“Competitiveness Revisited”

Kenan Patrick Jarboe

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The United States economy has entered a new era. But it is not exactly
the period of ease and prosperity that we were led to believe it would
be. This new economy is one of relentless change and competition. We
are on a new treadmill. While the industrial economy demanded higher
and higher levels of productivity to drive down costs, this information
economy demands more and more innovation.

If the industrial age was driven by machines and natural resources,
this new innovation age is being driven more and more by people and
intangibles. Foremost are worker skills and know-how, innovative work
organizations, new business methods, brands, and formal intellectual
property such as patents and copyrights. Our economy increasingly runs
not just on technological advances, but also on ways of expanding consumer
choice through more customized products, more individualized service,
and greater attention to aesthetics in order to respond to changing
consumer tastes.

In this economy—the Information, Intangibles, and Innovation Economy
(I-Cubed Economy)—the rules have changed. But public policy has
not caught up with the changes. Many have been putting forward policy
solutions to deal with our current economic challenges, although most
often they have simply recycled proposals left over from the 1980s.
Few are looking at what the economy has become in the past 20-30 years.

One notable exception has been Senator Joseph Lieberman, who has proposed
creating a
bipartisan commission
to tackle this new competitiveness challenge.
Like the President’s Commission on Industrial Competitiveness (Young
Commission) appointed in 1984 by Ronald Reagan, this new group’s
mandate would be to re-think the problems and provide new solutions.
The Young Commission created a bipartisan agenda for responding to the
competitiveness challenges of its time. This new commission would be
charged with updating that consensus and altering it to meet the realities
of our rapidly changing world.

The task does not promise to be easy. Twenty years ago, the U.S. faced
global competition in goods and loss of domestic manufacturing firms;
now it faces the fusion of manufacturing and services and the opening
to international competition of services sectors once thought immune
to such challenges. Then, the operating issues were quality and productivity;
now they are customization, speed, and responsiveness to customer needs.
Then, a key concern was creating a flexible and educated workforce;
now, in addition, we must foster an educational enterprise that can
provide the constantly changing skills required in a knowledge- and
information-intensive economy. Then, the main financial challenge was
reducing the cost of capital; today’s equivalent challenge is
unlocking the value of underutilized knowledge assets and ensuring the
efficiency and stability of the global financial system. Then, the policy
problem was raising awareness of the importance of international trade;
now it is crafting policy appropriate to an increasingly globalized
and interconnected economy.

In the 1980s our focus was on individual firms and industries; now we
must find ways of sustaining networks of firms and of adopting new business
models. Finally, these problems and challenges, as well as myriad new
ideas and technologies, are rapidly sweeping across the domestic and
international economy. Their speed requires that U.S. industry, both
manufacturing and services—as well as the suppliers of financial,
scientific, and human capital—have the capabilities and resources
necessary to prosper and grow in this new environment.

Then:
Now:
Manufacturing

All
sectors of the economy under
competitive challenge (fusion of services and manufacturing)

Quality

Customization,
speed and
responsiveness to customer
needs

Productivity
& technological innovation

Innovation
– broadly defined
Not just technological, not just new products

Design
(aesthetics)
New business models

Awareness
of importance of trade

Management of globalization
Skills
and flexibility of the workforce

Constantly changing skills
Cost
of capital

Efficiency and stability of financial
system
Increase access to capital by unlocking
value of underutilized knowledge assets

Not
only are the issues different, but the competitors are different. Then,
it was Japan and the Southeast Asian “tigers.” Now it is
the populous nations of India and China as well as new challengers from
Eastern Europe. All of these nations are rapidly developing their intangible
assets and gearing up their innovation processes.

A key task for the proposed commission would be to understand the new
role of intangible assets. Information and intangible assets power our
innovation process. That process combines both formal research and informal
creativity to yield the productivity and improvement gains needed to
maintain prosperity.

American firms and workers lead the world in creating and using intangible
assets. But the increasing global competition means we must continue
to develop our I-Cubed Economy. No American need be left behind in this
new era of intangible-based global competition.

It will take new solutions, however. Simply more investment in high-tech
and education is not the answer. We need to focus on upgrading and changing
all our production systems to make them more creative and innovative.
Innovation is everyone’s business. Creativity is essentially problem-solving.
And everyone is a problem-solver. We are solving problems from the moment
we wake up in the morning until we close our eyes at night–and our
brain often continues even in our sleep.

Despite the rhetoric that “our people are our most important asset,”
we have yet to unleash the creative, innovative power of our work force.
Companies still see workers as a fungible cost—a cost to be minimized
by utilizing lower-paid overseas labor or by eliminating overtime pay.

Part of the problem is our accounting system, which still hasn’t
figured out a way to count workers as assets rather than expenses. What
gets counted as an asset attracts investments. What gets counted as
an expense is cut.

Thus, this new commission that Sen. Lieberman proposes would have its
work cut out for it. It must go beyond the vision of the past 20 years—while
not neglecting its unfinished business, some of which still merits our
attention—to create the vision for the next 20 years.

We know that economic success can come from harnessing information,
knowledge, and intangible assets. Leading U.S. companies have proven
that they can leverage their innovative capacity, new business models,
brands, and intellectual capital for economic gain. The challenge facing
our government leaders is to help translate that activity into benefits
for all. Let us hope that Lieberman’s commission can create a
framework for ensuring future American prosperity in the new I-Cubed
Economy.

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