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CORSO: Emerging economies set tone for U.S. growth
Time to get back to basics
Question of the Day
The hottest topic in the presidential contest is how to get America back in high gear. Here’s an approach neither candidate is discussing: The United States should think of itself as an emerging economy.
That idea may look odd at first glance. How could the world’s largest economy think of itself as “emerging”? This isn’t an issue of where we are now; it’s a matter of where we are going. The track we’re on is not promising.
It’s time for a new game plan. Fortunately, we don’t have to look far for role models. Turkey, for example, began by asking the right questions: “What are we good at? How can we get better? How do we invest to make it happen?” This led the Turkish government to enact prudent fiscal policies to promote business and consumer confidence, place new emphasis on the agricultural sector, which always had been a mainstay, and build up the manufacturing and service sectors. The result has been a decade of growth interrupted only briefly by the global recession.
The United States needs to apply the same principles of identifying and capitalizing on its strengths, and its strengths are many: an open economy supported by the rule of law, a superlative capital market structure to finance innovation, vast natural resources and superior intellectual capital — after all, we’re home to the world’s best universities. If we get it right, the improvements will create jobs by stimulating investments in real estate, energy and technology.
We need to create more certainty in fiscal policies, beginning with our broken tax system. Our corporate tax rate is the highest among major industrialized nations, so it’s no wonder corporations with overseas operations don’t bring their offshore profits — an estimated $700 billion — home to invest. We also need to get our debt-to-GDP (gross domestic product) levels under control. Following a plan like Simpson-Bowles would be a good start. Most important, we must create certainty of policy, an ingredient common to all high-performing economies. By clearly laying out the rules for consumers and businesses, we can generate the confidence necessary for investment and consumption, the two forces that drive GDP.
The United States must open energy markets so we can tap our natural resources — especially clean natural gas — to ensure reliable, low-cost power. The World Economic Forum estimates that America’s shale gas industry alone was responsible for a 10 percent reduction in the cost of electricity in 2010 and will contribute more in the future: a 1.1 percent increase in GDP in 2013, 1 million more jobs in 2014, and 3 percent higher industrial production in 2017. By reducing our reliance on petroleum imported from unstable regimes, we can ease price volatility, further strengthening business and consumer confidence.
We should develop a more open global trade policy built on an understanding of where the United States does and does not have competitive advantages. We aren’t going to be the world’s low-cost manufacturer, nor should we focus on low-value-added jobs in which the only way to compete is protectionism. There are many jobs available in higher-wage industries, but an estimated 3 million-plus remain unfilled because of a mismatch between workers’ education and skill requirements. Investing in education will raise those skill levels and fill those jobs.
We need to develop an immigration policy that encourages job creators to come to the United States and stay. Our economic “speed limit” is defined as population growth plus productivity. Current population growth is about 1 percent and productivity about 2 percent, so GDP could grow at 3 percent. Why not add to this with an immigration policy that imports intellectual capital? Today, we educate the world’s best and brightest in our universities but make it difficult for them to stay. Although foreign students earn more than 60 percent of the doctoral degrees in engineering awarded each year in American schools, only about half remain here, largely because of the difficulties in obtaining permanent visas. We are throwing away the investment we make in those foreign scholars.
These are just a few of the ideas that could dramatically accelerate growth. Each item could add up to 1 percent to GDP growth. The benefits of an additional 2 percent compounded over 10 years would give us an extra $3 trillion of GDP, a 20 percent increase over what most experts expect, and it would produce a whopping additional $25 trillion in 25 years’ time, helping solve fiscal issues like Social Security and Medicare.
The key is getting back to the basics that fostered growth in previous generations: a focus on our competitive advantages and investing to support them.
Clifford D. Corso is the CEO and chief investment officer of Cutwater Asset Management.
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