Washington’s economic do-over
When President Obama meets with business leaders at the White House today, one thing will be clear: The United States is now an economic superpower on the verge of decline. This is not an observation based on casual public perceptions such as the current unemployment rate or tax debates in Washington, but an analytical one stemming from real socioeconomic trends, key performance indicators and the fact that policymakers are increasingly looking the other way. In short, we’re losing ground and we’re letting it happen.
Consider the following: The United States remains the world largest economy by multiples over even fast growing China. We are home to the world’s best universities and the most entrepreneurial, diverse and skilled population to be found anywhere. Yet, governments across the globe have and continue to spend billions of dollars trying to replicate global innovation centers like those in Silicon Valley, manufacturing hubs like those in the Midwest and worldwide financial markets similar to ones housed out of New York. And they are succeeding.
Ironically, much of their success is baked on economic recipes the United States once lived and implemented to achieve its own greatness, but ones we have since slowly discarded. Furthermore, rapidly developing nations continue to adopt economic strategies aimed at supporting their homegrown industries and workers politically and through pro-growth public policies. The United States has no such strategy.
Just last week, we learned that standardized tests taken in 64 countries, all participating regions of China outperformed the U.S. In fact, students in Shanghai tested first in reading, math, and the sciences while students in the U.S. ranked between 17th and 30th of the 64 participating countries.
We are now in the middle of the pack in terms of high-speed broadband penetration, and by any measure have the worse, most burdensome, and economically distortive corporate tax code in the world.
And if these red flags are not bad enough, we have also become beholden to those countries that are beating us in other critical areas like education and increasingly innovation. Foreign countries now hold 36 percent of our $14 trillion debt with China owning nearly 20 percent of those foreign holdings. Reducing the national debt is critical and will require difficult decisions, but that alone is not enough.
To avoid a prolonged period of economic and societal weakness, we must shift course before it’s too late:
· First, we must attract three things: talented people, fresh capital and innovative ideas. The principal driver in determining where companies invest and create new jobs is the level of the available talent. Thus, we must invest in improving the proficiency of American students in the sciences. We must also stop showing foreign students the door once they complete their education in the U.S. Current policies are now forcing the next Sergey Brin to develop the next Google outside our borders after attending our best schools.
· Second, we must view every decision through a lens of entrepreneurism and job creation. This means reducing the regulatory burdens associated with being a U.S. based company starting with our tax code. The U.S. corporate tax rate is the highest in the world and our code is structured to penalize foreign earnings that are brought back to the United States. Thus, rather than attracting capital, our tax code has trapped over $1 trillion aboard. If we want to be first again we must transition to a territorial system, like all of the other G8 countries, and reach a more rational tax rate.
· Finally, we must strongly encourage U.S. businesses to be pioneers in new markets and give them the necessary political support. The United States has five percent of the world’s population. It is impossible to have robust job growth here in the U.S. absent building a presence and selling our products and services to the other 95 percent of the globe, including China, India and other emerging markets. Rather than castigating the attempts to build new markets as “off-shoring” for pure political expedience, we must begin identifying real means to support the global growth of U.S. companies.
As Mr. Obama prepares to meet with the nation’s leading CEOs, these steps should serve as a foundation to develop and implement a national economic strategy to keep pace with the rest of the world. To do so will require enormous compromise and support. To do nothing is sadly the status quo. If we don’t change our approach within the next several months, the status quo could linger for decades.
Dean Garfield is president and CEO of the Information Technology Industry Council (ITI).