U.S. Is a Strong Competitor, Not a Fading Debtor Nation

Change that tune. In analyses of the Houston economic summit we heard a lot of talk about “the waning power of the United States”--which, it was said, could no longer dictate to its allies Germany and Japan.

Interviewed on television, experts lamented the “weakened, uncompetitive” U.S. economy, and the words “world’s largest debtor nation” were repeated like a mantra.

But the analysis is out of date. The United States is not economically uncompetitive.

“The United States continues to enjoy an absolute price and cost advantage over its major trading partners,” the Federal Reserve reported recently. In just one measure of competitiveness, said the Fed, “U.S. unit labor costs in manufacturing are more than 15% below those in other major industrial countries.”

That advantage has been showing up in trade figures. U.S. merchandise exports, at $364 billion last year, are up more than 50% since 1987, while imports have grown at less than half that rate, to $473 billion. In fact, if oil imports are excluded and the $25 billion in service “export” earnings are included, U.S. trade is just about in balance. (Service exports include everything from greeting foreign tourists to designing foreign telephone systems).

The trend will continue. In the immediate future, “the U.S. economy will experience an export-led recovery for the first time in its history,” says Francis Schott, chief economist of Equitable Life Assurance Co.

A fundamentally different long-term trend is taking hold in the U.S. economy: Americans will make more and more of their livelihood selling to foreigners. And to understand what that means, we need to change the way we look at the world.

We are not poorer, for example, because others have grown prosperous. Rather, their prosperity is benefiting us. Take tourist trade. Last year, foreigners spent $1.2 billion more in this country than Americans spent abroad. For years, almost nobody believed that could happen. America was too expensive to visit, it was said, and foreigners too poor. Americans are not suited to “serving” foreigners, it was said.

Well, this year 42.5 million foreign visitors will come to the United States--providing a $2-billion tourism surplus--and from Hollywood to the Grand Canyon, Americans seem to have done a congenial job of serving them. Next year, 46 million are expected.

Selling to others doesn’t mean demeaning labor or cheap goods. America at its best sells brainpower. U.S. university education for foreign students is a leading service export, for example. Royalties and fees on U.S. inventions netted a $1.3-billion surplus last year, and that may soon go higher. Royalties on Texas Instruments’ patent on the integrated circuit, recognized only recently by Japan, could run to $700 million a year in this decade, according to Fortune magazine.

Brainpower is sold in service exports: Bell Atlantic and Ameritech will upgrade and manage the New Zealand telephone system; Motorola’s cellular telephone design has been accepted as standard by Japan. Fluor and Parsons, the engineering and construction companies, are embarking on multibillion-dollar contracts to help Saudi Arabia expand oil production.

It is sold, too, in manufactured goods, where U.S. computer and software exports add up to roughly $14 billion. “The material in a software diskette is worth 49 cents, but the knowledge on it is worth thousands,” notes Adrian Dillon, chief economist of Eaton Corp., a Cleveland-based maker of electrical equipment.

Furthermore, the U.S. labor cost advantage comes not from low wages but from the highest output per employee in the world. And productivity in manufacturing is growing at historic rates. Productivity in services does not seem to be growing as rapidly, but that may be because of difficulties in measuring increased service output.

The point is that, in virtually every way, the United States is internationally competitive. Yet we keep hearing lamentation and gloom. Why is that?

Confusion over the transition to an export-led economy is partly to blame. The U.S. historically hasn’t depended as much on foreign trade as other countries. But during the 1980s, it imported far more than it exported, helping itself and other nations to prosper but also paying out billions of dollars for imports--and borrowing some of those dollars back. Now, as U.S. industry concentrates on selling goods and services abroad--in a sense to redeem those dollars and pay those debts--it will mean fewer goods available for consumers in this country.

Consumer spending will grow more slowly in the ‘90s than the ‘80s. But balancing that slowdown, and maintaining employment, will be a pickup in production--including production by foreign companies operating in the United States. The United States may well become the production hub of the world.

That being the case, talk of waning power and influence is particularly misguided. For 45 years, U.S. economic and military policy has worked to bring peace and prosperity to Western Europe and peace and freedom to Eastern Europe and the Soviet Union. Now, all those goals are being achieved, with the added benefit that U.S. allies in the West are willing to pony up some of the cost of rebuilding the economies of the East. Call it “Son of Marshall Plan” and a definite long-term boon to the world’s largest trading nation, the United States.

The point, of course, is simple: We are not weakened when those we helped become strong.