How Quickly can America Lose its competitive edge?

How quickly can America lose its competitive edge?Here are some troubling straws in the wind:
• The United States was number one in broadband access in 2000, according to the Day of Reckoning economic Web site. Now it is 16th.
• In 2000 U.S. industry made 40 percent of the world’s telecom equipment, now it makes only 21 percent
• America has fewer people with cellular phones, in percentage terms, than 41 other countries.
As late as 2004, even though the net international investment position of the United States had slipped to $2.5 trillion, we still received a net surplus of $34 billion in income from abroad over the amount of money we paid out. Now the data for 2005 is just in and that surplus has been squeezed to $1.6 billion, which is almost a statistical nullity.

U.S. industry is far from being down and out for the count. As Gov. John Engler, CEO of the National Association of Manufacturers points out in our cover article (page 8) America’s manufacturing community still is a potent force for both innovation and productivity. Manufacturing still generates half of our gross domestic product growth, as it has since the 1950s, and our factories still provide more than 20 million top wage jobs. Alone, our manufacturing sector, if it were a nation, would be the eighth largest economy in the world.
What really worries Gov. Engler is a recent study by the NAM’s think tank, the Manufacturing Institute, that “downward trends in U.S. manufacturing innovation pose a serious threat to America’s long-term economic growth and living standards.”
Part of the problem is one of our own making. We have allowed our governments, both state and national, to impose domestic regulations that add 22.4 percent to the unit labor costs of our products that must compete with our nine major trading partners in the global arena.
By adding useless costs we shortchange our industries of the needed capital to invest in research and development of new products and new production methods. True, we still spend more on R&D than any other nation but since 2000 that has averaged only a minuscule 1 percent per year in real terms. By comparison in the period 1995-2001, China, South Korea and Taiwan alone increased their gross R&D investments by 140 percent and are closing in on us in real terms.

Meanwhile we join with Gov. Engler in his alarm over the American energy crisis, which as he points out has to do with the economic price of our key industrial fuels. In our letter from Washington (page 4) we report that the screws on the great American energy subsidy took another alarming turn. A report by geologists for PEMEX, the Mexican state oil company, estimates that its Canatrell offshore oil field has hit its maturity peak and will begin to sharply reduce its output from two million barrels of oil per day to 875,000 by 2007 and perhaps to as little as 520,000 daily barrels by the end of 2008. This field is second only to Saudi Arabia’s Ghawar field as the world’s biggest producer. Worse for America, such a shrinkage would mean Mexico’s supply of export oil to the United States would shrink from 1.8 million daily barrels to just 800,000 with no replacement source in sight.

But the crisis we are in is not simply one of finding new alternative energy supplies from other sources, as President George Bush proposes in his most recent State of the Union address. Even if solar and wind power capacities grow by 10 percent a year for the next 20 years they will still make up less than 1 percent of the world’s energy supply. By that time Asia’s need, demand if you will, for crude oil alone will exceed that of North America and Europe combined.
The answer lies in finding innovative uses for the energy we can get our hands on if we are to avoid losing our competitive edge altogether.


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