Competitiveness matters industry and economic performance in the u s

Competitiveness Matters Competitiveness Matters Industry and Economic Performance in the u.s Candace Howes and Ajit Singh, Editors Ann Arbor THE liNIVERSITY OF MICHIGAN PREss Copyright © by the University of Michigan 2000 All rights reserved Published in the United States of America by The University of Michigan Press Manufactured in the United States of America ® Printed on acid-free paper 2003 2002 2001 2000 432 No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, or otherwise, without the written permission of the publisher A elP catalog record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Competitiveness matters : industry and economic performance in the U.S / Candace Howes and Ajit Singh, editors p cm Includes bibliographical references ISBN 0-472-10983-9 (cloth: alk paper) l United States-Commercial policy United States-Economic policy1993- Industrial policy-United States Manufacturing industriesGovernment policy-United States Technological innovations-Economic aspects-United States Balance of trade-United States Competition, International Howes, Candace II Singh, Ajit HFI455.C726 338.973-dc21 1999 ISBN13 978-0-472-10983-8 (cloth) ISBN13 978-0-472-02740-8 (electronic) 99-052803 For David M Gordon and Bennett Harrison Contents Introduction: Competitiveness Matters Candace Howes and Ajit Singh Part Trade, Macro Policy, and Competitiveness The Trade Deficit and u.s Competitiveness 31 Robert A Blecker Improving U.S International Competitiveness: Macro Policy 68 Management vs Managed Trade Policy Catherine L Mann Part Competitiveness and Financial Markets The Anglo-Saxon Market for Corporate Control: The Financial 89 System and International Competitiveness Ajit Singh American Corporate Finance: From Organizational to 106 Market Control William Lazonick and Mary O'Sullivan Part Competitiveness and Technology Policy Can Technology Policy Serve as Industrial Policy? 127 Ann Markusen Does the United States Need a Technology Policy? 145 W Edward Steinmueller Part Competitiveness and Industrial Policy A High-Road Policy for U.S Manufacturing 165 Daniel Luria U.S Competitiveness and Economic Growth 180 Candace Howes Contributors 207 CHAPTER Introduction Competitiveness Matters Candace Howes and Ajit Singh Krugman: Competitiveness Does Not Matter In a series of widely read articles and books published over the last several years, Krugman (1994, 1996) decries what he regards as a "dangerous obsession" with international competitiveness, a trend he refers to as "pop internationalism." With pop internationalism he associates the idea that the recent ills of the u.s economy-eroding real wages, stagnating living standards, rising inequality and unemployment-are the consequence of a major erosion of the industrial base due to international competition Pop internationalists, according to Krugman, reason that the economic ills of the United States will be remedied only when the United States has regained a productivity edge over its international rivals But it is folly, Krugman claims, to think that the notion of competitiveness is in any way meaningful when applied to a nation Krugman is of course correct to argue that the competitiveness of a nation is conceptually different from that of a corporation Certainly, if a corporation is uncompetitive, its market position is likely to be unsustainable, forcing it into bankruptcy There is no similar analogue for a country Even if the balance of payments position is unsustainable, even in the event of financial collapse, countries-unlike the banks and corporations that may hold their debt-do not cease to exist or go into bankruptcy Nor would we challenge Krugman's argument that trade deficits and surpluses are an inappropriate measure of the competitiveness of a country While a trade deficit may follow from the weak performance of a country's tradable goods sector, it may also be the consequence of a large inflow of foreign investment that is equated with competitive strength A trade surplus, too, sends an ambiguous signal It may be due to a low level of national economic activity or to strong export performance However, some scholars, understanding full well that the trade balance is not a good measure of competitiveness, have offered an alternative formulation of national competitiveness that is more difficult for Krugman to challenge Tyson (1992) defines competitiveness as the "ability to produce goods and services that meet the test of international competition, while our citizens 193 U.S Competitiveness and Economic Growth TABLE 9.2 Nominal Growth of Manufactured Imports and Exports, Disaggregated by End-Use Category, 1990-97 (index, 1990 = 100) U.S demand Foreign demand Man imports (M) Man exports (X) Consumer goods M Consumer goods X Capital goods M Capital goods X Auto products M Auto products X 1980 1990 1997 76 49 34 51 32 40 100 100 100 100 100 100 113 113 176 175 181 179 26 49 100 100 218 192 32 42 100 100 161 200 Source: Author's calculations from U.S Department of Commerce, ITA 1998, table imports and exports Demand for capital goods is generally considered to be more income-elastic than that of other manufactured goods As the share of this sector in US exports stagnates, while its share in imports is rising (trends that are not driven by differences in relative rates of growth of demand), the weight of the sector in the calculation of elasticity will fall for exports and rise for imports Recently, Hooper, Johnson and Marquez (1998) have provided some evidence that the income elasticity of demand for exports has fallen since 1985, though their study also concludes that the income elasticity of demand for imports has been stable since 1980Y Thus, given the gap between the income elasticities of demand for imports and exports, and given that world demand is not now growing faster than that of the United States and that the relative prices of U.S exports are not falling, further deterioration in the manufacturing trade deficit seems inevitable Whether this can be compensated by trends in net capital income and net service exports is an obvious question, especially in light of the performance of these two components in the last seven years Net service exports have grown phenomenally since 1987 when the dollar returned to the real value ofl980 (fig 9.2) Whereas the private services balance was $12 billion in 1980 and again in 1987, it had risen to almost $90 billion by 1997, substantially offsetting the nearly $200 billion deficit in goods It has been suggested that the service surplus will continue to rise, alleviating the balance of payments constraint However, if we disaggregate trends in the service sector, the prospects seem less encouraging Whereas, in aggregate, service exports were growing considerably faster than imports between 1985 and 1991, when the United States was growing faster than its trading partners, since 1991, as rates of growth of aggregate demand have 194 Competitiveness Matters converged, so too have the rates of growth of service imports and exports Of course, since service exports exceed imports by a considerable amount, the service trade surplus has continued to grow Disaggregation, however, reveals several discouraging trends First, note that three categories-travel, royalties and license fees, and other private services-account for the entire surplus and about 70 percent of total service trade (fig 9.4) Travel, as is clear from its dismal performance between 1981 and 1990, is extremely responsive to trends in the exchange rate Thus, as the U.S dollar has begun to appreciate against other currencies since 1995, the travel balance has not grown The further appreciation anticipated with the collapse of emerging markets can be expected to depress the travel balance again Royalties and license fees also seem to demonstrate sensitivity to trends in the value of the dollar The really strong performer, of course, is "other private services," which includes the affiliated services of U.S firms and their affiliates operating abroad, as well as unaffiliated financial services, telecommunications, and business, professional, and technical services True, business, professional, and technical services, which were almost 30 percent of "other private services," almost doubled their nominal exports between 1991 and 1997, but imports grew even faster With the exception of travel, in no category of service trade have exports been growing faster than imports since 1991 As will be shown in the next section, reasonable assumptions about the rate of growth of net service exports suggest that in 10 years net service exports will be about $200 billion, offsetting no more than about 25 percent of the projected merchandise deficit Finally, let us consider trends in the capital income flows portion of the current account As figure 9.3 shows, at least from 1965 (when the data series begins) until 1984, net capital income flows averaged between 0.75 and percent of GDP, more than offsetting the negative effect of the unilateral transfers, which were the only consistently negative component of the current account Since its peak in 1978, however, the income balance as a percentage of GDP has been declining steadily For the calendar year 1997, the net income flow on foreign assets and liabilities went definitively negative for the first time in history What was surprising was the fact that this did not occur sooner, given that U.S net foreign assets had been negative since 1988 (fig 9.5) But as Godley and Milberg (1994) had showed for the period before 1993, net investment income flows remained positive because the rate of return on U.S investments abroad exceeded that of foreign investments in the United States At the time, Godley and Milberg argued that it was reasonable to expect that if the United States sustained a trade deficit equal to about 1.7 percent of GDP, the rate of growth of net foreign debt would be large enough to generate 50 :s ~ c 1/1 '0 "Q) "Q) "Q) "Q) "C?J "C?J "C?J "C?J "C?J Fig 9.4 "C?J "C?J "C?J "C?J "Qi "Qi "Qi "Qi ,,~- "Qi Private services trade balance, 1975-97 "C?J "Qi "Qi ~~~~~~~~~~~~~~~~~~~~~~~ "Q) -20 -10 10 20 30 "0 40 "C !! I!! 60 70 80 90 -+-Other Private Services Passenger Fares M- Other Transportation _ Royalties & Lic Fees _ Travel -+- Total Private Services I!! :iii c '0 ,g '0 .!! -2000 -1000 1t 1000 2000 3000 4000 5000 6000 7000 1984 1985 1986 1987 1989 Fig 9.5 1988 Foreign assets and liabilities 19117 .- Net Assets _ Liabilities + Assets U.S Competitiveness and Economic Growth 197 negative net capital income flows that would within a few years be equal to percent of GDP While Godley and Milberg's predictions did not bear out immediately, further analysis of trends in the composition and growth of foreign debt through 1997 confirms the general if not precise conclusions of their work What it reveals is that given the rates of growth of foreign assets and liabilities that have prevailed since 1994, it does indeed seem likely that within five years U.S net foreign liabilities could reach almost $7 trillion (table 9.3) Under reasonable assumptions about the rate of growth of GDP, the net liabilities would amount to about 70 percent of GDP The net outflow of income on that volume of foreign liabilities could be as much as half a trillion dollars, or percent of GDP 12 Table 9.3 illustrates how the above scenario might come to be The first three columns show the value of U.S assets abroad, and foreign assets held in the United States, between 1995 and 1997 It reveals that by 1997, U.S net liabilities exceeded $1 trillion (Bach 1998) Also shown is the income earned by each asset category and the rate of return for each asset category in each of these three years The overall rate of return earned by U.S holders of foreign assets has exceeded the rate of return on U.S assets held by foreigners for all three years This is mainly because the rate of return on outward foreign direct investment, which represented about 35 percent of U.S investors' foreign portfolio, was considerably higher than the rate of return earned by foreigners making direct investments in the United States Column 4, however, shows that the rate of growth ofFDI into the United States has exceeded the rate of growth of FDI abroad by U.S investors for the last three years If the rate of growth of each of these asset categories continues at the pace set in the last three years, and if the rate of return earned in each of these categories is sustained, then the scenario laid out above and illustrated in this table is a reasonably accurate prediction of future net capital income flows 13 Implications for External Balance and Growth A simple simulation gives us some sense of the extent to which net service exports will offset the deterioration in the manufacturing trade balance (table 9.4) If we assume imports and exports for each of the categories of service trade continue to grow for the next 10 years at the same rate they have grown since 1991, then within 10 years, the service surplus will rise from $87 billion in 1997 to about $200 billion However, if the same assumption is applied to goods components of the current account, within 10 years the merchandise trade deficit would be $777 billion Thus, at best, the service trade will offset Competitiveness Matters 198 TABLE 9.3 Trends in Net Foreign Assets and Capital Income Flows, 199597 and 2002 (in billions of dollars) 1995 U.S assets abroad U.S government FDI Other private Foreign assets in U.S For official assets FDI Other private U.S income on foreign assets U.S government receipts FDI receipts Other private For income on U.S assets U.S government payments FDI payments Other private payments Net U.S income Net government receipts Net income on FDI Net income on other securities U.S ROR on foreign assets U.S government receipts FDI receipts Other private receipts For ROR on U.S assets Payments to foreign gov'ts FDI payments Other private payments 1996 1997 4,347 242 1,517 2,190 2,588 4,291 5,091 672 801 1,006 1,224 2,614 3,066 204 213 5 93 100 106 108 198 185 57 67 30 33 97 97 19 14 (53) (63) 63 66 11 5,007 216 1,794 2,997 6,330 834 1,620 3,875 242 109 128 247 87 45 113 (5) (84) 64 15 5.4% l.8% 9.3% 4.8% 4.3% 5.1% 3.7% 8.1% 4.8% l.6% 6.8% 4.3% 3.9% 5.6% 4.7% 7.8% 3,754 257 4.9% l.9% 8.2% 4.2% 3.9% 8.4% 2.7% 3.2% Growth Rate, 1995-97 2002 at 1995-97 Growth Rates 15.5% -8.3% 17.1% 17.0% 2l.4% 1l.4% 26.9% 2l.8% 10,663 140 3,956 6,566 17,142 1,432 5,341 10,369 552 267 282 1,136 80 251 804 (585) (78) 16 (522) 5.2% l.6% 6.8% 4.3% 6.6% 5.6% 4.7% 7.8% Source: Compiled by author from U.S Department of Commerce, Bureau of Economic Analysis 1998, table 3, p 34; table 1, p 68 one-quarter of the goods deficit More disturbing, however, are the implications of extending the analysis in table 9.3 for another years Within 10 years, net foreign liabilities would be $24 trillion dollars (in nominal terms), which would be about twice the value of GDP The net negative income flow would be almost $2 trillion, which would be about 15 percent of GDP The overall current account deficit would have reached $3 trillion or 25 percent of GDP (nominal) The service component of the current account, dynamic as it is, would be absolutely dwarfed by trends of this magnitude As a mild check to these absolutely astounding conclusions, I have also calculated the effect of an uncompetitive manufacturing sector on the current account, using estimates of income elasticities and assumptions about relative 679 8.5% 1,532 1,179 8.5% 2,673 1997 Growth rate 2007 258 7.8% 549 Services 1,209 242 Income 1,294.9 10.0% 3,448.3 Total 877 10.2% 2,310 170 6.3% 313 Services Imports Goods Source: Author's calculations from u.s Department of Commerce, ITA 1998 Goods Total Exports 3,120 247 Income -2,719 -155.2 Total 236 88 -198 -778 Services Goods -40 -82 -1,911 Net Transfers -5 Income Current Account Balance Projected Trade Deficit Given Reasonable Assumptions about Growth of Goods Services and Income (in billions of Year TABLE 9.4 dollars) 200 Competitiveness Matters TABLE 9.5 Current Account Implications of Relative Growth Rates, Assuming No Currency Depreciation (in percentages) u.s Growth ROW Growth CAlGDPt+lO 1.3 2.5 3.0 4.0 3.0 4.0 2.5 3.0 3.0 3.0 3.0 4.0 4.0 5.0 -2.2 -5.8 -7.3 -10 -6 -9 -3.4 Source: Author's calculations using income elasticities from Hooper, Johnson, and Marquez 1998 rates of growth (table 9.5) The most recent estimates of income elasticities from Hooper, Johnson, and Marquez (1998) find that the elasticity for imports has been 1.8 over the period of analysis, while for exports it has been 0.8 Setting aside all the problems involved in assuming that elasticities are constant over long periods of time, we use these elasticities to estimate the effect of relative rates of growth of U.S and foreign demand In all cases, I have assumed, consistent with today's reality, that there would be no real exchange rate depreciation for the United States The first four scenarios assume that demand for the rest of the world grows at percent a year, as it has approximately since 1990 If the current account deficit is to remain at its current sustainable rate of 2.2 percent of GDP, either U.S growth must average no more than 1.3 percent or there must be a steady depreciation of the real exchange rate If the United States continues to grow at its current rate of 2.5 percent, then the current account, based on these income elasticities, would within 10 years rise to 5.8 percent of GDP A slightly faster rate of growth of percent for the United States will raise the deficit to 7.3 percent of GDP in 10 years However, if the United States wants to grow at rates comparable to the 1960s, it can expect a 10 percent current account deficit within 10 years The last two scenarios indicate the effect of faster world growth on the U.S options for growth Four percent rates of growth of demand, both for the United States and the rest of the world, would generate a current account deficit of about percent ofGDP within 10 years However, it is important to keep in mind that Hooper, Johnson, and Marquez's elasticity estimates-like everyone else's-are measuring only the effect of relative income growth on the demand for tradable goods and services No one is including income flows in their estimates u.s Competitiveness and Economic Growth 201 Conclusion As was argued in the first chapter of this book, unless the United States acts to improve the relative competitiveness of its export sector, it faces an exceedingly unattractive menu of policy options-some combination of currency depreciation, high interest rates, and slow growth-to control what may be a rapidly growing current account deficit Several possible scenarios for U.S growth prospects in the next five to ten years are suggested by the analysis in this chapter In the worst case scenario, the effect of the Asian financial crisis and a collapse in Brazil will be to put U.S banks in an extremely vulnerable position Expectations of a U.S banking crisis will depress consumption and investment, sending the United States into a recession that will likely be followed by the rest of the world Slow U.S growth under those conditions will nothing to improve the current account position as demand in the rest of the world will also be depressed A preferred scenario would see a fall in consumption, perhaps due to a change in tax policies, which would permit an increase in investment without increasing the current account deficit Competitiveness would improve at the expense of Japan and Europe, and the current account deficit would begin to fall However, as we argued in the introduction, given the present state of the world economy, were the United States to increase the competitiveness of its exports, without increasing its rate of growth, this would have the equivalent impact on world growth of imposing import restrictions The rate of growth of our major trading partners, including Japan and other Asian countries, would be slowed as a consequence Therefore, in the interests of long-run vitality, both of the U.S and the world economies, it is necessary for the United States to increase both the competitiveness of its exports and its rate of growth simultaneously For the United States to grow faster under this scenario, without worsening the current account deficit, would require substantial improvements in export competitiveness The best scenario would see faster growth in the EU and Japan, as well, as they resolve their current problems, and an increase in U.S investment financed out of domestic consumption Recovery in the rest of the world would both raise demand for the U.S exports and slow the flow of portfolio capital into the United States as financial markets in Europe and Japan would become relatively more attractive to foreign investors Net income flows out of the United States would slow, further strengthening the current account balance If at the same time the United States undertook industrial policies targeted to industries that are strategic to the current account balance, such as electronics 202 Competitiveness Matters and auto, the structural imbalance in the external sector would be remedied that much faster 14 Thus under the best scenario, the United States would increase the propensity to export and reduce the propensity to import at a given rate of growth while simultaneously increasing its rate of growth In such a scenario, U.S action, especially if complemented by higher growth in Europe and Japan, would stimulate the rate of growth of the rest of the world because the volume of its imports would actually rise, even while its propensity to import fell NOTES I wish to thank Ajit Singh, Lisa De Propris, and Ed McKenna for helpful comments and Irina Telyukova for her able research assistance As will be shown in the next section, the structural deterioration in the current account balance is a change from the 1950s and 1960s Also to be shown in the next section is that the maximum rate at which the economy can grow, consistent with external balance, has been trending downward over time This is despite the fact that for generations, economists have estimated income elasticities as though they should appropriately be treated as constants over long periods of time It has been suggested, as well, that income elasticities pick up other factors that are not being measured in the price terms For example, Helkie and Hooper (1988) found that if they included some measure of relative growth of productive capacity in the export and import equations, then the differential between the income elasticities all but disappeared This, they argued, was a measure of the relative rates of growth of supply, which should have been reflected in a change in relative prices, but which for some reason-Cline (1989) argues mismeasurement-was not being captured in the price terms It seems just as plausible, however, that relative rates of growth of productive capacity could reflect trends in relative nonprice competitiveness and demand for a country's products Relative export prices should capture the effects of all input prices, the exchange rate, and productivity growth differentials, although, to the extent that markets are not price competitive, relative export prices will also capture differences in profit margins or markup practices The table treats 1960 through 1969 as a single period, because it represents a full peak-to-peak business cycle Trends in unit labor costs, however, are more appropriatelyviewed for the two subperiods, 1960 through 1965 and 1965 through 1969 During the first period, relative unit labor costs fell 5.3 percent a year as inflation rates abroad exceeded those in the United States That was followed by a large increase in U.S relative unit labor costs at an annual rate of 3.1 percent from 1965 to 1969 as U.S inflation picked up and productivity growth slowed significantly (Hooper 1992, fig 11.3) The current account responded accordingly, rising in the first half of the 1960s and falling after 1965 u.s Competitiveness and Economic Growth 203 The data used here for nominal effective exchange rates and relative unit labor costs for the period up to 1979 come from Hooper 1992 Measures of nominal and real and effective exchange rates (relative unit labor costs is the most commonly used REER) vary tremendously, depending on the price series being measured and the weights used As an example of the differences weighting schemes can make, the OECD measures of nominal effective exchange rate trends and relative unit labor costs for u.s manufacturing between 1969 and 1973 show an average decline of 5.1 for the former and 7.5 for the latter Given the measurement problem, what is relevant for the discussion here is the general direction of the trend rather than precise magnitudes Hooper and Marquez (1995) show that during the 1980s, the appreciation of the dollar was fully passed through in lower import prices, but after 1985, the depreciation was not Hence import prices remained below the 1980 relative level and have been falling since The appreciation of the dollar was almost fully passed through in higher export prices as was the depreciation in lower export prices Japanese pass-through is famously incomplete, weakening the link between exchange rate adjustment and changes in the real Japanese trade balance Since 1995, by some measures-unit labor costs and relative CPIs-real exchange rates have been trending up However, by the measure of relative export unit costs, real exchange rates have been declining Thus while the trend in exchange rates is somewhat ambiguous, most economists expect the value of the dollar in real and nominal terms to appreciate in the wake of the Asian financial crisis Given their relative insignificance as well as stability in the current account balance, agriculture and minerals are not likely to offset the manufacturing trade deficit unless there is a significant change in relative prices of commodities and manufactured goods lO Of course, while aggregate real effective exchange rates may have been constant, relative prices of different types of manufactured tradables may not have been constant More careful analysis would require an analysis of the responsiveness of disaggregated trade flows to trends in disaggregated relative prices 11 In a recent study they have estimated income and price elasticities for the G-7 countries, for 1955 through 1997 (depending on data availability), holding elasticities constant However, for a shorter time period (1980 or 1985 to 1995), using a Kalman filter test, they tested for the stability of the income and price elasticities For the us they found that while the import income elasticities were constant at 1.8, export elasticities declined from about 1.4 to 0.8 12 These calculations are done using nominal growth rates Therefore, for the purposes of calculating the net income deficit as a percent of GDP, I have assumed that nominal income will grow at 4.5 percent a year, allowing a 2.5 percent real growth rate and percent annual inflation 13 It should be added that international capital markets are notoriously volatile and subject to dramatic reversals of flow over short time periods Thus this scenario makes the heroic assumption that FDI in the United States as well as investment in US securities and US Treasury bonds will remain relatively more attractive than similar investments in other parts of the world As long as US real interest rates remain high relative to the rest of the world, and as long as much of the world's financial markets remain in turmoil, this is a reasonable assumption However, the EMU could make investment in Europe sufficiently more attractive relative to the United States to slow the rate of investment and into and income flows out of the United States 204 Competitiveness Matters 14 See Howes (1995) for a detailed discussion of which industries are strategic to achieving a sustainable external balance REFERENCES Bach, Christopher L 1998 U.S International Transactions, Fourth Quarter and Year 1997 U.S Department of Commerce, Survey of Current Business, April: 51-97 Blecker, Robert A 1992 Beyond the Twin Deficits: A Trade Strategy for the 1990s Armonk, N.Y.: M E Sharpe, Economic Policy Institute Series - - - 1999 The Trade Deficit and US Competitiveness In this volume Clarida, Richard H., and Susan Hickok 1993 US Manufacturing and the Deindustrialisation Debate World Economy 16, no 2: 173-92 Cline, William R 1989 United States External Adjustment and the World Economy Washington, D.C.: Institute for International Economics Dornbusch, Rudi 1996 The Effectiveness of Exchange-Rate Changes Oxford Review of Economic Policy 12, no (autumn): 26-38 Godley, Wynne and William Milberg 1994 U.S Trade Deficits: The Recovery's Dark Side? Challenge 37, no (November/December): 40-47 Helkie, William L., and Peter Hooper 1988 An Empirical Analysis of the External Deficit In External Deficits and the Dollar: The Pit and the Pendulum, ed Ralph C Bryant et al Washington, D.C.: The Brookings Institution Hooper, Peter 1992 Macroeconomic Policies, Competitiveness and U.S External Adjustment Chapter 11 in 1nternational Productivity and Competitiveness, ed Bert G Hickman New York and Oxford: Oxford University Press Hooper, P., and J Marquez 1995 Exchange Rates, Prices and External Adjustment in the United States and Japan In Understanding Independence, ed P Kenen, 107-68 Princeton, N.J.: Princeton University Press Hooper, Peter, Karen Johnson, and Jaime Marquez 1998 Trade Elasticities for G-7 Countries Board of Governors of the Federal Reserve System, International Finance Discussion Papers, no 609, April Houthakker, H and S Magee 1969 Income and Price Elasticities in World Trade Review of Economics and Statistics 51:111-25 Howes, Candace 1995 Long-term Economic Strategy and Employment Growth in the U.S.: An Analysis of Clinton's Economic Policies Contributions to Political Economy 14:1-31 Howes, Candace, and Ajit Singh 2000 In this volume Kaldor, Nicholas 1978 The Effects of Devaluation on Trade in Manufactures In N Kaldor, Further Essays on Applied Economics London: Duckworth - - - 1981 The Role of Increasing Returns, Technical Progress and Cumulative Causation in the Theory of International Trade and Economic Growth Economie appliquee 34, no 4: 593-617 Klitgaard, Thomas, and James Orr 1998 Evaluating the Price Competitiveness of U.S Exports Federal Reserve Bank of New York Current Issues in Economics and Finance 4, no (February): 1-6 Krugman, Paul 1989 Differences in Income Elasticities and Trends in Real Exchange Rates European Economic Review 33:1031-54 U.S Competitiveness and Economic Growth 205 - - - 1994 Competitiveness: A Dangerous Obsession Foreign Affairs 73 (MarchI April): 28-44 Lawrence, Robert Z 1990 U.S Current Account Adjustment: An Appraisal Brookings Papers on Economic Activity, no 2: 343-89 Mann, Catherine L 2000 Improving U.S International Competitiveness: Macro Policy Management versus Managed Trade Policy In this volume OECD 1998 OECD Economic Outlook, no 63 (June) U.S Department of Commerce, Bureau of Economic Analysis 1998 Survey of Current Business (July) U.S Department of Commerce, ITA 1998 U.S Foreign Trade Highlights (June) Washington, D.C.: Government Printing Office Contributors Robert A Blecker is Professor of Economics at the American University, Washington, D.C and a Research Associate of the Economic Policy Institute (EPI), Washington, D.C Candace Howes is the Barbara Hogate Ferrin '43 Associate Professor of Economics at Connecticut College, New London, Conn William Lazonick is University Professor of Economics at the University of Massachusetts, Lowell, and is on the faculty of the European Institute of Business Administration (INSEAD) Daniel Luria is Director of the Performance Benchmarking Service, Industrial Technology Institute, University of Michigan, Ann Arbor Catherine Mann is a Senior Fellow with the Institute for International Economics in Washington, D.C Her chapter was written while she was a Senior Economist at the Board of Governors of the Federal Reserve System Ann Markusen is Professor of Public Policy and Urban Planning at the University of Minnesota and Senior Fellow, Council on Foreign Relations, New York Mary O'Sullivan is on the faculty of the European Institute of Business Administration (INSEAD), Fontainebleau, France Ajit Singh is Professor of Economics at the Queen's College, University of Cambridge, UK W Edward Steinmueller is Professor of the Economics of Technical Change and Innovation, SPRU-Science and Technology Policy, University of Sussex, UK 207 ... strengths and weaknesses of technology policy as currently proposed for the United States In so doing, she assesses past efforts to evaluate the successes and failures of technology policy and concludes... is necessary for the United States to increase both the competitiveness of its exports and its rate of growth simultaneously In other words, the United States must increase the propensity to.. .Competitiveness Matters Competitiveness Matters Industry and Economic Performance in the u. s Candace Howes and Ajit Singh, Editors Ann Arbor THE liNIVERSITY OF MICHIGAN PREss Copyright © by the