American policy discourse is notoriously preoccupied with the country's loss of competitiveness. This Vox column by Uri Dadush and William Shaw argues that these fears are misplaced, and that faulty fiscal policies are to blame for the perception that the United States has lost its edge.
US policymakers worry constantly about the nation's declining competitiveness – so much so that the theme dominated this year's State of the Union Address (see, for example, Podesta et al. 2010 and NAS 2010). The country's assumed inability to compete is blamed for everything from its structural current-account deficit and declining number of manufacturing jobs to its rising debt levels and even its reduced influence in the world.
But the evidence suggests that the US does not have a competitiveness problem. Per-capita income is high and productivity in manufacturing is rising rapidly. Instead, its problem lies in spending. At its core, the perceived lack of US competitiveness is the result of misguided fiscal policy, which contributes to low government and household savings and inefficient spending. Therefore, fiscal reforms that tilt incentives toward exporting more and importing less would help growth in the long run. On the other hand, a lower dollar or lower wages – traditional fixes for decreased competitiveness – would do little good.