As I was doing some research on the current debate on industrial policy (see last week’s posting), I was struck by something missing. Economic competitiveness rarely gets mentioned in the policy discussions now days. The concern that we need to compete with other nations is common, especially with respect to competing with China. But the rubric of “competitiveness” as a framework for policymaking seems to have disappeared from the public discourse.
First, a little history. The term came into the public discourse in 1984 when President Reagan created the President’s Commission on Industrial Competitiveness (aka the Young Commission), chaired by then HP CEO John Young. In part, the Commission seems to have been set up to counter the focus on industrial policy by the democrats in an election year.
Whatever the reason for its establishment, the Young Commission succeeded in changing the terms of the debate. It shifted focus 90 degrees from policies for specific industrial (often referred to as horizontal policies) to a focus on crosscutting policies that (theoretically) benefit all industries (vertical policies). Their 1985 report Global Competition: The New Reality stated that “Competitiveness can be defined as the degree to which a nation can, under free and fair market conditions, produce goods and services that meet the test of international markets while at the same time maintaining or expanding the real incomes of its citizens.” Note two important concepts: test of international markets and rising standards of living.
Young then went on to form the Council on Competitiveness in 1986 to carry on the Commission’s work and the Omnibus Trade and Competitiveness Act of 1988 addressed a number of competitiveness issues, including establishing a Competitiveness Policy Council (something that I was heavily involved in).
While the CPC had its funding eliminated in 1997, other organization such as the Council on Competitiveness, carried on the work. The World Economic Forum (WEF) annually publishes its Global Competitiveness Index and IMD (International Institute for Management Development) issues a World Competitiveness Rankings. Most recently, the Council on Competitiveness established a National Commission on Innovation and Competitiveness Frontiers.
Over the years the framework for analyzing competitiveness has evolved only slightly. The Young Commission report laid out four pillars of competitiveness:
- human resources;
- and, trade.
The Competitiveness Policy Council started with eight issue areas:
- capital formation;
- public infrastructure;
- corporate governance and financial markets;
- trade policy;
- manufacturing; and,
- critical technologies.
WEF’s Competitiveness Index covers 12:
- ICT adoption;
- macroeconomic stability;
- product market;
- labor market;
- financial system;
- market size;
- business dynamism; and,
- innovation capacity.
All of these provide a framework of components for understanding a nation’s competitiveness.
The Council on Competitiveness’ National Commission on Innovation and Competitiveness Frontiers has taken a slightly different approach. Rather than looking at components of competitiveness, they identified three challenges:
- Developing and Deploying at Scale Disruptive Technologies
- Exploring the Future of Sustainable Production and Consumption, and Work
- Optimizing the U.S. Innovation System
Based on analysis by a working group in each area, they developed a nine point action plan, to be explored further:
- Build a Diverse Pipeline of Innovators – Encourage and support more women, and racial and ethnic minorities in the pursuit of innovation and entrepreneurship.
- Prepare America’s Workforce for the Future – Invest more in STEM education and worker retraining for coming market disruptions.
- Expand the U.S. Map of Innovation Investment Hubs – Build more diverse engines for innovation across the United States.
- Secure U.S. Capabilities in Critical Technologies – Including microelectronics, artificial intelligence, and biotechnology.
- Strengthen U.S. Economic Resiliency – Regain control of critical supply chains and reduce dependency on China and other foreign sources.
- Confront China’s plans for technological, military, and commercial supremacy.
- Amplify U.S. University Investments – Particularly in technology transfer, commercialization and industry engagement.
- Bridge the “Valley of Death” Gap in Innovation – Grow government investment in small business innovation, startups, and the testing of new technologies.
- Deepen the Sustainability Culture in U.S. Businesses – Including more efficient use of energy, use of cleaner energy, and more sustainable materials sourcing.
These are all good ideas. And they expand the problem-set implied in the original definition of competitiveness to include environment sustainability.
However, I wish they were more explicitly tied to a competitiveness framework. For example, short-term thinking in companies’ management practices and in the financial markets were identified as an area of concern in the Young Commission and CPC reports—growing out of their frameworks that explicitly looked at financing and the financial markets as a component of competitiveness.
We need a way to look systematically at the foundations of our economic competitiveness. Just as monitoring one’s personal heath is better than waiting for a diagnosis and way better than just treating the symptoms, we need a mechanism to go beyond the current problems.
Taking this more comprehensive approach would complement the work of existing organization, such as the Council on Competitiveness. I would note that the law creating Competitiveness Policy Council is still on the books. Maybe it is time to revive it. The argument is being make that Congress should resurrect the Office of Technology Assessment to provide more systematic, comprehensive, and long-term analysis on technology issues. The same argument holds true for the Competitiveness Policy Council.