You Decide: Are we still competitive?

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

To many, the recession of the last two years is a symptom of a larger economic problem in the nation — that we just can’t compete anymore. This viewpoint says that in today’s globalized economy, where businesses can locate virtually anywhere and then ship their products physically or send their services electronically, it’s a losing battle to think the U.S. can go head-to-head against lower wage countries.

So should we just throw in the towel and wait for the day when everything we use will be made somewhere else? Is it inevitable that we become a nation of consumers and not producers?

Based on the latest report from the World Economic Forum (WEF), the answer is a resounding “no.” The WEF, which organizes a highly publicized and well-attended annual meeting in Davos, Switzerland each year, produces a Global Competitiveness Index for over 130 countries. The index is based on scores of factors, including worker costs and training, education quality, financing, infrastructure like roads and airports and innovation. The WEF combines these factors into a single number based on their relative importance to business persons and investors.

And now the drum roll please. Based on the WEF Global Competitiveness Index, where does the U.S. rank in the latest reading for 2010? The answer is number two out of 133 countries. Only Switzerland ranked higher. The U.S. actually ranked number one in 2008 and 2009 and only missed the top spot this year due to the depth of the recession.

Why are business people and investors so bullish on the U.S.? It’s because we rank very high on two out of the three broad categories of factors important to the economy: innovation and efficiency. The U.S. ranks number one in the world on innovation. We are still the land of opportunity, where smart, creative and foresightful people can take a chance to follow their dream and hit it big. The U.S. also has excellent colleges and universities that both produce these entrepreneurs and support them with discoveries and practical applications.

Efficiency means businesses get a lot of bang for their bucks spent on workers and other inputs. While worker costs in the U.S. may be higher than in other countries, the productivity of our workers — what they can produce in a given time period — is also commensurately higher. Investors also rate the U.S. high on worker flexibility. This means it’s much easier to both downsize and upsize businesses and move workers from one firm to another. Again, our excellent higher education system helps with this transition.

What issues do business people cite about locating their operations in the U.S.? The biggest complaint in 2010 was access to financing. However, this was also mentioned as the top negative in most countries, including China, and it will likely recede as the economy recovers. Also mentioned were tax rates, tax regulations and government red tape.

So if we have some good news about U.S. competitiveness, what about North Carolina? Again, we can smile, because North Carolina for many years has received high rankings for being attractive to businesses. Just recently CNBC rated our state fourth behind Texas, Virginia and Colorado among top states for business.

Indeed, North Carolina has many positive attributes for producers. The state ranks ninth in the country in worker productivity, is among the lower half of states in cost-of-living, and is in the middle range for electricity prices and taxes. The state’s elementary students have consistently done very well in national standardized math tests while being close to average on reading. Public college costs are very affordable compared to other states, and growth in college graduates has been among the leading group of states in the country.

But North Carolina certainly has some challenges. The state’s high school dropout rate is high. Traffic congestion is an emerging issue in the state’s largest metropolitan areas. Lastly, the incidences of obesity and smoking, which may be predictors of health issues and medical costs for businesses, are high relative to other states.

There’s no question the economic world has become more competitive in recent decades with advances in technology, communications and transportation. For consumers this is likely a good thing, because it gives them access to a wider range of products at better prices. For some businesses and workers it has meant an expansion of markets and sales, while others have found they can’t compete.

Still, a detailed look at a wide variety of business factors suggests both the nation and North Carolina seem to be positioned well in this global race for jobs and sales. Yet, as the old saying states, nothing remains the same. Will we be just as competitive in five and 10 years? Since we’re all part of the economy, collectively we’ll decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University‘s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. CALS Communication provides his You Decide column every two weeks.