Weighing US advantages in global marketplace
It is no longer merely a trend worth noting that American business increasingly competes in a global marketplace - it is the driver of the booming US economy. International trade is growing twice as fast as world production and cross-border investment is increasing at least twice as fast as trade. In the case of the United States, international commerce has doubled as a share of the gross domestic product over the past three decades.
Under the circumstances, it is useful to examine the relative strengths and weaknesses of the American business system in the world economy. To state the case in a nutshell, key advantages - and an equal number of disadvantages - are evident. Let us analyze those pluses and minuses before we try to estimate where the balance lies.
To those who have had the opportunity to study the private enterprise system of other nations, it is clear that a strong entrepreneurial spirit typifies American business. It is not surprising that companies in other nations have recruited senior executives from American businesses because of their willingness to take risks and to try new approaches if standard practices do not work. A related positive factor is the "small cap" stock market, which provides equity financing to small- and medium-size firms. The US is unique in providing this effective way to generate capital for new enterprises.
Another key factor in America's entrepreneurial orientation is the rapidly advancing pace of technology - especially since the early 1980s when the volume of business-sponsored research and development began to exceed the total of government-financed research and development. Currently, the private-sector-oriented new technology effort is twice the size of the government's. So new products and improved production processes are increasingly oriented to commercial markets.
Despite perennial gripes about high taxes, the typical American devotes a much smaller share of income to taxes than is the case in most other industrialized nations. That low tax burden provides greater incentive to produce and frees up a substantial amount of purchasing power. Another distinguishing characteristic of the US, especially compared with Western Europe, is a low rate of unionization, especially in the private sector. This provides high labor market flexibility - important to productivity and competitiveness.
Finally, we have a world-class system of higher education. Substantial numbers of foreign students, after graduation, return home with greater knowledge of American values, culture, and language.
On the other hand, there is no shortage of weaknesses in our national profile. The US, in comparison with other industrialized nations, suffers from a disproportionately larger "underclass" of people who in effect have dropped out of the modern economy. This negative factor is reinforced by a weak public school system. It is not unusual for half of the students in a central city high school to fail to get a diploma. This shortcoming often means they lack the skills to earn a living in an increasingly high-tech economy.
Closely related is the presence of a large low-skilled labor force. This, in turn, provides fertile ground for rising protectionist sentiment to restrict imports that compete with domestic production. Coupled with expanding regulation, especially covering the environment, the result is to reduce the competitiveness of American business and labor in important respects. Also, there appears to be growing public alienation from large government and business institutions.
On balance, the US clearly is the world's strongest economy, but serious weak spots are visible as we look to the decades ahead.
Nevertheless, one key fact is a great help, especially in the areas of services and advanced technology: American English is the Latin of our time, the universal language of business, science, and international transportation. In a broader sense that transcends current issues of economics and business, American culture, with all its pluses and minuses, is the pacesetter for a great portion of the world's population.
*Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University in St. Louis.