Friday, February 18, 2011


Ever since President Obama delivered his state of the union address last month there has been plenty of talk about the need to boost US competitiveness. Indeed, the president regards the issue with sufficient seriousness that he has ordered the creation of something called the President's Council on Jobs and Competitiveness, slated to be headed by Intel CEO Paul Otellini.

Fortunately for both Obama and Otellini, the McKinsey Global Institute this month has released a new report with some relevant thoughts on the matter. Entitled Growth and Renewal in the United States: Retooling America's Economic Engine, the report highlights a number of areas in which the US needs to improve (page 55):
As a start, the United States could significantly reduce the complexity of regulations and streamline the process of resolving disputes. The United States scores relatively poorly on the degree to which this red tape burdens business. In the broadest possible terms, the United States needs to address unnecessary regulatory barriers that limit competition in pockets of the economy and the degree to which red tape burdens businesses, a measure on which the United States does not score well. For example, the United States does not permit big-box retailers to sell pet medicines, dampening competition. In the auto industry, rules curbing online distribution limit customization and increase costs to the end consumer.

Another useful approach would be to assess corporate tax rates and tax structures in the context of a global economy, focusing on the effective marginal tax rate rather than generic tax codes. The United States could also go further in eliminating remaining sector-level barriers to competition, particularly in small or developing segments (e.g. eliminate barriers to online auto sales).

Action that the United States also might consider is an international effort to secure more free trade agreements to ensure that US-based companies have access to rapidly growing emerging markets. Recent successes include agreements with India and South Korea, but the United States can do more (e.g., enlarging trade with Colombia and Panama). Where possible, the United States should aim to strike regional trade agreements that harmonize policy across multiple countries, facilitating the management of global supply chains.
In other words, to boost US competitiveness the US should deregulate, overhaul its tax code and sign more free trade agreements. Are Democrats listening?

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