Banking on the competition myth

Banking on the competition myth


Meet the new buzzword, same as the old buzzword. In advance of the State of the Union address, President Barack Obama has telegraphed his main theme: competitiveness. the president’s economic recovery advisory board has been renamed the President’s council on jobs and competitiveness. And in his Saturday radio address, the president declared that “We can out-compete any other nation on Earth.”

This may be smart politics. Arguably, Obama has enlisted an old cliche on behalf of a good cause, as a way to sell a much-needed increase in public investment to a public thoroughly indoctrinated in the view that government spending is a bad thing. But let’s not kid ourselves: Talking about ‘competitiveness’ as a goal is fundamentally misleading. At best, it’s a misdiagnosis of our problems. At worst, it could lead to policies based on the false idea that what’s good for corporations is good for America.

About that misdiagnosis: What sense does it make to view our current woes as stemming from lack of competitiveness?

It’s true that we would have more jobs if we exported more and imported less. But the same is true of Europe and Japan, which also have depressed economies. And we can’t all export more while importing less, unless we can find another planet to sell to. Yes, we could demand that China shrink its trade surplus — but if confronting China is what Obama is proposing, he should say that plainly.

While America is running a trade deficit, this deficit is smaller than it was before the Great Recession began. It would help if we could make it smaller still. But ultimately, we’re in a mess because we had a financial crisis, not because American companies have lost their ability to compete with foreign rivals. But isn’t it at least somewhat useful to think of our nation as if it were America Inc, competing in the global marketplace? No.

Consider: A corporate leader who increases profits by slashing his work force is considered successful. Well, that’s more or less what has happened in America recently:

Employment is way down, but profits are hitting new records. Who, exactly, considers this economic success?

Still, you might say that talk of competitiveness helps Obama quiet claims that he’s anti-business. That’s fine, as long as he realises that the interests of nominally ‘American’ corporations and the interests of the nation, which were never the same, are now less aligned than ever before.

Take the case of General Electric, whose chief executive, Jeffrey Immelt, has just been appointed to head that renamed advisory board. With fewer than half its workers based in the US and less than half its revenues coming from US operations, GE’s fortunes have very little to do with US prosperity.

By the way: Some have praised Immelt’s appointment on the grounds that at least he represents a company that actually makes things, rather than being yet another financial wheeler-dealer. These days even GE derives more revenue from its financial operations than it does from manufacturing. GE Capital, which received a government guarantee for its debt, is a major beneficiary of the Wall Street bailout. So what does the administration’s embrace of the rhetoric of competitiveness mean for economic policy?

The favourable interpretation, as I said, is that it’s just packaging for an economic strategy centred on public investment, investment that’s actually about creating jobs now while promoting longer-term growth. The unfavourable interpretation is that Obama and his advisers really believe that the economy is ailing because they’ve been too tough on business, and that what America needs now is corporate tax cuts and across-the-board deregulation.

My guess is that we are mainly talking about packaging here. And if the president does propose a serious increase in spending on infrastructure and education, I’ll be pleased.
But even if he proposes good policies, the fact that Obama feels the need to wrap these policies in bad metaphors is a sad commentary on the state of our discourse.

The financial crisis of 2008 was a teachable moment, an object lesson in what can go wrong if you trust a market economy to regulate itself. Nor should we forget that highly regulated economies, like Germany, did a much better job than we did at sustaining employment after the crisis hit. For whatever reason, however, the teachable moment came and went with nothing learned.

Obama himself may do all right: his approval rating is up, the economy is showing signs of life, and his chances of re-election look pretty good. But the ideology that brought economic disaster in 2008 is back on top — and seems likely to stay there until it brings disaster again.

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