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Competitiveness

Why Should We Care about our “Competitiveness”?
Perhaps we should not! Oftentimes we’ll hear the phrase, “America needs to remain (or become more) competitive”. We need to understand not only the term, but also the context because being “competitive” in certain markets means you will have to lower your standard of living in order to be “competitive”.

Context Is Everything
Being competitive in the domestic market is desirable. Being competitive in the global market, perhaps not so much so. In other words, competing with our fellow Americans in business, sports, scholastics and the like is a way of life in America and we wouldn’t have it any other way.

Get Ready To Lose
But when competing on a global stage in business, America has one huge disadvantage. Being the richest country in the world means we are paid higher than anybody. Our cost of living is higher and therefore we must charge more for our labor. Guess what? This means that we will simply not be able to compete effectively in a large number of global markets! Of course we can join the party, but we will have priced ourselves out of the market as soon as we arrive at the door! This higher cost is based largely on our cost of labor (typically around 70% of the cost of any good). Even if we are able to produce products more efficiently than our global competitors, our labor costs will usually push our product costs higher than the competition because labor is typically the largest cost component in production. Of course the world currently seems to prefer many American products and so may be willing to pay a premium. But since Americans don’t actually produce many products anymore (everything is now manufactured in China), perhaps none of this is of much importance anyway. Or is it?

Get Ready for Shenanigans
Now imagine if multinationals try to compete not only in product markets, but also in services. Americans multinationals will get creamed! This is not good news for American companies that are seeking to compete globally. What’s a multinational to do? Given current American law it is actually quite simple. First, simply outsource your labor-intensive operations. The American government will not only allow this, they encourage it! You can probably avoid a large amount of taxes as well. If this is too much of a hassle, don’t worry. American public “servants” have now created a scheme whereby you don’t need to outsource your labor-intensive operations – they can come to you via InSourcing!

Just How Important is Global Competitiveness?
The way some “free traders” talk, you’d think America would fall off the face of the earth if we weren’t globally competitive. Could this be true? Not likely. Turns out exports are only a small percentage of our total output as a nation. In fact, America has been running a trade deficit (meaning we import far more than we export) since such measurements have been recorded! So it would seem that the urgency of our competitiveness is not such an issue after all from an American perspective. Think about it – if every multinational’s foreign operations failed tomorrow, how would it affect your life? Worst case, you might have to wait to get a new TV but on the upside, a lot of jobs would return to America! But from a self-interested multinational’s perspective, it is very important. Multinationals believe that the more American jobs traded for cheap foreign labor, the better!