What is competitiveness? #1 – Robert Reich

From the Fools’ Gold blog, an article that speaks for itself

What is Competitiveness? #1 Robert Reich

This is the first in an ongoing series of articles we are planning, to explore what competitiveness is, from the perspective of particular public figures or intellectuals. For the first in this series we’ve chosen Robert Reich, a former U.S. Labor Secretary. He’s written an article in plain English that makes a number of clear and important points, which are still fully valid even though it was written in 2011.

It begins with an excellent summary:

“Whenever you hear a business executive or politician use the term “American competitiveness,” watch your wallet. Few terms in public discourse have gone so directly from obscurity to meaninglessness without any intervening period of coherence.”

(We’ll add that to our new quotations page when it’s up and running.)

As we write this, the BBC has just published a pre-election article about UK politicians, reminding us that this lack of coherence on ‘competitiveness’ doesn’t only plague U.S. politics. In different guises, it’s global. The BBC quote is from UK Prime Minister David Cameron, who said:

“The real common ground, the real centre-ground of British politics right now, is who has got the answers to making sure Britain competes and succeeds in the global race? That’s the question which wasn’t answered by Labour, which is being answered by us.”

This wasn’t an off-the-cuff mistake: Cameron has a record of using the fatuous Twitter hashtag #globalrace, and other nonsenses. We aren’t convinced that Cameron’s predecessors in the Labour Party would necessarily have said anything more sensible, but it would be fascinating if a television interviewer who understands the issues were to confront a politican who has said something like this and then proceeded to ask ‘exactly what do you mean by ‘compete,’ Prime Minister / President / esteemed CEO? And not give up probing this question until the politician has fallen off his or her chair or done something like this.

Back to Robert Reich. We’ve copied plenty of his text but have internationalised it because his points are all quite generic.

What is American “competitiveness” and how do you measure it? Here are some different definitions:

1. It’s exports. Okay, but the easiest way for companies to increase their exports from this country is for locally-made products to become cheaper internationally. To do that, companies have to cut production costs here. Their biggest cost is their payrolls. So the simplest way for them to become more “competitive” is to cut their payrolls — either by replacing local workers with machines, or cutting their wages and benefits. How is this a good thing for the country?

2. It’s net exports. The balance of trade: how much we import from abroad, versus how much they import from us. The easiest and most direct way to improve the trade balance is to devalue the currency, to make locally produced goods cheaper in world markets. But this creates two problems: first, everything we buy from overseas becomes more expensive; and second, this could lead to currency wars. How is this good for the country?

3. It’s the profits of ‘our’ companies. In case you haven’t noticed, the profits of multinational corporations are soaring as sales from their foreign-based operations boom, and because they cut local production costs (see the first item above). “Our” multinationals have become increasingly global, so their profitability has relatively little to do with the number and quality of jobs here. “In fact, it may be inversely related,” Reich adds.

Source: Fools’ Gold, derived from Federal Reserve Bank of St Louis, FRED database.

(FG: His article was written in 2011 but the basic point remains valid. Corporate profits in many countries have been soaring for decades, in large part because corporations have been winning political battles with workers and paying them lower wages and benefits, figuring out better ways to dodge taxes, and so on. Here’s a graph we created recently showing how U.S. corporate profits rose from a low point of under 4 percent of GDP in the mid 1980s to nearly 12 percent by 2013. Click to enlarge.)

4.  It’s the number and quality of local jobs created. This is Reich’s preferred definition. But the only sure way to improve the quality of jobs over the long term is to build the productivity of workers and the economy overall, which means major investments in education, infrastructure, and basic R&D. Which requires at least two big things: tax, and giving the middle and working classes sufficient purchasing power to get the economy going again, such as by getting corporations to pay their workers more. But this is kind of the opposite of what politicians tend to mean when they say ‘competitive economy’.

Reich summarises, briefly, by saying that it’s politically important for politicians, as for any president, to avoid being seen as “anti-business” — but that people must not be seduced into believing that the well-being of ‘our’ businesses is synonymous with the well-being of our country. If their wealth is substantially extracted from the rest of the economy, it’s not obvious how the country as a whole is any better off.

All these brief comments by Reich seem to make eminent sense. In fact, who could argue?

On his last point, “anti-business” is one of those code words, very much like ‘uncompetitive’, that is used to bludgeon opposition to policies that involve taking wealth from one part of the economy and giving it to wealthier people and multinational corporations. (See more code words here.) Former British Prime Minister Tony Blair highlighted the political effects that such use of language can have:

“If… chief executives say it is Labour that will put the economy at risk, who does the voter believe? Answer: the chief executives. Once you lose them, you lose more than a few votes. You lose your economic credibility.”

So this is the first in our “What is competitiveness?” series.

Next up, we may perhaps look at the work of Mariana Mazzucato, or visit a classic 1994 essay in Foreign Affairs by Paul Krugman entitled “Competitiveness: a Dangerous Obsession.” We will also visit a particular form of the ‘competitiveness’ obsession, called ‘tax competitiveness.’ Any other suggestions, of course, are welcome.