Competitiveness Matters: Industry and Economic Performance in the U.S.

216 Pages·2000·14.24 MB·English

by  Candace Howes

Competitiveness Matters

Competitiveness
Matters
Industry and Economic
u.s.
Performance in the
Candace Howes and Ajit Singh, Editors
Ann Arbor
THE liNIVERSITY OF MICHIGAN PREss
Copyright © by the University of Michigan 2000
All rights reserved
Published in the United States of America by
The University of Michigan Press
Manufactured in the United States of America
® Printed on acid-free paper
2003 2002 2001 2000 432
No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, or otherwise,
without the written permission of the publisher.
A elP catalog record for this book is available
from the British Library.
Library of Congress Cataloging-in-Publication Data
Competitiveness matters : industry and economic performance in the U.S. / Candace
Howes and Ajit Singh, editors.
p. cm.
Includes bibliographical references.
ISBN 0-472-10983-9 (cloth: alk. paper)
l. United States-Commercial policy. 2. United States-Economic policy-
1993-. 3. Industrial policy-United States. 4. Manufacturing industries
Government policy-United States. 5. Technological innovations-Economic
aspects-United States. 6. Balance of trade-United States. 7. Competition,
International. 1. Howes, Candace. II. Singh, Ajit.
HFI455.C726 1999
338.973-dc21 99-052803
ISBN13 978-0-472-10983-8 (cloth)
ISBN13 978-0-472-02740-8 (electronic)
For David M. Gordon and Bennett Harrison

Contents
1. Introduction: Competitiveness Matters
Candace Howes and Ajit Singh
Part 1. Trade, Macro Policy, and Competitiveness
u.s.
2. The Trade Deficit and Competitiveness 31
Robert A. Blecker
3. Improving U.S. International Competitiveness: Macro Policy 68
Management vs. Managed Trade Policy
Catherine L. Mann
Part 2. Competitiveness and Financial Markets
4. The Anglo-Saxon Market for Corporate Control: The Financial 89
System and International Competitiveness
Ajit Singh
5. American Corporate Finance: From Organizational to 106
Market Control
William Lazonick and Mary O'Sullivan
Part 3. Competitiveness and Technology Policy
6. Can Technology Policy Serve as Industrial Policy? 127
Ann Markusen
7. Does the United States Need a Technology Policy? 145
W Edward Steinmueller
Part 4. Competitiveness and Industrial Policy
8. A High-Road Policy for U.S. Manufacturing 165
Daniel Luria
9. U.S. Competitiveness and Economic Growth 180
Candace Howes
Contributors 207

CHAPTER 1
Introduction
Competitiveness Matters
Candace Howes and Ajit Singh
Krugman: Competitiveness Does Not Matter
In a series of widely read articles and books published over the last several
years, Krugman (1994, 1996) decries what he regards as a "dangerous obses
sion" with international competitiveness, a trend he refers to as "pop interna
tionalism." With pop internationalism he associates the idea that the recent
u.s.
ills of the economy-eroding real wages, stagnating living standards,
rising inequality and unemployment-are the consequence of a major ero
sion of the industrial base due to international competition. Pop interna
tionalists, according to Krugman, reason that the economic ills of the United
States will be remedied only when the United States has regained a productiv
ity edge over its international rivals. But it is folly, Krugman claims, to think
that the notion of competitiveness is in any way meaningful when applied to a
nation.
Krugman is of course correct to argue that the competitiveness of a
nation is conceptually different from that of a corporation. Certainly, if a
corporation is uncompetitive, its market position is likely to be unsustainable,
forcing it into bankruptcy. There is no similar analogue for a country. Even if
the balance of payments position is unsustainable, even in the event of finan
cial collapse, countries-unlike the banks and corporations that may hold
their debt-do not cease to exist or go into bankruptcy.
Nor would we challenge Krugman's argument that trade deficits and
surpluses are an inappropriate measure of the competitiveness of a country.
While a trade deficit may follow from the weak performance of a country's
tradable goods sector, it may also be the consequence of a large inflow of
foreign investment that is equated with competitive strength. A trade surplus,
too, sends an ambiguous signal. It may be due to a low level of national
economic activity or to strong export performance.
However, some scholars, understanding full well that the trade balance is
not a good measure of competitiveness, have offered an alternative formula
tion of national competitiveness that is more difficult for Krugman to chal
lenge. Tyson (1992) defines competitiveness as the "ability to produce goods
and services that meet the test of international competition, while our citizens