A Very Modest Proposal
GLOBAL COMPETITION IS MORE INTENSE THAN EVER. NEW THREATS MAY UNDERMINE OUR NATION'S ABILITY TO STAY AHEAD. JEFFREY PFEFFER HAS SOME THOUGHTS ABOUT WHAT UNCLE SAM SHOULD DO.
By Jeffrey Pfeffer

(Business 2.0) – Countries are a lot like companies. For both of them, it's a lot easier to maintain a position of competitive advantage than to regain leadership once it's lost. Skeptics say no president can do much to safeguard our economic future. Beyond some macroeconomic tweaking, the argument goes, policymakers other than Federal Reserve Board members exert little influence over the economy. The truth, however, is that this rhetoric is based more on ideological dogma than empirical data. When compared with Canada, China, India, "old Europe," and even itself a half century ago, the United States of today stands alone in its adoption of a strict laissez-faire philosophy toward addressing—or rather, not addressing—matters of economic strategy. Yet the American approach doesn't always yield vastly superior outcomes. For example, annual productivity growth in Europe has been comparable to that in the United States since the start of the 1990s—1.9 percent in the European Union vs. 1.7 percent here. The United States runs a massive $124 billion trade deficit with China, but expensive Japan has figured out how to maintain a $15 billion trade surplus with its lower-cost Asian neighbor.

I'm not arguing for centralized planning or heavy-handed industrial policy, but I would like to see targeted policies that address specific problems. Regardless of whom we elect, America needs to do something about the issues that will affect our ability to compete in the years ahead. Here are some good places to start.

1 JOB GROWTH

Stable jobs are essential because they generate tax revenue to fund our defense, baby boomers' retirements, and the critical infrastructure (such as schools and roads) that government provides to increase our economic vitality. Yet the current recovery has produced fewer net new jobs than any such period in the past two decades.

It's common (albeit controversial) for states and localities to woo employers by providing tax abatements, infrastructure improvements, and even direct relocation subsidies. Yet when similar ideas are proposed at the national level, they receive short shrift. If it makes sense for South Carolina to provide incentives for BMW to build a factory within state lines, then it makes just as much sense at a national level to encourage companies to keep jobs onshore. At a minimum, we ought to ensure that our tax policies don't inadvertently reward employers that move facilities out of the country.

2 INCOME GROWTH

The bright spot in the current economic picture is that productivity growth has been solid, which bodes well for future income gains. Yet many U.S. workers aren't making much more today, in constant dollars, than they were 20 years ago.

Boosting the minimum wage would help raise incomes for lower-paid people. In constant-dollar terms, the federal minimum wage has been falling since 1997. The evidence is admittedly mixed, but most studies show that raising the minimum wage doesn't harm job creation or increase unemployment, even as it helps lift people out of poverty by raising their incomes.

Unionization, another stimulus to higher wages, is at an all-time low. It's not that employees have lost faith in collective representation—the government has been hostile to unions for decades and takes a lax approach to enforcing collective-bargaining laws. Meanwhile, the evidence from this country and elsewhere indicates that unions actually increase productivity in many industries. How? Because they must pay higher wages, employers are encouraged to use more productive capital equipment and to organize work as efficiently as possible. Unions also decrease turnover, providing a more stable and experienced workforce.

3 GLOBAL COMPETITIVENESS

The United States ran up a $497 billion trade deficit last year. The rest of the world is happy to send us oil, toys, agricultural products, and consumer electronics in return for pieces of paper called U.S. dollars—for now. If this continues, however, a major depreciation of the dollar seems likely. Meanwhile, jobs are heading overseas, and it's no longer just call-center workers: High-value drug development, electronics design, and analytical tasks are moving as well.

Some of this is inevitable. Yet to ensure our economic future, America needs workers who possess the skills required to create new, high-value products and services that are difficult to reproduce elsewhere.

Our universities are the key. Many of the businesses we venerate today—semiconductors, the Internet, countless biotechnology and pharmaceutical discoveries—were hatched by university researchers. But public support for higher education has been falling for decades. (California, for example, spends more on prison construction than it does on expanding its famous university system.) We need to renew our commitment to education at both the community college and university levels and provide more government support for research—particularly in a world where short-term financial pressures have eroded the basic R&D that companies such as Bell Labs formerly did on their own.

4 BENEFIT COSTS

Ah, the irony. Even as my friends in business complain about government intervention in the economy, their companies are dropping benefits such as health care and pensions—leaving government to pick up the slack. Benefit costs have risen 32 percent in the past five years. At some point, so many companies will have curtailed medical benefits and dropped pension plans (witness the airline industry) that others will be forced to do the same, if only to remain cost-competitive. The result will be ever larger numbers of people looking to the government for essential benefits that employers once provided.

America will soon face a choice: If employers are going to be expected to continue providing health care and pensions, we need to reward them for the social function they provide, or mandate minimum levels of coverage. This is precisely what the federal government recently did with retiree drug benefits, by providing incentives for firms that already offer such benefits to maintain them. We need more policies of this sort. Otherwise, companies will face growing pressure to shift employee costs to the general public—leaving taxpayers to foot the bill.

5 BUILDING A SKILLED WORKFORCE

U.S. companies are engaged in a futile race to the bottom. Confronted with global competitive pressure, American managers respond by demanding longer hours, shorter vacations, wage cuts, reduced benefits, and diminished employee protections. This is counterproductive. American workers will never be cheap, so we must figure out how to make them more productive, more creative, and more valuable than workers elsewhere.

It's fine to talk about encouraging U.S. employees to tackle more challenging, value-added work, but they need help making the transition. We should impose a training levy, a percentage of payroll that companies can spend on developing worker skills—with any money they don't spend going to the government to fund alternative training programs. This is hardly a radical idea—it's already been done in Australia, France, and Singapore—to encourage companies to invest in their people. There's no reason investment in people couldn't work just as well here.