addition to competitiveness: a dangerous obsession

THE THRILL OF COMPETITION

THE COMPETITIVE metaphor -- the image of countries competing with each other in world markets in the same way that corporations do -- derives much of its attractiveness from its seeming comprehensibility. Tell a group of businessmen that a country is like a corporation writ large, and you give them the comfort of feeling that they already understand the basics. Try to tell them about economic concepts like comparative advantage, and you are asking them to learn something new. It should not be surprising if many prefer a doctrine that offers the gain of apparent sophistication without the pain of hard thinking. The rhetoric of competitiveness has become so wide-spread, however, for three deeper reasons.

First, competitive images are exciting, and thrills sell tickets. The subtitle of Lester Thurow's huge best-seller, Head to Head, is "The Coming Economic Battle among Japan, Europe, and America"; the jacket proclaims that "the decisive war of the century has begun . . . and America may already have decided to lose." Suppose that the subtitle had described the real situation: "The coming struggle in which each big economy will succeed or fail based on its own efforts, pretty much independently of how well the others do." Would Thurow have sold a tenth as many books?

Second, the idea that U.S. economic difficulties hinge crucially on our failures in international competition somewhat paradoxically makes those difficulties seem easier to solve. The productivity of the average American worker is determined by a complex array of factors, most of them unreachable by any likely government policy. So if you accept the reality that our "competitive" problem is really a domestic productivity problem pure and simple, you are unlikely to be optimistic about any dramatic turnaround. But if you can convince yourself that the problem is really one of failures in international competition that -- imports are pushing workers out of high-wage jobs, or subsidized foreign competition is driving the United States out of the high value-added sectors -- then the answers to economic malaise may seem to you to involve simple things like subsidizing high technology and being tough on Japan.

Finally, many of the world's leaders have found the competitive metaphor extremely useful as a political device. The rhetoric of competitiveness turns out to provide a good way either to justify hard choices or to avoid them. The example of Delors in Copenhagen shows the usefulness of competitive metaphors as an evasion. Delors had to say something at the Ec summit; yet to say anything that addressed the real roots of European unemployment would have involved huge political risks. By turning the discussion to essentially irrelevant but plausible-sounding questions of competitiveness, he bought himself some time to come up with a better answer (which to some extent he provided in December's white paper on the European economy -- a paper that still, however, retained "competitiveness" in its rifle).

By contrast, the well-received presentation of Bill Clinton's initial economic program in February 1993 showed the usefulness of competitive rhetoric as a motivation for tough policies. Clinton proposed a set of painful spending cuts and tax increases to reduce the Federal deficit. Why? The real reasons for cutting the deficit are disappointingly undramatic: the deficit siphons off funds that might otherwise have been productively invested, and thereby exerts a steady if small drag on U.S. economic growth. But Clinton was able instead to offer a stirring patriotic appeal, calling on the nation to act now in order to make the economy competitive in the global markets with the implication that dire economic consequences would follow if the United States does not.

Many people who know that "competitiveness" is a largely meaningless concept have been willing to indulge competitive rhetoric precisely because they believe they can harness it in the service of good policies. An overblown fear of the Soviet Union was used in the 1950s to justify the building of the interstate highway system and the expansion of math and science education. Cannot the unjustified fears about foreign competition similarly be turned to good, used to justify serious efforts to reduce the budget deficit, rebuild infrastructure, and so on?

A few years ago this was a reasonable hope. At this point, however, the obsession with competitiveness has reached the point where it has already begun dangerously to distort economic policies.

THE DANGERS OF OBSESSION

THINKING AND SPEAKING in terms of competitiveness poses three real dangers. First, it could result in the wasteful spending of government money supposedly to enhance U.S. competitiveness. Second, it could lead to protectionism and trade wars. Finally, and most important, it could result in bad public policy on a spectrum of important issues.

During the 1950s, fear of the Soviet Union induced the U.S. goverment to spend money on useful things like highways and science education. It also, however, led to considerable spending on more doubtful items like bomb shelters. The most obvious if least worrisome danger of the growing obsession with competitiveness is that it might lead to a similar misallocation of resources. To take an example, recent guidelines for government research funding have stressed the importance of supporting research that can improve U.S. international competitiveness. This exerts at least some bias toward inventions that can help manufacturing firms, which generally compete on international markets, rather than service producers, which generally do not. Yet most of our employment and value-added is now in services, and lagging productivity in services rather than manufactures has been the single most important factor in the stagnation of U.S. living standards.

A much more serious risk is that the obsession with competitiveness will lead to trade conflict, perhaps even to a world trade war. Most of those who have preached the doctrine of competitiveness have not been old-fashioned protectionists. They want their countries to win the global trade game, not drop out. But what if, despite its best efforts, a country does not seem to be winning, or lacks confidence that it can? Then the competitive diagnosis inevitably suggests that to close the borders is better than to risk having foreigners take away high-wage jobs and high-value sectors. At the very least, the focus on the supposedly competitive nature of international economic relations greases the rails for those who want confrontational if not frankly protectionist policies.

We can already see this process at work, in both the United States and Europe. In the United States, it was remarkable how quickly the sophisticated interventionist arguments advanced by Laura Tyson in her published work gave way to the simple-minded claim by U.S. Trade Representative Mickey Kantor that Japan's bilateral trade surplus was costing the United States millions of jobs. And the trade rhetoric of President Clinton, who stresses the supposed creation of high-wage jobs rather than the gains from specialization, left his administration in a weak position when it tried to argue with the claims of NAFTA foes that competition from cheap Mexican labor will destroy the U.S. manufacturing base.

Perhaps the most serious risk from the obsession with competitiveness, however, is its subtle indirect effect on the quality of economic discussion and policymaking. If top government officials are strongly committed to a particular economic doctrine, their commitment inevitably sets the tone for policy-making on all issues, even those which may seem to have nothing to do with that doctrine. And if an economic doctrine is flatly, completely and demonstrably wrong, the insistence that discussion adhere to that doctrine inevitably blurs the focus and diminishes the quality of policy discussion across a broad range of issues, including some that are very far from trade policy per se.

Consider, for example, the issue of health care reform, undoubtedly the most important economic initiative of the Clinton administration, almost surely an order of magnitude more important to U.S. living standards than anything that might be done about trade policy (unless the United States provokes a full-blown trade war). Since health care is an issue with few direct international linkages, one might have expected it to be largely insulated from any distortions of policy resulting from misguided concerns about competitiveness.

But the administration placed the development of the health care plan in the hands of Ira Magaziner, the same Magaziner who so conspicuously failed to do his homework in arguing for government promotion of high value-added industries. Magaziner's prior writings and consulting on economic policy focused almost entirely on the issue of international competition, his views on which may be summarized by the title of his 1990 book, The Silent War. His appointment reflected many factors, of course, not least his long personal friendship with the first couple. Still, it was not irrelevant that in an administration committed to the ideology of competitiveness Magaziner, who has consistently recommended that national industrial policies be based on the corporate strategy concepts he learned during his years at the Boston Consulting Group, was regarded as an economic policy expert.

We might also note the unusual process by which the health care reform was developed. In spite of the huge size of the task force, recognized experts in the health care field were almost completely absent, notably though not exclusively economists specializing in health care, including economists with impeccable liberal credentials like Henry Aaron of the Brookings Institution. Again, this may have reflected a number of factors, but it is probably not irrelevant that anyone who, like Magaziner, is strongly committed to the ideology of competitiveness is bound to have found professional economists notably unsympathetic in the past -- and to be unwilling to deal with them on any other issue.

To make a harsh but not entirely unjustified analogy, a government wedded to the ideology of competitiveness is as unlikely to make good economic policy as a government committed to creationism is to make good science policy, even in areas that have no direct relationship to the theory of evolution.

ADVISERS WITH NO CLOTHES

IF THE OBSESSION with competitiveness is as misguided and damaging as this article claims, why aren't more voices saying so? The answer is, a mixture of hope and fear.

On the side of hope, many sensible people have imagined that they can appropriate the rhetoric of competitiveness on behalf of desirable economic policies. Suppose that you believe that the United States needs to raise its savings rate and improve its educational system in order to raise its productivity. Even if you know that the benefits of higher productivity have nothing to do with international competition, why not describe this as a policy to enhance competitiveness if you think that it can widen your audience? It's tempting to pander to popular prejudices on behalf of a good cause, and I have myself succumbed to that temptation.

As for fear, it takes either a very courageous or very reckless economist to say publicly that a doctrine that many, perhaps most, of the world's opinion leaders have embraced is flatly wrong. The insult is all the greater when many of those men and women think that by using the rhetoric of competitiveness they are demonstrating their sophistication about economics. This article may influence people, but it will not make many friends.

Unfortunately, those economists who have hoped to appropriate the rhetoric of competitiveness for good economic policies have instead had their own credibility appropriated on behalf of bad ideas. And somebody has to point out when the emperor's intellectual wardrobe isn't all he thinks it is.

So let's start telling the truth: competitiveness is a meaningless word when applied to national economies. And the obsession with competitiveness is both wrong and dangerous.

Value Added Per Worker, 1988
(in thousands of dollars)

GRAPHIC: Picture 1, A trade surplus may be a sign of national weakness, a deficit a sign of strength.; Picture 2, Countries do not compete with each other the way corporations do.; Picture 3, Competitiveness advocates are eerily inept in their handling of the numbers.; Picture 4, Competitiveness risks distorting the quality of domestic economic policy.