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Will the US be competitive in 10 years?

It's a leader on the global stage now, but the trade imbalance may erode US preeminence, report says.

Two factors could revive concerns about how America finds a stronger footing in today's increasingly competitive global economy. One is economic. One is political.

Politically, the sudden ascendance of Democrats on Capitol Hill promises to put the trend of globalization under a more skeptical lens -or at least to seek sharing the gains of global trade with a larger slice of US society.

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The economic factor is related: America's is importing a lot more than it exports. And when other nations sell goods to the US, they often plow the resulting dollars back into the US as loans or investments. It's a good deal for now, but it effectively makes US dependent on foreign lending.

In the view of many economists, that line of credit won't last forever.

Against this backdrop, a report Monday offered a hopeful assessment of America's economic standing in the world.

The Council on Competitiveness, a nonpartisan organization that has tracked the health of the US economy since 1986, says America's position today is strong, even though its continued leadership is not guaranteed.

"No one would have predicted the US productivity performance" of recent years, says Deborah Wince-Smith, president of the council. "[The US has] really led global growth."

Indeed, the US has accounted for one-third of all global economic growth in the past 15 years.

Despite years of concern about inroads from foreign competition, the nation still sets the standard in scientific research, entrepreneurial activity, and worker productivity.

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But the report also says the nation can't rest on its laurels.

Concern about the long-term standing of the US economy – and its ability to generate a rising standard of living for Americans - are shared by politicians of both major parties.

"It's going to be very much on the radar of US policymakers," Ms. Wince-Smith says.

Many governors have joined Arizona Gov. Janet Napolitano in state level policies to encourage innovation-driven growth, for example.

President Bush pushed a competitiveness initiative early this year. A bipartisan bill was introduced in the Senate, but lacked momentum in the House. With the latest election results, Ms. Wince-Smith says, that may change.

"We're very optimistic ... that 2007 is going to really accelerate what was gotten under way in 2006," she says.

The council's new report, in fact, opens on that note.

"The competitiveness of the US economy is once again the subject of public concern and political debate," Michael Porter, a Harvard University economist, writes in the study. "This increased attention offers an opportunity for needed reforms that will boost America's prosperity."

But adds an important caveat: "It also runs the risk of promoting common misunderstandings ... that could lead to steps that are counterproductive."

The trade deficit itself may rank first among the misconceptions.

Dr. Porter, a leading expert on what makes economies competitive, says the gap itself is not a sign of American weakness.

"The United States remains one of the most competitive economies in the world," he writes. But imbalanced pattern of trade is a concern in the long run, because of the disruptions that might result in the future, he says.

Much of the nation's investment in new technologies and businesses is being financed, effectively, by foreign lenders. For every dollar of domestic investment, the nation needs a dollar of savings, whether from at home or abroad. Lately, the rest of the world has been doing much more saving than America.

In 2005, America's national savings rate, which tracks the actions of businesses, government, and households, fell to just 0.1 percent of national income, according to an economic report last week by the investment bank Morgan Stanley in New York.

"As best as we can tell, this is also a record low for any leading global economic power in the modern history of the world," writes Stephen Roach, a Morgan Stanley economist. The risk is that foreign lenders could lose confidence in the viability of their US investments. That, he says, could mean that the dollar will erode in value, or that interest rates will need to rise to keep foreign lenders on tap.

To date, the US has remained a haven for investment from around the world not only because of its size and stability, but also because of its dynamism.

Economists generally believe that the growth of international trade has helped all nations develop in recent years.

"Competitiveness is not a zero-sum game," Porter writes in the council's report. "The success of other economies is not a failure of US competitiveness."

Rather the global economy is a realm of almost infinite possibilities for development, he asserts.

But it is also a realm of anxieties for workers who are displaced as businesses become increasingly nimble and global.

Many Democrats in Congress want to see the US not merely retain its competitiveness, but also boost prosperity more widely.

The outsourcing of jobs has not simply hit manufacturing plants and service-sector call centers. Many software programmers, engineers, and other professionals are also competing head-to-head with foreign rivals.

The council's report calls for more focus on education and training, and also on local development of industry. With the right policies, high-quality jobs can cluster in more places beyond Manhattan and Silicon Valley, Porter argues: "The United States has benefited far more from its decentralization and local initiative than most realize."


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