The US no. 1 – but for how long?
Once again the US has been placed highest in the World Economic Forum’s latest Global Competitiveness Report in front of Switzerland and my native country Denmark. The UK has this year slipped down to 12th place from 9th in 2007 and 2nd in 2006.
The US may be a very competitive market, but I question whether it can sustain its no. 1 position for much longer, and this is not just because of the latest credit and banking crisis, which originated in the US.
What is much more worrying is what effect the ever increasing fiscal deficit and low national savings rates will have on the US economy and its competiveness.
The current banking crisis is all about confidence. Soon the world may also lose confidence in America’s ability to pay back its mountain of debt and start demanding higher interest rates for financing the US deficit.
This will increase the already high burden of interest payments on the US taxpayers. Fiscal prudence is not just something that is important for banks and other financial institutions but should also be significant for countries and governments.
The US is on a sliding slope towards more and more government intervention in the private markets. After the bail out of the banking sector, the politicians may be tempted to rescue the big national car manufacturers.
These are likely to become even weaker now due to falling car sales, a tighter credit environment and an increasing shortfall in the pension funds which have suffered losses on the fall of the equities markets.
Given the large number of jobs and pension payments relying on this sector, it will surely be more popular among the voters than the bail out of Wall Street. But it will probably also cost much more and add to the government’s already bloated deficit.
Although I am in favour of the US government’s plans to buy up toxic debt from the banks, in this case, they should not try to intervene in other markets just to keep US companies alive a little longer. American effectiveness is built on efficient markets and a very competitive economy.
However the US government could be encouraged by its success in the intervention in the banking market to extend its intervention into other areas such as the automotive market.
This will not have a good effect on US competitiveness. The financial market is very different and all other industries depend on a well functioning financial system, whereas the US doesn’t have to have big national US auto manufacturers.
Cars are already being produced by non-US brands in the US and will be produced in the US in the future. Already the big three US car manufacturers account for less than half of all cars sold in the US.
Britain also had a leading car manufacturing industry until the 1980s but it was brought down partly due to political meddling and, in the end, nationalisation. Today there is no British owned car manufacturer; this does not influence Britain’s competitiveness negatively.
Any government intervention into this system does not promise a positive outcome.
