Fundamental Challenges to America's Long-Term Competitiveness

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Fundamental Challenges to America

National competitiveness is defined as “the extent to which a nation’s companies can succeed in the global marketplace while its people enjoy a high and rising standard of living.”1 By that definition, the United States has exhibited strong national competitiveness virtually since its inception.

There are many factors that have created and continue to help maintain these economic conditions.

Contrary to what many believe, lower wages and cheaper currency are not the primary factors that enable a country to be competitive — and that’s a good thing, since the U.S. has neither. A nation’s competitiveness is tied most closely to its long-run productivity, which explains America’s historic run as a top competitor.

That’s because the U.S. possesses the key ingredient that feeds productivity growth: innovation. Driving this innovation is a unique combination of strengths in:

  • Entrepreneurship
  • Higher education
  • Management quality

These strengths flourish because they are exercised in an open, democratic society that rewards people based on merit. As a result, the U.S. has, for generations, been a magnet for the world’s top talent, which has helped push its upward economic spiral.

Intense domestic rivalry has also contributed to the boosting of productivity while, at the same time, causing the more productive companies to edge out the less productive ones, resulting in a more dynamic and resilient economy

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However, it’s important to remember that, in this era of globalization, competitiveness is not a zero-sum game.2 The advancement of one country does not come at the expense of another country. There is not a fixed amount of demand over which the producers of the world fight, with the winning country gaining the prize and the losers walking away empty-handed.

In fact, it is many countries working in concert that produces long-term productivity gains and rising living standards. As one country improves productivity, new demand for goods and services is created, which offers an opportunity for firms in other countries to meet.

For example, as productivity raises wages in India, demand for products such as pharmaceuticals from New Jersey and software from Silicon Valley also rises. This type of synergistic competition increases global prosperity as a whole.

The flip side is that many countries can suffer when an economic powerhouse such as the United States declines in terms of competitiveness, especially if this drop is due to a decrease in innovation...

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