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Posted at 9:18 AM ET, 01/25/2011

Column: The problem with competitiveness -- and with Canada

By Ezra Klein

Imagine if President Obama took the podium Tuesday night and said: "Technology has made competition easier and fiercer than ever before. Countries around the world are upping their game and giving their workers and companies every advantage possible. But that shouldn't discourage us. Because I know we can out-compete any nation on Earth. Even Canada."

Laughter would swell through the room. Republicans and Democrats - who, in a nod to the new civility, are now bragging like second-graders about their willingness to sit next to one another - would pounce on the president's ill-timed foray into stand-up comedy. Canada's ambassador would angrily dial every White House phone number in his address book, demanding to know why his country had been singled out for such cruel mockery. But the truth is that calling out Canada would be a lot more honest than what the president is likely to say - or has said already.

Aside from the "even Canada," every word in that hypothetical speech came from the radio address the president gave last weekend ahead of the State of the Union. The president, of course, would never append "even China" because it would be stating what he meant too clearly for our diplomats to bear. But Americans know. We saw China's president in town last week, triumphantly soaking in all the pomp and circumstance. We know who's lining up across the field from us.

The only problem is, that's wrong. "Even Canada" - or Germany, or Britain, or France - would make a lot more sense than "even China." It's not that Chinese companies have never taken an American worker's job; they have. But the Chinese, by and large, are competing with companies in India, Indonesia, Thailand and Malaysia, because the things those workers make are not, in most cases, the things we make or even the things we want to make.

"China competes on price," says Robert Shapiro, director of Sonecon, an economic consulting firm. "There isn't any doubt about that. The United States competes on quality and innovation. That's how our companies outdo other companies."

We're generally too intimidated by the procession of statistics out of China: More than a billion people, supercharged economic growth of almost 10 percent last quarter, and trains that go really, really fast. But for Americans, those statistics are either meaningless or encouraging. Americans don't need to worry about China's growth. They need to worry about China's growth slowing down.

The richer China is, the more of our stuff its people can buy. Between 2000 and 2007, for instance, total U.S. exports to China grew by more than 350 percent. A world in which China grows even richer is a world in which they can do more than make goods we used to make. It's a world in which they can buy stuff that we still make, not to mention invent things that make our lives better. And more immediately, if China stops buying, the fragile global recovery simply stops. It's a lot bigger than Greece.

The hard question, in the end, isn't what to do about China. It's what to do about America. Framing the global economy as a competition rather than a shared enterprise preys on our fear of rising powers such as China and India. But, to the White House, it's for a good cause: It gets America's competitive juices flowing, helping galvanize us into making the changes and investments needed to secure our own future.

The true competition that the White House is setting up is not between the economic models of China and the United States, but between the economic policies of Democrats and Republicans. The GOP wants to "cut and grow," in the words of House Majority Leader Eric Cantor. "When we hear 'invest' from anyone in Washington," he said on Sunday's "Meet the Press," "that means more spending."

The Democrats disagree. "The best antidote to a growing deficit, by the way, is a growing economy." Obama told a crowd in North Carolina last month. "To borrow an analogy, cutting the deficit by cutting investments in areas like education, areas like innovation - that's like trying to reduce the weight of an overloaded aircraft by removing its engine."

In that same speech, Obama said, "This is truly going to be our Sputnik moment." When we look back on Sputnik, what's important isn't that we beat Russia to the moon. It's that we went to the moon. We had a national purpose that sent thousands, or maybe even millions, of young Americans into science and engineering, that led to countless innovations that proved useful for more prosaic - and commercially viable - tasks than space travel. We didn't make Russia a worse country, but we did make America a better one.

In the end, the measure of our nation isn't in how many competitors see their economies left in the dust, but how many Americans see their incomes raised, their quality of life improved, their children's future secured. We're in a race not with China, but with how good we have it now, and how good we can have it tomorrow.

And, of course, with Canada.

By Ezra Klein  | January 25, 2011; 9:18 AM ET
Categories:  Articles  
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Next: What the speech has done already


Very true about the GOP/Dem schism on spending as investment. However, we underestimate our competition when we think of China as a price only competitor. China made my innovative high tech iPod, in fact a new model a year. My state of the art Nikon digital camera, too. The problem with our current model of "cheap" overseas manufacturing is that the benefits of innovation are so limited. Shapiro is only half right when he says innovation and quality is "how we compete." Apple and Nikon get some profit from how we compete, and their stock rises, but American (and Japanese) workers get nothing, as the quality innovative products are all made in China. Workers here don't share in the intellectual property rights of Apple engineers.

So what the GOP wants is just what we have, a rising tide that only lifts the yachts.

Posted by: GreenDreams | January 25, 2011 10:21 AM | Report abuse

I'll repeat a comment made to today's Wonkbook post:

There's a note of agreement from Senator Jim Webb (D-VA), who recently wrote that "Although China has a high net trade balance with us, they don’t have the highest balance of trade in the world. Germany does. They do this with quality products. They take care of their people. They export and they service the exports. The Germans do this with mid-sized corporations; they find niche manufacturing markets. We can do that here in America."

And [But?] from Senator Mark Warner (D-VA), in an interview with the Daily Caller notes “What I hope he [The President] says – and I think this will make some folks on my side upset – even if he has an innovation and growth agenda … just growth alone isn’t going to get us out of this [economic] problem” [...] “We’re going to have to take on the size and role of government”.

Posted by: rmgregory | January 25, 2011 10:46 AM | Report abuse

What's remarkable to me is the entire Republican argument about "cut and grow". While it's not entirely non-sensical - streamlining can be very profitable if done with surgical precision, and eliminating waste is simply a no-brainer - a failure to invest flies in the face of Business 101. Indeed, every business invests in order to grow. It happens at start up, where capital is typically borrowed to finance the growth of a new idea. We see it again with expansion and development of new product lines, which require investment spending to facilitate. And it's plain to see the cost of maintenance and upgrade of infrastructure, where businesses invest profits or borrow capital to meet their requirements. Starbucks can't use the same espresso machine indefinitely, can they?

Investment spending is simply a basic premise of growth. Again, yes, we need to streamline smartly and eliminate waste wherever we can. But to suggest that simply chopping investment spending out of our federal budget will somehow allow our economy to grow is just magical thinking. I expect better from the self-proclaimed "party of business." Investment spending is a basic function of growth - for what purpose are they questioning that?

Posted by: deanlambrecht | January 25, 2011 10:48 AM | Report abuse

Just two reminders:
1- Until the last year or two, Canada ran budget SURPLUSES. And did not have a very large financial meltdown, mostly because it kept its Depression era banking laws while the US recinded ours.

2- The second largest exporter in the world, behind China, but ahead of the USA is Germany.
Socialist, unionized, 5 week vacation a year, socialist, universal health care, cheap education all the way to the highest levels, socialist, saddled with the Eastern Part still dragging on the economy, really high taxes therefore uncompetitive, very little agricultural exports, unlike the USA, socialist GERMANY.
Google it.

Posted by: grat_is | January 25, 2011 11:13 AM | Report abuse

Germany overtly believes in free trade but covertly maintains non-tariff trade barriers.

Also, there is cultural bias in Germany. German people simply prefer to buy German made products, and its not simply because they are better. I owned a 2003 Mercedes and it was a piece of crap. I traded it in for a Ford Explorer and have loved it.

The above article eludes to Alexander Hamilton style policies that Reagan and his followers including many Dems) have turned away from (i.e. trade protections). Until we start protecting our industries and jobs, we will continue to decline until we have the same living standards as China and India, countries which DO protect their industries.

Re' Canada, that socialist country has decimated our timber industry with subsidies/etc.. They have bought and closed down many US saw mills and timber forests.

Posted by: lauren2010 | January 25, 2011 11:29 AM | Report abuse

--*Framing the global economy as a competition rather than a shared enterprise preys on our fear of rising powers such as China and India. But, to the White House, it's for a good cause: It gets America's competitive juices flowing, helping galvanize us into making the changes and investments needed to secure our own future.*--

You are delusional, Klein. Nobody trying to pursue his or her dream gives a flying fig what the President says or how he "frames" the so called debate. They just want to be left alone, with as much of their own earnings as possible, and unencumbered by a bloated, corrupt, incompetent government relentlessly looking for its cut of loot and to have its mindless busybodyism justified.

Posted by: msoja | January 25, 2011 11:52 AM | Report abuse

Song was an insult to America. He dishonored his welcome- and surprisingly that was Hu's theme during his stay in USA. Hu's China is waging a trade war directly and showing off NK as nuclear powered ally, ready to go to war. Hu is refusing to budge at both. He is refusing to adjust the Yuan currency exchange rate, and refusing to help ease NK and SK tensions. Guess how NK acquired nuke technology? Even if China didn't help directly - it just looked the other way. Nobel Peace Laureates Liu is still in jail, Dalai Lama has been kept out of Tibet for over 51 years. These are all cruel and unfair.

Posted by: vk1537 | January 25, 2011 12:02 PM | Report abuse

Ezra you are really showing your neoliberal stripes here. I suggest a careful look at the data before you rely on ideology.

At this link, scroll down to the second chart and see the shocking plunge of American manufacturing jobs after China joined the WTO.

And at this link there is data and chart exploring how disproportionate and excessive is the Chinese trade surplus with America. Truly an outlier.

First, the discussion.
"Willem Thorbecke and Ginalyn Komoto of the Asian Development Bank Institute have created a formula to predict the amount of trade — imports and exports — between two countries. To do so, they consider a long series of variables: “income in the exporting and importing countries, the real exchange rate, distance, a common language dummy, importer and exporter fixed effects,” as well as a couple of others.

They find that the formula works quite well — with one major exception. There is far more Chinese exporting to the United States than the formula predicts."

Click here for the chart:

Here is a piece by Michael Pettis that you should read carefully. In it he demolishes the view that trade action against China would not bring back American jobs. As you probably know, he is an academic economist who lives and teaches in China. He knows the facts on the ground, in other words.

Finally I think the dismal performance of America relates to the total collapse of American labor as a "countervailing power" to the job exporting schemes of American business. European countries have not savaged their workforce as we have savaged ours, because there is more accountability through unionization.

By electing Republicans and neo liberal Dems, Americans gave corporations the rope to hang American workers with. Now they are using it.

Posted by: mminka | January 25, 2011 12:15 PM | Report abuse

Man, Ezra, you are desperately obtuse on China.

(Your points on Canada and Germany are very well taken. So where was your relentless advocacy of a nationalized healthcare system? Or a national education and trade union system like Germany's? Oh, none, really.)

But China: let me try to explain it this way: competition is largely about being in the right place in the future, not taking opportunities away right now. China wants to take away our export industries in semiconductors, software and commercial aircraft, and wants to start exporting cars to us. They have already shown themselves to be completely mercantilist and unfair in taking 3-5 million jobs from us over the last five years, and their future capabilites are breathtaking.

Of course we need to slow this down. That is good policy. And if you want us to compete with Canada and Germany, then you - Ezra, the policy wonk - tell us what policies we need for that.

Your obliviousness to the pain of the American working class is now close to completely disqualifying you as a policy advocate. You need to get your a#% out of DC, and see what the middle of the US looks like right now. You may not want the jobs we lost over the last ten years, but believe, millions of Americans need them.

Posted by: Dollared | January 25, 2011 12:17 PM | Report abuse

MMinka, thank you,. Please comment more. Ezra needs an education. Try Matt Yglesias next.

You should send your comment in an email to James Fallows and Andrew Sullivan as well, showing each of them that you've cc'ed the other. It might produce some coverage as well.

This is news. It's just corporate media's choice not to cover it.

Posted by: Dollared | January 25, 2011 12:23 PM | Report abuse

Not to snark, but it's not clear that the U.S. does out compete Canada, at least at the level of essential government services. Canadian health care is cheaper and better. Canadian bank regulation prevented the problems that have happened here and elsewhere. Canada takes in more immigrants, given its population, and does pretty well at assimilating them. Canada's previous center-left government balanced the budget and paid-down/out-grew their national debt significantly for a decade.

The U.S. military is a lot bigger and better and the U.S. business environment and population is more entrepreneurial, but if the U.S. government services were delivered with the skill and efficiency of the Canadian ones [post office excepted], then the U.S. would be better off.

Posted by: adonsig | January 25, 2011 12:23 PM | Report abuse

I'm glad some commenters here are open minded wrt to facts on China and our jobs crisis.

What I find dismal is how Ezra's views (and Chait's and Sullivan's and Yglesias' and ...) etc ad nauseum are so dominant in the mainstream media of all kinds. The alternate views are like the squeaks of mice. This kind of dominance generally means that there is an institutional filter applied to permit dissemination of only 'acceptable' opinion.

Enough already! We have a jobs crisis. We need reality based analysis, and advocacy for ordinary Americans, not Chinese, no matter how impoverished.

I am a fan of the writing of Michael Lind, and he seems to have a very small foothold. Read him whenever you can. His latest:

Posted by: mminka | January 25, 2011 1:19 PM | Report abuse

Who knows that Canada privatized its air traffic control system back in 1996? To great effect, too. While the U.S. government-run FAA grows increasingly antiquated and dangerous.

And the FAA is typical of U.S. bureaucracies.

Posted by: msoja | January 25, 2011 1:46 PM | Report abuse

I'm not sure I follow your Sputnik example. You decry competitiveness -- or at least say it makes you wary -- then you point to Sputnik and all the good that competition produced.

To me -- and I'd venture most others -- America's reaction to Sputnik was as clear a case of concerted competition as we've had post-WWII.

I understand your point that one can win a competition either by harming the opponent or by honing one's own effectiveness. But it seems clear Obama is talking about the latter (as was Kennedy). I hear no calls for sabotaging the economies of other nations. All I've heard so far are calls for more investment in education and innovation.

Posted by: dpurp | January 25, 2011 2:01 PM | Report abuse

The basic premise is false. The corporation's "citizenship" is secondary to its bottom line profits. For example, a company may become a "citizen" of a Caribbean island in order to avoid US taxes...a well known practice. A company my start up a whole new factory in China or Mexico in order to supply that local market. Just adding a bit of extra capacity to that factory allows it to supply the US market with cheap labor made products. That is a job killer because the US factory is now not competitive in the eyes of the company's management and it is closed. NAFTA proved that...the data is well known.
What is wanted home country located companies. For example, Honda in Ohio is better for American jobs than GM in China. How does competition cause that to happen? It obviously does not.

Posted by: denim39 | January 25, 2011 4:05 PM | Report abuse

"China competes on price," says Robert Shapiro, director of Sonecon, an economic consulting firm. "There isn't any doubt about that. The United States competes on quality and innovation. That's how our companies outdo other companies."

This is complete nonsense. Everyone competes on value, in other words, quality and price. Status brands, those designed to convey social status to their owners by virtue of higher price, are a bit of a contradiction of the usual rules, and have little to do with quality or innovation.

No one "competes" on innovation. Innovation gives you a first mover advantage- but that is pricing power only until competitors emerge.

Obama told a crowd in North Carolina last month. "To borrow an analogy, cutting the deficit by cutting investments in areas like education, areas like innovation - that's like trying to reduce the weight of an overloaded aircraft by removing its engine."

That's why we should all want to ensure that health care benefits are restructured to lower the cost of care. Instead of caving into the demand for excessive and overpriced care, we should let people manage their own funds as much as possible.

Posted by: staticvars | January 26, 2011 11:26 AM | Report abuse

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