Separating the Wheat from the Chaff

The Democratic Govenors Association released its "America Competes Plan." The plan was accompanied by dire predictions of the US spiralling downward if we didn't take steps to inprove our competitive edge.

But before getting into it, perhaps you should review the plan yourself by Clicking Here.

Okay, if you look at it you might say, "What's wrong with what they are saying?"

First off, the whole thrust of their argument, that America needs to compete, runs counter to the truism that nations don't compete, companies do. A lot of what they are proposing with regard to educationand healthcare is fine (in theory) from the point of view of improving American productivity and our well being. Improving our education system would improve our material well being with or without global trade. Failure to maintain a quality education system won't change the impact of foreign trade, but rather would most likely lead to decline in the growth of our productivity and thus to our wages (agian, trade or no trade).

The hand ringing about level playing fields for American companies is typical protectionist rhetoric and, as is usually the case, has just enough truth in it to elevate it from patently absurd to simply missing the point. Are there subsidies out there that help foreign companies compete with US companies? Sure. Does the US provide subsidies for its companies? The US gov't doesn't provide as many direct subsidies but does provide a lot of support in the form of protection, tax credits, R&D support, and defense spending. We're not the bad guys but our hands aren't clean.

But, more importantly, when a company here or there has trouble competing against a foregin producer, that's the company's problem, not ours as Americans. Case in point, for years the Japanese kept Motorola out of its wireless market through various regulatory measures. Who gained and who lost from this? Clearly, Japanese cell manufacturers gained and Motorola lost. But you have to keep in mind that these are just the producers and you also need to take consumers into account. When you do, you realize that Japanese consumers were hurt by having more expensive cell phones because there were fewer producers (i.e., Motorola) in their market. At the same time, American consumers benefited by having less expensive cell phones because there were fewer consumers (i.e., the population of Japan) in their market.

Herein lies the problem with these competitiveness arguments. They equate our national well being with the well being of our producers whne in fact our well being is more properly equated with the well being of our consumers.