the seemingly unstoppable march of Japan to industrial dominance.

The economic turmoil of the 1970s sparked a debate among scholars and politicians in the 1980s. Some felt the U.S. should create a comprehensive policy to boost the traditional industries of steel and coal; others believed the future lay with high-tech industries. In 1982 the House Democratic Caucus released Rebuilding the Road to Economic Opportunity, which called for both supporting long-term productivity growth and maintaining fairness for American workers. In 1983 President Ronald Reagan created the President's Commission on Industrial Competitiveness, led by John A. Young, CEO of Hewlett Packard. The Young Commission's 1985 report defined the country's competitiveness agenda, which included encouraging public and private investment, emphasizing education and training, incorporating an active technology policy, and promoting U.S. businesses abroad. Business, labor, and state governments shared a sense of urgency about the economic future and supported Congress in its determination to pass the Omnibus Trade and Competitiveness Act of 1988. Hughes called the Act, which included a plan for exchange rates, education, and trade adjustment assistance, "a global strategy in legislative form."

While the administration of President George H.W. Bush embraced this legislative agenda only partially, it helped create a positive environment for investment by cleaning up the savings and loan scandals and reducing the deficit. President Bill Clinton whole-heartedly embraced a competitiveness agenda, emphasizing deficit reduction, the advancement of new technologies and programs, lifelong learning to maintain worker viability, and financial backing for and promotion of U.S. businesses in overseas markets. The Clinton administration also had the benefit of low inflation, low oil prices and a business community in a position to take advantage of the opportunities provided through the new technology of the Internet.

There are major challenges ahead. Today, approximately 2.5 to 3 billion people are entering the global economy, creating unique vulnerabilities for the U.S. China, India and Eastern Europe, for example, place a greater emphasis on the training of a workforce in science and technology than does the U.S. The challenge is heightened by new digital technologies that allow many jobs to be performed anywhere in the world. Hundreds of thousands of jobs have been shipped overseas, and a 2001 Berkeley study estimates that approximately 14 million more jobs may join them – and Hughes considers that estimate conservative. The U.S. faces domestic pressure as well from the growing federal deficit, record trade and current account deficits, and longstanding weaknesses in the U.S. education system.

But the strength of the U.S. economy, Hughes believes, is its ability to adapt to shocks. By adapting the economic strategies engineered in 1980s and applied during the 1990s, creating a new sense of purpose to drive U.S. innovation and economic growth, preparing vulnerable U.S. workers for global competition and crafting a globalization strategy that works for everyone, we can pave the way for future U.S. growth and prosperity in the twenty-first century.

Nancy Dunne discovered, when she covered the Reagan administration for the Financial Times in the 1980s, that in the absence of federal policy, states were responding to the need for a competitiveness strategy. Some had established overseas offices to promote U.S. products and to attract foreign investment even before the passage of the1988 Act. Even today, in an era of soaring deficits, inflation, rising interest rates, and dependence on foreign capital, the federal government's response is lagging and it is the states that are investing in technology, enterprise development, worker training, and the creation of public/private partnerships.

Howard Rosen noted that the competitiveness debate, covered in depth in Hughes' book, marked the transition of the U.S. economy from its dependence on domestic markets to its dependence on foreign markets. Rosen agreed with Hughes that competitiveness should be defined as a strategy for improving the living standards of Americans while meeting the challenge of the global market. The U.S. is failing that test, he argued. Productivity is increasing but wages are not, and yet the current administration is preparing to dismantle the tools that make competitiveness work. There is less investment in research and development than there was twenty years ago, and the deficit continues to rise. The competitiveness debate of the 1980s was important in helping policy makers think long-term and that, Rosen believes, is the kind of thinking that is necessary in preparing the U.S. to meet the economic challenges of today and tomorrow.

Drafted by Acacia Reed

Philippa Strum, Director of U.S. Studies (202) 691-4147