- The Washington Times - Saturday, April 29, 2006

Embraced by both ends of Pennsylvania Avenue and both parties, competitiveness has emerged at the top of Washington’s 2006 domestic policy agenda. Unfortunately, this often means simply relabeling longstanding proposals and seeking to apply them to the perceived problem.

Successfully increasing our competitiveness will take more than plastering another layer on America’s domestic policy pastiche. Our competitive challenge is not predominantly external. Rather it springs in largest part from an erroneous image of economic supremacy shaped in World War II’s aftermath and now more than two generations old. Until recognized and addressed, our greatest competitive challenge will remain internal yet beyond our reach.

America emerged from World War II’s destruction as the industrialized world’s unchallenged economic leader. There was not even a remote rival. Every other industrial nation was destroyed or exhausted. Of today’s G-8 group, the world’s economic elite, Germany, Japan, France, Italy and Russia were devastated and Britain spent. Only Canada and the U.S. emerged unscathed. Our only economic challenge was philosophical — between the capitalist and communist development models.

America’s emergent position was unnaturally exaggerated — not a monopoly but outright hegemony — a combination of its economic strength and its rivals’ decimation. So great was the dominance that it effectively expanded on the 19th century’s Manifest Destiny, whereby America would not simply dominate a continent but the globe. It is not surprising this would shape a view that U.S. industry could take economically uncompetitive positions internally and still win globally.

The unnaturalness of these unique circumstances also meant they would be temporary. Our position had to erode, if only because our economic competitors had to rebound. In their rebound, they had advantages of being able to copy, and in many cases improve on, our successful processes and technologies.

Capitalism’s inevitable victory over communism in the battle of economic philosophies unleashed still more economic competitors. Not only were the nations of Russia and Eastern Europe directly freed from communism’s fallow field, but an even larger number of developing nations also benefited by removal of bad example. The global ascendancy of ever freer trade accelerated these developments.

The return to natural conditions of intense competition between more equal economies has been hard to perceive and even harder to accept by a nation beguiled by an image of its own economic supremacy. For decades, U.S. industry seemed unassailable, infinitely capable of every challenge and any demand the nation could place on it.

This meant not only an uncompetitive international tax code and high domestic tax rates (second highest in the Organization of Economic Cooperation and Development), but also invisible taxes in the form of mandates and regulations. It meant an excessively strong dollar and uneven market access that disadvantaged U.S. exports. And it meant foregone domestic opportunities in such areas as energy production.

None of this is meant to be dismissive of competitiveness as a top domestic agenda item or the sincerity of all parties in pursuing it. Instead it should encourage a redoubling of the effort. New proposals are a good start but clearing away some of the old ones would be even better.

The president is right to call for permanent tax breaks for research and development; its temporary form only undercuts long-term planning. We should also repeal the corporate AMT, something rarely mentioned, though the individual AMT is acknowledged to be one of the tax code’s greatest failings. The AMT effects have been mitigated by a succession of individual waivers. There have been no corporate waivers, yet the corporate AMT is no less a hardship.

And we should seriously examine reducing the mandate and regulatory burden — not simply slowing its growth.

But the most important change we could make can’t be legislated. It is to expunge our outmoded mindset of America’s monopoly position in the world economy. Momentarily removing a straw to get the camel to its feet, with the intent of simply adding more straw, will not work. A thorough evaluation is needed of all policies that make us uncompetitive coupled with a determination to rectify them. To make such an examination, we must first change how we see America’s business sector.

Some six decades emerging from World War II’s crucible, we find ourselves in reversed roles. Then we were economically without equal but faced our greatest military adversary. Now we are militarily unequaled but face our greatest competitive economic challenge.

The importance of our current economic challenge is underscored by the outcome of the previous military one. It was ultimately America’s economic superiority that doomed its Soviet military adversary.

We ignore the importance of this lesson and our economic competitiveness at our peril. The threat we face is both from within and without. We must come to grips with the challenges we have placed on ourselves, if we are to successfully grapple with our external ones.

J.T. Young served in the Treasury Department and the Office of Management and Budget, 2001-2004.

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