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Competitive Nonsense
The United States remains the world’s most economically competitive country according to Switzerland’s renowned IMD business school in its latest competitiveness index released yesterday. Let’s see. It’s pretty much agreed that the U.S. economy is in recession or close to it. It needs a fix of about $3 billion of foreign capital a day just to keep from plunging into deep, and I mean deep, recession. The current account deficit is still running at over $700 billion annually despite a 70 percent fall of the dollar against the euro and other freely traded currencies in the last few years and despite a much ballyhooed surge in exports. In fact, like other those of other recent surges, the results of this one were short lived. U.S. manufactures actually fell a bit last month and the trade deficit grew again after shrinking for a few months. Oh, and then yes there is that sub prime loan thing that has now become a prime loan thing, and a credit card thing, and a commercial loan thing, and a bank failure thing. This is not to mention that median family income is down, that U.S. secondary student test scores are in the bottom third of all countries, that the American savings rate is close to zero, and that family and government debt are at or close to all time highs.
IMD project director Stephane Garelli says the U.S. is number one because its economy topped all the others in the amount of investment, stock purchases, and commercial service exports. It also is the easiest place to secure venture capital and dominates all other economies in key technology criteria such as the number of computers in use. This would all make a lot more sense if Singapore, Hong Kong, Switzerland, Luxembourg, Denmark, Australia, Canada, Sweden, and the Netherlands didn’t round out the top ten on the most competitive list. These are all small economies. Singapore has a population of only about 4 million. Even Canada, the largest country in other than the United States in the top ten, has a population just around 30 million. Surely, number 22 Japan has more computers in use, more investment, and more stock purchases than any of these small countries.
Don’t get me wrong. I love Hong Kong, it’s one of my favorite cities. But really. Does anyone believe that Hong Kong is economically more competitive than and ready to go head to head with Germany or Japan or its own mainland sovereign – China? To ask the question is to answer it. These rankings are close to total nonsense.
A better measure of the state of U.S. competitiveness was to be found on the facing page of the paper which carried an article explaining that GE CEO Jeff Immelt had announced that GE would retain Goldman Sachs to auction off its hundred year old appliances division. The story said that growth of appliance sales in the U.S. had been lagging and that Immelt was going to put the proceeds of the sale into faster growth industries. But wait a minute. The U.S. market is not the only one in the world. Just recently at a conference I attended with Immelt he was bragging about how clairvoyant GE had been about getting into the Indian market.
Well, yes. India and China only have about 2.5 billion potential appliance buyers between them. Can’t GE sell to those new consumers who are buying new houses and cars and everything in between at an unprecedented pace? I can tell you that the Koreans, Japanese, Taiwanese, and even the Germans aren’t auctioning off their appliance divisions. In fact, they’re selling like hot cakes. But I guess maybe GE has probably found some hot new financial product like those Collateralized Debt Obligations (CDOs) and credit default swap derivatives that were such fast growing products until they turned into toxic waste earlier this year.
Another interesting indication of relative competitiveness were the remarks yesterday of U.S. Treasury special envoy to China Alan Holmer and Chinese Ambassador Zhou Wenzhong who both addressed the U.S. Chamber of Commerce. Zhou argued that China’s renminbi (also called the yuan) had appreciated against the dollar by about 19 percent since 2005 and that China could not afford for it to strengthen any more rapidly because that would harm its exports and its growth. Holmer urged the Chinese to accelerate the pace of yuan appreciation. Of course, his department then promptly released a report exonerating China of any suspicion of manipulating its currency to obtain trade advantages. Never mind that most analysts believe the yuan to be at least 40 percent undervalued versus the dollar.
Do you still think the U.S. is the mighty number one colossus of global competitiveness? If so, you really need to take at look at yesterday’s Straits Times from Singapore. In it the Secretary General of Singapore’s Trade Union Congress explained how and why tripartism works in Singapore. Tripartism is the informal but highly effective mechanism by which Singapore’s business, government, and labor leaders coordinate and cooperate to achieve rising productivity while also keeping wages rising, but not at a rate faster than productivity. Can you imagine AFL/CIO head John Sweeney talking that way?
But yesterday’s final word on competitiveness belonged neither to IMD nor to Immelt or any of the others. Rather it belonged to Zhu Minh, the deputy head of the Bank of China. At the annual Asian Women’s Conference in Shanghai, he explained that of the world’s approximately $6 trillion of dollar reserves, about $4.7 trillion are in Asia, with the rest accumulating mostly in the Persian Gulf region.
Maybe IMD really does believe the United States is still number one. But listening to Zhu Minh made me realize that after about six hundred years, Asia is seriously back. I don’t know if the most competitive countries are China or India or Japan. But I know for sure that they aren’t Luxembourg and Switzerland, meaning no disrespect.