Why is national competitiveness a necessary prerequisite to our U.S. superior standard of living?

In their definition of the purpose of business and economic activity, Michael Porter and fellow Harvard Magazine editor Jan Rivkin state that “U.S. competitiveness [is] the ability of firms in the U.S. to succeed in the global marketplace while raising the living standards of the average American” (Porter and Rivkin, 2012). Throughout a series of interviews published in Harvard Magazine in 2012, Porter, Rivkin, and their fellow editors at the publication examined national competitiveness, raising questions about the U.S. economy, businesses, and the political system. Their study found evidence that job creation and the wage level in the U.S. began to stagnate around 2000, ahead of the recent recession (Porter and Rivkin, 2012). Corporations began to move production out of the U.S., seeking lower wage rates, better access to skilled labor, and fewer or less expensive regulations. This is of particular concern because we know from Mankiw’s Ten Principles of Economics that our standard of living depends on our ability to produce goods and services, “and that highly productive workers are highly paid, and less productive workers are less highly paid” (Mankiw, 2011, p.388). This is an indication that our ability to compete in a global economy has a direct correlation to the well-being of the U.S. citizen. Krugman states that, “sustained economic growth occurs only when the amount of output produced by the average worker increases steadily” (Krugman, 2009, p.646). However, Porter and Rivkin’s analysis indicates that improvement in the U.S.’s long-run productivity has been hindered by factors such as a complex tax code, a highly regulatory environment, and failures in K-12 education (Porter and Rivkin, 2012). Their concern is whether the U.S. can effectively compete in the areas of physical and human capital and technology.

 
The questions raised by the Harvard study relate to other statistical measures of the Nation’s competitiveness and the performance of the overall economy. Porter and Rivkin indicate that, while the U.S. has experienced GDP growth over the past few decades, it’s been highly concentrated among top earners (Porter and Rivkin, 2012). The implications of this observation are related to the fact that the GDP is one of the most closely watched economic statistics “because it is thought to be the best single measure of a society’s economic well-being” (Mankiw, 2011, p. 492). However, Mankiw goes on to raise an important point in terms of the absoluteness of the GDP: considering the supposed comprehensive nature of Porter and Rivkin’s Harvard study, should we factor in the verity that the GDP doesn’t account for leisure, the value of activity outside the marketplace, and the quality of the environment into the nation’s well-being?

 

 
Krugman, P. (2009). Economics. (2nd ed.). Worth Publishers.

Mankiw, N. G. (2011). Principles of economics. Cengage Learning.

Porter, M., Rivkin, J.W., (2012, September – October). Can america compete? strategies for economic revival Harvard Magazine, Retrieved from http://harvardmagazine.com/2012/09/can-america-compete