U.S. Competes Well in Global Economy

By Lori Montgomery
Washington Post Staff Writer
Tuesday, November 14, 2006

Over the past two decades, the U.S. economy has performed remarkably well in the face of globalization, but only people with college degrees have benefited in the form of higher wages, according to a report released yesterday on the state of U.S. competitiveness.

Since 1986, families headed by high school graduates have actually lost ground when their incomes are adjusted for inflation, with median household income falling by as much as 11 percent, according to the report, called "The Competitiveness Index: Where America Stands."

Families headed by people with bachelor's or advanced degrees, meanwhile, saw their median income jump by as much as 7 percent, the report shows. And while families at all educational levels have benefited from rising home values and stock market gains, the better-educated have enjoyed skyrocketing wealth, with college graduates recording an average net worth four times greater in 2004 than that of high school graduates.

In a global economy, "the educated do well," said Michael E. Porter, the report's co-author and a professor at Harvard Business School. "And those who aren't, do worse and worse," he said at a news conference yesterday.

The growing gap between rich and poor, educated and uneducated, is not a uniquely American phenomenon, Porter said, but it goes a long way toward explaining why, at a time when the economy is robust and unemployment is low, a majority of Americans are "feeling very, very insecure."

The wide-ranging, 147-page report is the product of the Council on Competitiveness, a nonprofit organization founded in 1986 to analyze the country's economic performance and help guide economic policy. Comprising university presidents, labor leaders and the chief executives of major corporations, the council attempts periodically to measure U.S. economic data against that of emerging global economies.

On the council's 20th anniversary, the news is mostly good, Porter said. The United States is among the world's leaders in productivity, has one of the highest standards of living and leads all major economies in economic output per person.

Over the past two decades, the United States has generated one-third of global economic growth, growing faster than any other advanced economy, with an average annual growth rate of 3.1 percent between 1986 and 2005. That's considered rapid growth, and it far outpaced other major economies in the developed world, such as the European Union at 2.4 percent and Japan at 2.1 percent, the report said.

Porter said that though the U.S. trade deficit is huge, those numbers do not entirely reflect the overseas success of U.S. companies, which sell many of their goods and services through foreign subsidiaries. And though manufacturing jobs have declined, Porter said, the United States remains the largest manufacturing economy in the world.

"A lot of the debate and discussion today is misleading and full of misperceptions," Porter said. "The U.S. economy has done spectacularly well, by any measure. . . . Competitiveness is not a zero-sum game."

Still, the report raises some red flags for the future: Rapidly expanding foreign debt, high rates of consumption and the return of federal budget deficits could compromise U.S. competitiveness and destabilize the global economy, the report said.

The level of entrepreneurial activity varies significantly across the country, with high-growth entrepreneurs concentrated in just four areas: New York, Boston, San Francisco and Southern California.

U.S. fuel efficiency lags well behind that of many other developed countries. And an expensive and underperforming school system has left American students performing near the bottom on a range of international tests.

"This is our number one economic problem in America, the quality of our basic education system," Porter said. "We've got to make structural changes. We cannot tinker here. . . . I don't know if the country's ready for that."

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