What's wrong with "competitiveness"?

Sigh. So it appears that President Obama is going to make “competitiveness” his main economic theme. To be fair, he could (and may well) do worse. But this is hackneyed stuff, and involves a fundamental misconception about the nature of our economic problems.

It’s OK to talk about competitiveness when you’re specifically asking whether a country’s exports and import-competing industries have low enough costs to sell stuff in competition with rivals in other countries; measures of relative costs and prices are, in fact, commonly — and unobjectionably — referred to as competitiveness indicators.

But the idea that broader economic performance is about being better than other countries at something or other — that a companycountry is like a corporation –is just wrong. I wrote about this at length a long time ago, and everything I said then still holds true.*

The hopeful interpretation of Obama’s embrace of the idea that he’s the CEO of America Inc. is that it might help fend off right-wing attacks on government action as a whole, helping him sell the need for public investment of various kinds. On the other hand, as Robert Reich says, this could all too easily turn into a validation of the claim that what’s good for corporations is good for America, which is even less true now than it used to be.

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But what’s American “competitiveness” and how do you measure it? Here are some different definitions:

— It’s American exports. Okay, but the easiest way for American companies to increase their exports from the US is for their American-made products to become cheaper internationally. And for them to reduce the price of their American-made stuff they have to cut their costs of production in here. Their biggest cost is their payrolls. So it follows that the simplest way for them to become more “competitive” is to cut their payrolls — either by substituting software and automated machinery for their US workers, or getting (or forcing) their US workers to accept wage and benefit cuts.

— It’s net exports. Another way to think about American “competitiveness” is the balance of trade — how much we import from abroad versus how much they import from us. The easiest and most direct way to improve the trade balance is to coax the value of the dollar down relative to foreign currencies (the Fed’s current strategy for flooding the economy with money could have this effect). The result is everything we make becomes cheaper to the rest of the world. But even if other nations were willing to let this happen (doubtful; we’d probably have a currency war instead as they tried to coax down the value of their currencies in response), we’d pay a high price. Everything the rest of the world makes would become more expensive for us.

— It’s the profits of American-based companies. In case you haven’t noticed, the profits of American corporations are soaring. That’s largely because sales from their foreign-based operations are booming (especially in China, Brazil, and India). It’s also because they’ve cut their costs of production in the US (see the first item above). American-based companies have become global — making and selling all over the world — so their profitability has little or nothing to do with the number and quality of jobs here in the US. In fact, it may be inversely related.

— It’s the number and quality of American jobs. This is my preferred definition, but on this measure we’re doing terribly badly. Most Americans are imprisoned in a terrible tradeoff — they can get a job, but only one that pays considerably less than the one they used to have, or they can face unemployment or insecure contract work. The only sure way to improve the quality of jobs over the long term is to build the productivity of American workers and the US overall, which means major investments in education, infrastructure, and basic R&D. But it’s far from clear American corporations and their executives will pay the taxes needed to make these investments. And the only sure way to improve the number of jobs is to give the vast middle and working classes of America sufficient purchasing power to get the economy going again. But here again, it’s far from clear American corporations and their executives will be willing to push for a more progressive tax code, along with wage subsidies, that would put more money into average workers’ pockets.

It’s politically important for President Obama, as for any president, to be available to American business, and to avoid the moniker of beiing “anti-business.” But the President must not be seduced into believing — and must not allow the public to be similarly seduced into thinking — that the well-being of American business is synonymous with the well-being of Americans.

— It’s the number and quality of American jobs. This is my preferred definition, but on this measure we’re doing terribly badly. Most Americans are imprisoned in a terrible tradeoff — they can get a job, but only one that pays considerably less than the one they used to have, or they can face unemployment or insecure contract work. The only sure way to improve the quality of jobs over the long term is to build the productivity of American workers and the US overall, which means major investments in education, infrastructure, and basic R&D. But it’s far from clear American corporations and their executives will pay the taxes needed to make these investments. And the only sure way to improve the number of jobs is to give the vast middle and working classes of America sufficient purchasing power to get the economy going again. But here again, it’s far from clear American corporations and their executives will be willing to push for a more progressive tax code, along with wage subsidies, that would put more money into average workers’ pockets.