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How America Stacks Up: Economic Competitiveness and US Policy

How America Stacks Up: Economic Competitiveness and US Policy by Edward Alden and Rebecca Strauss. Council on Foreign Relations, 2016, 233 pp.

 Some readers will finish this book and conclude the United States is woefully unprepared for the remainder of the twenty-first century. On the contrary, this is a work of hope for the future. The authors chronicle a broad range of challenges facing America, including: education, transportation, trade and investment policy, tax policy, work force training, federal regulations, federal debt, and innovation. They freely acknowledge the nation may well be lagging in most of these areas. At the same time, the nation’s leaders and the public generally understand the problems, know about solutions, and are simply struggling to implement them. It may be coincidence, but analyzing US education is the first challenge presented in the book and appears to be the most difficult. The authors claim socioeconomic status is a major cause of education disparity and call for a larger role of the federal government. But the evidence provided disputes this claim since we now spend more on education than ever before without positive results. To address the problems in secondary education, they call for what appears to be “social promotion” and at the same time call for greater teacher quality. Throughout this chapter one is reminded that the bulk of federal dollars and tax relief efforts go to more affluent students. At the same time total student debt loads in 2015 for college totaled $1.1 trillion. The authors recommend reining in tuition costs and encouraging students to “be more careful” in selecting a college major. They also recommend more funding for community colleges, which seems to exacerbate tuition costs. In a sense, the authors do not address the core issue: not all brains are created equal, and no amount of funding will change that. Better to focus results based on a findings from a follow-on chapter on worker training.

Concerning transportation and infrastructure policy, the problem appears to be how the federal government arbitrarily allocates funding without regard to needs of the transportation system and the shrinking gas tax fund. Some obvious solutions are to encourage greater urban density, more public transportation including high speed rail rather than roads, and private road networks.

The story on trade and investment is better than most with the US ranking in the middle of the rest of advanced economies. However, problems exist for the future, including closed markets (especially for farm products), protective tariffs, and the lack of progress toward new international trade agreements. Again, these are challenges that can be overcome. But it will require convincing Americans of the benefits of free trade and a willing Congress.

Coupled with trade policy is the issue of taxes. The US maintains the highest statutory corporate tax rate in the developed world at 39.1 percent. However, exemptions and foreign tax policies create a much lower effective rate, in some cases 15 percent or less. Additional problems include tax havens and sheltering of profits off shore. The recommendations in the book include a tax holiday for repatriated corporate wealth, reapportionment of profits, and a value added tax for the United States. Many of these ideas have been overcome by the 2017 overhaul to tax policy. Whether the new tax rules fix the problems remains debatable.

With respect to worker training, the troubling issues can be summed up as: too many programs, too little accountability, and mismatched training skills. Of the 47 different programs within the United States, only five have been evaluated for effectiveness. The result in many cases is a mismatch between the skills being taught and those required by industry. One remedy proposed is not surprising: more federal money. But spending is in reality not the problem. We need fewer programs, better vocational training programs, and greater cooperation with industry.

The status of federal regulatory policy is somewhat surprising. While public opinion indicates a stifling effect of federal regulations, the rate of rulemaking and laws has been decreasing. Nevertheless, the sheer volume increased and the cost-benefit impact on the economy has only been assessed before the regulations are put into effect—if assessed at all. The fix seems to be more “sunsetting” of regulations and reevaluations of older regulations.

It should be no surprise that the greatest problem facing the US is its unsustainable trajectory of federal debt. The only good part of this issue is we know the cause: entitlement programs. There are several problems with this type of spending: it crowds out infrastructure spending, it drags on the economy, and it is projected to grow three times faster than discretionary spending. Perhaps it is the nature of democratic polities to expect more from government than they are willing to devote to nation. The book does not offer a solution to this problem, only noting that the longer we wait to solve it, the more drastic measures will be needed.

Finally, the book assesses the quality of US innovation. In this category, the country seems to have a slight advantage. It maintains the world’s top research universities and boasts a culture of innovative risk taking. While the rate of basic research funding is trending downward, the country uses a very effective grant system for publicly funded research. Several challenges exist with US innovation. Other countries, particularly China, are rapidly advancing their capabilities in innovative research, public funding priorities are unbalanced toward life sciences (health care), patent litigation is increasing, and the US immigration system does not prioritize talent. As with several of the previous categories, these challenges can and are being addressed but will take time to correct.

How America Stacks Up is definitely a worthy read on the current status of United States prowess in the world. Many of the shortcomings mentioned in this text may well be addressed and corrected by the Trump administration. In fact, the administration has already enacted tax policy that addresses the issues mentioned here. It is working to change US immigration policy to focus on skill and talent more than family connection. The new national security strategy places a priority on innovation and artificial intelligence while reaffirming our commitment to fair and reciprocal trade relations. And most recently, the administration has focused on entitlement program reform including workfare. One can hope this book will help guide even more US government action to place America on the top of the stack.

 

                                                                        W. Michael Guillot

                                                                        Editor, SSQ

   


"The views expressed are those of the author(s) and do not reflect the official policy or position of the US government or the Department of Defense."

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