No Longer No. 1, and No Wonder
By Steven Pearlstein
On the surface, two studies out this week seem to raise warning flags about the competitiveness of the U.S. economy.
One, the annual ranking from the World Economic Forum -- the elite business organization that runs the annual winter schmooze-fest in Davos, Switzerland -- finds that the United States has fallen from No. 1, a position it shared with Finland for most of a decade, to an unsettling sixth place.
And the National Association of Manufacturers, along with the Manufacturers Alliance, is scheduled to release an update of an earlier study today showing that the burdens of regulation, taxation, litigation and health care are even greater than they were in 2002, when the "cost gap" between U.S. companies and those of our largest trading partners was 22.4 percent.
The predictable response from the business community will be to use these studies to warn of impending economic ruin unless the government adopts the Republican agenda of less regulation, lower taxes, tort reform, and relieving companies of health-care and pension costs.
Don't be fooled. These reports speak to the embarrassing failure of a decade of Republican rule in improving U.S. competitiveness. Business taxes, as a percentage of anything you want to measure, are at their lowest level in decades. The Bush White House has subjected new regulations to rigorous cost-benefit analysis. Several reforms make it less attractive for shareholders, workers and consumers to file frivolous lawsuits, but not necessarily for businesses. And in case you hadn't noticed, businesses have already made tremendous strides in shifting health-care and pension costs to workers.
In fact, an alternative reading of the new reports suggests that the business community needs to do some serious thinking about competitiveness and economic policy.
Let's take the legal system, a negative in both reports. It ought to be obvious to anyone who has followed the asbestos debacle or the medical malpractice issue that litigation has become an inefficient way to police the behavior of companies, executives and service professionals. But the only realistic alternative is regulation by government, which the business community opposes. You can't have it both ways.
You can't, for example, just tell smokers they have no recourse against tobacco companies that market products they know to be deadly if you don't have a Food and Drug Administration with power to regulate unsafe tobacco products. You can't tell shareholders they have no right to sue management if you oppose regulations that might give shareholders a voice in who runs the company. You can't tell workers not to sue employers for unsafe workplaces while you're busy neutering the Occupational Safety and Health Administration.
This isn't an economic argument so much as a political one. A totalitarian state such as China may be able to duck these kinds of trade-offs, and there is no doubt Chinese exporters are more competitive as a result. But that is not realistic for an advanced democracy whose citizens prefer to use some wealth, or forgo some economic efficiency, in exchange for safer products and workplaces and more responsive corporate governance.
Or consider the manufacturers' legitimate complaint that they are at a disadvantage because of health-care and pension costs that, in other countries, are borne largely by government. Having raised the issue, however, it is hypocritical for the business lobby to oppose any tax increase that might be used to socialize these costs. Their phony solution -- that average Americans should essentially fund their own pensions and health care, with no increase in wages -- is so unfair and unreliable that Americans have roundly rejected it.
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