Fact, Not Fiction: The US Thrives in a Global Economy
EXPERIENCE teaches us to be cautious in accepting as fact things that "everyone" knows. In this spirit, let us turn to some universally held propositions on the United States economy and its supposedly deteriorating position in the world.For starters, everyone knows that the Japanese now dominate the global economy, having pushed US firms out of the top ranks. Frequent references to the tabulation of the world's largest banks reinforce this view. It is true that Japanese-based banks represent 13 of the world's top 20 (measured by asset size in 1990). The other seven are Western European institutions. This is not a happy day for American financial leaders. Nevertheless, commercial banks are not the only manifestation of US financial acumen. Of the top 20 insurance companies, for example, the US leads the list with nine, followed by seven Japanese firms, and two Western European. In the case of investment banking, the US and Japan each can boast of nine firms out of the 20 largest, with only two from Europe. The most comprehensive measure of overall corporate standings, however, is the ranking of all companies by the valuation placed on their stock. In that case, the US and Japan each can cite nine firms, with Western Europe reporting just two in the top 20 worldwide. Japanese industry can justifiably be proud of its movement to the front ranks of world business. Japan's rise is similar to the rise of American companies to world-class status a century ago. In any event, the most successful American companies are still very much world-class players. Another economic "fact" that everybody knows is that US manufacturing has been sliding downhill and that we have become just a service economy. The purveyors of "big think" believe they discovered the ascendancy of the service sector in the last few years. But a look at historical statistics reveals that the crossover between manufacturing and service employment occurred over a century ago, prior to 1890. A reason for the rise in service employment is that, in many cases, companies in this sector do not experience the substantial increases in productivity reported by manufacturing enterprises - which now need fewer people to do the same amount of work. As a result, even though manufacturing represents a declining share of the US work force, manufacturing output has been holding its own as a share of US gross national product for more than three decades. Closely connected to the notion that manufacturing is going down the tube is the belief that the military establishment is hogging the nation's most vital competitive resource - the supply of scientists and engineers. The facts are an eye-opener. Since the end of World War II, the share of GNP devoted to defense has followed a downward path. That trend was interrupted by the Korean and Vietnam wars and the Reagan military buildup. Still, the peaks in defense spending since 1945 have been progressively lower, as have the successive valleys. Defense now has a much smaller role in the economy than during the Kennedy administration. In the 1960s and the 1970s, the federal government was the major source of funding for research and development in the US. Ironically, simultaneous with the rise of criticism of the short-term thinking of business leaders, US firms have become the dominant source of financing and sponsorship of R&D since 1980. On the subject of foreign trade, it has become customary to bemoan the loss of American technological leadership to other nations. Witness the large (albeit declining) US trade deficit. But year after year, the US enjoys a trade surplus in high-tech products. The realization that American business increasingly faces tough global competitors is hardly a reason for despair. Rather, it is occasion for determining to do better - for making those tough decisions in both the public and private sectors that raise productivity and enhance competitiveness. As a nation, we have to go to school longer, study harder, work more earnestly, save more, and invest more in the future. If Americans instead wring their hands and wait for easy and dramatic answers, then the doom peddlers may be right after all.