The U.S. Economy -- by many measures the most powerful and dynamic in the world -- is also handicapped by weaknesses that are hurting the competitiveness of American industry in the global marketplace, a presidential commission of 30 leaders from business, labor, government and academia concluded last week.
The commission, headed by John A. Young, president of Hewlett-Packard Co., said that eight key factors determine the ability of U.S. firms to export goods and services abroad successfully, and to outpace imports in this country.
In only one of the eight do U.S. firms have a major advantage over their foreign competitors: in the quality of technology used in the invention and development of commercial products by industry. The commission concluded that U.S. firms have a slight advantage in the quality of technology used in manufacturing, but it urged that this area receive much more support from government and the private sector.
"Perhaps the most glaring deficiency in America's technological capability has been our failure to devote enough attention to manufacturing or 'process' technology," the commission said. "It does us little good to design state-of-the-art products if, within a short time, our foreign competitors can manufacture them more cheaply."
The commission said that this area represents an opportunity for a strong advance in competitiveness by U.S. firms.
But according to the commission, improving manufacturing technology will require a solution to one of the most important U.S. competitive weaknesses: the cost to industry of new plant and equipment. "Capital is the fuel for our economic machine," it said. But the United States trails all the major industrial nations except Great Britain in capital formation -- the ratio of fixed investment to gross domestic product -- between 1960 and 1983.
The commission cited estimates that the cost of capital for Japanese industries has been half as high as for U.S. firms during the past decade -- although the gap has narrowed in recent years. "A study by the Semiconductor Industry Association shows that the Japanese success in semiconductors during the 1970s was due, in large part, to the advantage of low capital costs, not superior technology," the commission said.
According to other studies, Japan's lower capital costs reflect a number of factors, including tight regulation of their financial markets to restrict access by foreign investors, and the channeling of consumer savings to industry, rather than to housing, as is the case in this country.
Capital costs in the United States are affected by the record federal budget deficits, which bid capital away from the private sector, and by the taxation of corporate dividends received by investors. the commission said.
Capital costs -- and the high value of the dollar -- are two major competitive disadvantages that require government action to cure, the commission said. The United States could improve its capital-cost handicap and move to an even footing with other trading nations, but the commission said that the damage to U.S. industry from a high dollar can be overcome only partially -- concluding that the foreign demand for dollars is likely to remain strong in the immediate future.
A third major handicap is not likely to be eliminated, the commission said. It urged that the attempt to improve U.S. competitiveness must be made without trying to reduce the incomes of manufacturing workers.
The quality of workmanship by American labor, which is now a slight advantage, according to the commission, could become a major one if individuals and companies are given greater incentives to invest in training and retraining through changes in tax laws and unemployment programs.
The commission concluded that U.S. trade policies -- and the framework of international trade laws -- are a slight handicap for U.S. industry.
The commission warned that less and less of U.S. trade in goods and services is effectively covered by international trade agreements, leaving U.S. producers increasingly vulnerable to unfair barriers to foreign markets.