Losing the Economic Race

Can America Compete?

by Robert Z. Lawrence
The Brookings Institution, 156 pp., $8.95 (paper)

The DRI Report on US Manufacturing Industries

by Otto Eckstein, by Christopher Caton, by Roger Brinner, by Peter Duprey
McGraw-Hill, 196 pp., $24.95

Americans have reason to worry about their competitiveness on world markets. The deficit in America’s balance of trade is running at an annual rate in excess of $120 billion. This represents the loss of three million American jobs, jobs that would exist if exports matched imports. To finance such a deficit America must borrow abroad, and at current rates America will, by mid-1985, become a debtor nation, having borrowed more from foreign countries than it has lent, for the first time since World War I. As with Mexico and Brazil, interest payments on foreign debts are eating up more and more of the resources that could otherwise be used by Americans.

While everyone is familiar with America’s competitive failures in its old smoke-stack industries at the tail end of the economy, the failures seem just as ubiquitous in high-tech industries that are supposed to be the most competitive and productive. In 1984 the Japanese expect to make twenty million home video recorders, generate billions of dollars of sales, and provide hundreds of thousands of jobs. How many home video recorders will be made in America? Precisely zero: 100 percent of them are imported.

At last count the United States had one-thirtheenth as many programmable robots, relative to the size of its labor force, as Sweden; with one exception, every American robot manufacturer lost money in 1983. Foreign competitors had such a head start in constructing industrial robots that American producers had to sell their products below cost to compete.

The US government not long ago opened to competitive bidding the contract for laying a glass-fiber optics telephone cable from New York to Washington. A foreign firm won the bidding by a substantial amount but its bid was rejected on the grounds of national security, despite the fact that the firm comes from one of our allies. Perhaps the problem of US competitiveness is best symbolized by the fact that ski outfits worn by the American ski team at the Winter Olympics were made abroad. Our world-class athletes represent something less than a world-class economy.

Observations such as these lead to a simple question: Can America compete in world markets? A superficial reading of Can America Compete? by Robert Lawrence would suggest that the answer is “yes.” “US manufacturers, aided only by changes in the exchange rate, were able to compete successfully in an environment characterized by emerging competition from developing countries and Japan and by growing government intervention and protection in Europe.” Since this view reflects the thinking of most of the economists at the Brookings Insititution, we may call it the Brookings line.

The DRI Report on US Manufacturing Industries, a collective effort led by the late Otto Eckstein of Data Resources, Inc., an economic forecasting firm, answers “no.” The “decline of position of manufacturing is a major historical development for this country,” the authors write on page one. “There are so few exceptions to the decline of the international positions of US manufacturing industries that one …

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Letters

Can the US Compete? December 20, 1984