How to Keep America Competitive - TheStreet

How to Keep America Competitive

Top experts discuss the U.S.'s role in a changing world.
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The Memorial Day holiday offers an opportunity to assess our future in a very competitive global economy.

The National Summit on American Competitiveness, held this past week in Chicago, brought together panelists including current and former corporate chairmen, government officials and top academics to discuss ways to keep America competitive in a world that is changing quickly.

As former

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Chairman Lou Gerstner commented at the outset: "America should be very worried, because economic strength is at the heart of America's future. Our freedoms depend on our economic strength. Now other countries understand how to build competitive, knowledge-based economies."

In other words, there was a general recognition that the global competition is heating up. And, a general agreement that the U.S. is falling behind in some key areas, mostly revolving around the need for a skilled work force.

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Here are the top issues recognized by the conference -- and some proposed solutions.

Building an Educated Work Force

If America is to compete, we need a skilled work force. There was agreement on the sorry state of K-12 education, which is failing to turn out high-school graduates who have the basic skills to work in the knowledge-based industries of the future. In fact, 30% of our children don't even graduate from high school.

Remaking our educational system to compete with other countries is a huge national challenge. Some suggestions:

Create and measure national educational standards, and take power away from local school districts to create the curriculum;

Increase compensation and incentives for teachers, while doing away with union restrictions that protect ineffective teachers;

Create competition in our school systems, much as it exists in higher education;

Establish a national "skills strategy" to make sure that there are workforce paths to jobs of the future.

Clearly, these ideas would require a public outrage over our current educational system. Craig Barrett, chairman of

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, suggested we'll be on the right track when state governors decide not to give out drivers' licenses without a high school diploma!

Fostering Innovation

This is America's strong suit as we move into the new global growth century. We create new stuff: products, processes, technologies and uses for those inventions. Last year, America had 80,000 patents granted, while China had only 700, and India only 500, according to Harvard professor and author Michael Porter.

Our ability to innovate is critical, said

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Chairman James McNerny, Jr.: "In today's world, innovation is our

only

fundamental source of competitive advantage."

The government has a key role in innovation. After all, many technological and scientific advances were made possible by government-supported research at NASA and the National Institutes of Health. But while innovation can be fostered by government, most innovation does not take place

within

government.

For that, we need the entrepreneurship of the private sector, which brings new products to market and creates new jobs to boost economic growth. And, in turn, that spirit of entrepreneurship requires a financial and regulatory climate that rewards risk-taking and innovation.

Sensible Immigration Policies

America needs to be the preferred location for the world's smartest people so that innovation and growth can be fostered. Yet many of our current policies, as well as the public opinion trend, are moving in the opposite direction.

For example, we allow students to be educated here in the highest levels of science, applied mathematics and technology -- but then refuse to give them green cards to work here. So they return to their homelands and create businesses there!

We can't control our illegal immigration, so we focus on the immigration problem by limiting legal visas for skilled workers, thus depriving our technology industry of the resources to grow and dominate the global competition.

Yet, Michael Porter pointed out: "We can't use immigration as a substitute for equipping Americans to succeed through education."

Fair, but Free Trade Policies

History shows that every time America has raised trade barriers, our country has suffered. And that every time we have faced up to our competition, we have created new and growing sectors of our economy. Unfortunately, public opinion is currently led by an emotional appeal to protectionism, not by recognition of history.

Deborah Wince-Smith, the president of the Council on Competitiveness, pointed out that we are in a global competition that has a 24-hour labor arbitrage. That is, work will be done where it can be done most cheaply, so we can't compete on low wages or on commodity products.

But we can't build a trade wall around ourselves because in just a decade, 80% of all consumers in the world will be outside the U.S.

Fairness is critical in any trade agreement. Porter explained that the U.S. is in the business of "producing intellectual property" for sale. But while we're buying goods from China, they're "stealing" our products, our intellectual property. Trade agreements must deal with that issue, he stressed.

Controlling Costs to Be Competitive

The two key areas in the cost-control discussion were health care and legal costs. The fact that our companies pay twice as much as other countries for health care distorts business decisions and lowers wages.

One key remedy for our health care system would be to equalize the tax treatment of health-insurance purchases. Currently businesses can deduct the premiums, while individuals can't.

Health care costs are increasing at $220 billion per year. Said one panelist: "It's our Achilles' heel in our fight to remain competitive."

The audience of business executives nodded in agreement throughout much of the discussion. But the sad fact, noted one panelist, is that these issues are not being discussed in our national political debate. Instead, our Congress is focused on short-term solutions such as passing out $180 billion in $300 checks!

Will it take a massive decline in our standard of living over the next decade to get America to focus on these key strategic issues? Sadly, it's been our history that we only rally in a crisis.

Even worse, will we waste our resources on trying to protect the past, instead of competing for a new global future? It's something to consider as we observe this Memorial Day holiday.

Let Gerstner have the last word: "We need to focus on

our

greatness, not try to tear down their greatness -- because that will not happen!"

And that's The Savage Truth.

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated. She was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. Savage currently serves as a director of the Chicago Mercantile Exchange Corp.