American Competitiveness in the State of the Union
Last night, President Obama gave his State of the Union Speech to a joint session of Congress, an event in Washington that carries a certain ceremony and pomp that is unlike anything else. Just walking around DC last night, hearing the helicopters and motorcades buzz around, you got the feeling that something was going on.
One of the central themes of the speech was a renewal of America’s international competitiveness, especially in manufacturing. I’m quite sure that America is not going to go back to the days when assembly lines turned out thousands of bombers, but certain types of manufacturing are appropriate as a base for a new economy.
A policy that builds ‘American Competitiveness’ in a broad sense is rightfully a priority for the Administration. But – we have to be careful when we talk about this issue. There are two general actions the government can do to help America compete in the world: one that helps our long-term growth by promoting beneficial action, and a second that looks only at protecting jobs or benefits in the short term. We need a policy that focuses on the long-term, not one that protects our workers in the short term
The first way helps American workers, entrepreneurs, and engineers move up in the world. The President’s innovation agenda in the speech was very helpful. Almost all of our future job growth will come from new, innovative, entrepreneurial companies, and there is a role for the government to help them.
The most important lines in the speech in restoring America’s long term competitiveness were when he said that “Innovation demands basic research.” We here at ASP could not agree more: nothing would help long-term economic growth more than increasing investment in basic scientific research. Last week, ASP hosted an event with Norm Augustine, one of the country’s leading industrialists, which called for more basic research. Our board members have sent a letter to Congressional leaders warning that “we are in danger of losing our competitive edge” due to an underinvestment in research and development.
However, when a politician starts talking about competitiveness, there is a tendency to look to short term protections. These are more dangerous because they are easy. In the speech, Obama trumpeted that his administration saved one thousand American jobs saved by slapping a tariff on imported Chinese tires. He also repeated his claim that “companies get tax breaks for moving jobs and profits overseas” – which is true in so far as saying that companies not located in America pay lower taxes because American corporate taxes are too high. The response that helps our long term competitiveness would be to lower and simplify America’s corporate tax rate – but the short term response, which the President called for, is that “every multinational company should have to pay a basic minimum tax”. These may be effective short-term ways to protect a few jobs, but a policy focused on raising tariffs and taxes will not be effective in America’s long term competitiveness. This negative posture seems to say that we can only compete by dragging the rest of the world down; this is not the American way.
The most competitive America is one that is open to the world: one that trades freely, competes fairly, innovates quickly, is open to foreign investment, and is at the scientific cutting-edge. If the President sticks to these principals, we can build a sustainable future, but we must be careful of the lure of short term fixes.
