This time it’s serious: America is becoming a less attractive place to do business
IS AMERICA fading? It seems an odd thing to say about a country that so dominates the industries of the future. Where else could Facebook have grown from a student prank to a $100 billion company in less than a decade? America has been gripped by worries about decline before, notably in the 1970s, only to roar back. But this time it may be serious.
There is little doubt that other countries are catching up. Between 1999 and 2009 America’s share of world exports fell in almost every industry: by 36 percentage points in aerospace, nine in information technology, eight in communications equipment and three in cars. Some loss of market share is inevitable as China and other economies emerge. But even in absolute terms, there is cause for worry. Private-sector job growth has slowed dramatically, and come to a halt in industries that are exposed to global competition. Median annual income grew by an anaemic 2% between 1990 and 2010.
The March issue of the Harvard Business Review is devoted to “American competitiveness” (by which it means the country’s ability to improve productivity and living standards). A gaggle of gurus delivers a harsh verdict. Michael Porter and Jan Rivkin of the Harvard Business School (HBS) sum up the mood: “The US government is failing to tackle weaknesses in the business environment that are making the country a less attractive place to invest and [is] nullifying some of America’s most important competitive strengths.” The Review also reports that declinism is prevalent among HBS alumni: in a survey, 71% said that American competitiveness would decline in the coming years.
America is losing out in the race to attract good jobs. Matthew Slaughter of Dartmouth’s Tuck School of Business and Laura Tyson of Berkeley’s Haas School of Business point out that multinational firms (which pay higher wages than non-multinationals) increased employment in America by 24% in the 1990s. But since then they have been cutting back on jobs in America. They have moved dull repetitive tasks abroad, and even some sophisticated ones, too. The proportion of the employees of American multinationals who work for subsidiaries abroad rose from 21.4% in 1989 to 32.3% in 2009. The share of research-and-development spending going to foreign subsidiaries rose from 9% in 1989 to 15.6% in 2009; that of capital investment rose from 21.8% in 1999 to 29.6% in 2009. In HBS’s survey, alumni reported that when their firms had to decide whether to do something in America or elsewhere, America lost two times out of three.