The United States continues the decline that began last year, falling two more places to 4th position. While many structural features that make its economy extremely productive, a number of escalating weaknesses have lowered the US ranking over the past two years.Unfortunately, it gets worse. Not mentioned in the WEF report, but shown in the accompanying US factsheet, are the horrible United States' rankings in "burden of government regulation" (49th) and "transparency in government policymaking" (41st). According to the Washington Post, these regulatory burdens, along with access to credit, were the top problems that global CEOs see in the US today. Not good.
US companies are highly sophisticated and innovative, supported by an excellent university system that collaborates strongly with the business sector in R&D. Combined with the scale opportunities afforded by the sheer size of its domestic economy—the largest in the
world by far—these qualities continue to make the United States very competitive. Labor markets are ranked 4th, characterized by the ease and affordability of hiring workers and significant wage flexibility.
On the other hand, there are some weaknesses in particular areas that have deepened since our last assessment. The evaluation of institutions has continued to decline, falling from 34th to 40th this year. The public does not demonstrate strong trust of politicians (54th), and the business community remains concerned about the government’s ability to maintain arms-length relationships with the private sector (55th) and considers that the government spends its resources relatively wastefully (68th). There is also increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards (down from 39th last year to 55th this year), as well as corporate ethics (down from 22nd to 30th). Measures of financial market development have also continued to decline, dropping from 9th two years ago to 31st overall this year in that pillar.
A lack of macroeconomic stability continues to be the United States’ greatest area of weakness (ranked 87th). Prior to the crisis, the United States had been building up large macroeconomic imbalances, with repeated fiscal deficits leading to burgeoning levels of public indebtedness; this has been exacerbated by significant stimulus spending. In this context it is clear that mapping out a clear exit strategy will be an important step in reinforcing the country’s competitiveness going into the future.
Of course, anyone who regularly follows this blog already knows that bad US government regulation and regulatory uncertainty, particularly the new (and often unknown) burdens of ObamaCare and Financial Regulatory Reform, are doing a number on American businesses' ability to compete in the global economy. But it's certainly not just ObamaCare that's salting the regulatory earth here in the USA. Indeed, just last week the Post wrote about how draconian environmental regulations have all but extinguished domestic manufacturing of the incandescent lightbulb and the jobs that go with it:
The last major GE factory making ordinary incandescent light bulbs in the United States is closing this month, marking a small, sad exit for a product and company that can trace their roots to Thomas Alva Edison's innovations in the 1870s.Another big problem, as highlighted by Ed Morrissey over at HotAir, is the distressing fact that the United States has dropped to 40th(!) place on protecting basic property rights:
The remaining 200 workers at the plant here will lose their jobs.
"Now what're we going to do?" said Toby Savolainen, 49, who like many others worked for decades at the factory, making bulbs now deemed wasteful.
During the recession, political and business leaders have held out the promise that American advances, particularly in green technology, might stem the decades-long decline in U.S. manufacturing jobs. But as the lighting industry shows, even when the government pushes companies toward environmental innovations and Americans come up with them, the manufacture of the next generation technology can still end up overseas.
What made the plant here vulnerable is, in part, a 2007 energy conservation measure passed by Congress that set standards essentially banning ordinary incandescents by 2014. The law will force millions of American households to switch to more efficient bulbs.
The resulting savings in energy and greenhouse-gas emissions are expected to be immense. But the move also had unintended consequences.
Rather than setting off a boom in the U.S. manufacture of replacement lights, the leading replacement lights are compact fluorescents, or CFLs, which are made almost entirely overseas, mostly in China.
Consisting of glass tubes twisted into a spiral, they require more hand labor, which is cheaper there. So though they were first developed by American engineers in the 1970s, none of the major brands make CFLs in the United States.
If readers aren’t stunned by the nations listed, then they’ll be stunned by the length of the list, at least. No one will be terribly put out to see Canada (10), Austria (9), or Switzerland (1) ahead of the US. But what about Saudi Arabia (28)? China (38)? Jordan (30)? The US got edged out by Gambia, which relies on foreign aid to deal with high unemployment and underemployment, according to the CIA factbook.Everything Morrissey says is definitely correct, but he misses a more basic point that is, I think, most important for the present competitiveness discussion (the whole point of WEF survey, afterall): why regulatory burdens and ineffective protection of property rights hinder a nation's global competitiveness and, even more broadly, why declining competitiveness is even a problem. Fortunately, the answers to both of these questions are actually pretty simple, especially when you consider the folks who form the basis of the WEF's survey - global business leaders. You see, it's these guys (and gals) who make the really big and tough decisions about where to invest their companies' (and shareholders') money in things like factories or banks or tanning salons or... well, you get the idea. Coming to that decision is no easy task, and CEOs have a fiduciary duty to their shareholders (read: you and me) to make the best decision possible based on all possible facts - a calculus which includes, among many factors, the likelihood that the host government is going to interfere in, and thus diminish or destroy, the value of that investment after it's been made.
If we want to improve our economy, we need to improve our competitiveness. If we want to improve competitiveness, we need to protect property rights and get the federal government out of the redistribution business. Property rights are the first rights mentioned in the Constitution (Article I, Section 8) for a reason. It’s the basis of prosperity and opportunity, and also the basis of a free, self-governing people. Falling behind China in property rights should be a national embarrassment, and a reminder of just how far we have traveled from our founding principles. And that journey didn’t start with Barack Obama, even if he’s been busy hitting the accelerator.
And, of course, an unlimited, overburdensome, opaque and/or uncertain regulatory environment is a very big "minus" in that calculus. For example, who would want to spend a billion dollars on a steel plant if there's a reasonable chance that the domestic government might pass some crazy regulation that would make steel production at that plant impossibly expensive (or outright illegal)? Or who would want spend another billion to buy land or mineral rights in a country whose leader might suddenly decide that the land and all its minerals belong to
In these examples we also see one of the biggest reasons why the rapid decline in a nation's global competitiveness is a big problem - it discourages domestic and foreign investment in the declining country, and thus curtails economic activity and new jobs. And that's why the United States' decline in the aforementioned competitiveness categories is so alarming.
These problems are also a big reason why governments and corporations have developed modern global investment rules - to limit the potential for government intrusion in their lawful investments. As I said the other day:
FTA investment provisions... are actually designed to encourage mutual investment in FTA partner countries - i.e., to help the countries give each other money for silly things like factories and jobs - by providing certain basic protections for that investment. And against what exactly are these rules protecting, you ask? Well, for one, they help discourage guys like Hugo Chavez from forcibly taking the land or facilities that a foreign company has fairly purchased because those rules would obligate ol' Hugo to compensate the company in the amount of its stolen investment. The horror! These rules also prevent governments from passing protectionist laws that will harm an FTA partner company's investment where the company proves that those laws are actually disguised restrictions on trade or violate due process. For example, if American ScottCo buys a Mexican widget factory and then Mexico passes a "health regulation" prohibiting the domestic use of only ScottCo widgets (but not Mexican widgets), Mexico would have to compensate ScottCo where the company showed that the Mexican regulation had no rational, scientific basis. And, of course, by seeing this type of sane, rules-based investment protection, companies like ScottCo are more inclined to invest in Mexico in the first place.Now, I'd never attempt to claim that global investment rules are perfect or that they don't occasionally produce some odd, even unseemly, disputes (as I noted in the comments to my post above). Such criticism is entirely fair. But to claim, as some folks seem to do, that global investment protections don't help encourage foreign investment (and thus job creation) by limiting naughty governments' ability to thwart that investment is to completely ignore reality and surveys of actual business decision-making like the WEF's. Does anyone really think that, if the United States had a long history of confiscating foreign (or domestic) investors' property or whimsically regulating them out of existence (and no limits on its power to do these troubling things), Toyota would have decided to invest $1.3 billion in a new automobile factory in Mississippi (2000 new jobs), or Germany's ThyssenKrupp would have invested almost $5 billion in a new stainless steel plant in Alabama (2700 new jobs)?
Of course they wouldn't, and the struggling American workforce be almost 5000 jobs smaller (not to mention all the indirect jobs created from these investments).
Now, the United States has (had?) a longstanding history of reasonably sound domestic regulation and basic property rights protections (among other things), so the external limits on government meddling imposed by international investment treaties are the icing, rather than the cake, for foreign investors deciding whether to invest in the US market. But plenty of other, especially developing, countries don't have this history, and often don't even have a short history of peaceful, seamless transfer of power. So by providing an external check on these big institutional risks, investment treaties provide a small "plus" in that aforementioned CEO calculus about where and whether to invest that shareholder money. In short, by limiting governments' ability to infringe on foreign investment, no matter how big or small, these treaties enhance the countries' global competitiveness and ability to attract that investment. They provide a small bit of clarity and consistency - an absolute imperative for investment (and law) - where little if any exists. And that environment benefits everyone, particularly those workers whose jobs result from that new investment.
Now if only the US government would remember these lessons.