Reviews

THE KNOWLEDGE ECONOMY:
IS THE UNITED STATES LOSING ITS COMPETITIVE EDGE?
BENCHMARKS OF OUR INNOVATION FUTURE
February 16, 2005

It is a very creditable statement of American shortfalls in R&D as compared with the rest of the World. It remains somewhat Alarmist in attitude, though, as America must expect the World to competitively match Us in technology with the growth of Economic wealth. It had two important statements for consideration:

Since 1980, the number of S&E positions in the U.S. has grown at almost five times the rate of the U.S. civilian workforce as a whole. However, the number of S&E degrees earned by U.S. citizens is growing at a much smaller rate, slightly less than the growth in the total U.S. civilian workforce and much less than the rate of growth in the number of S&E positions available

China now rivals the U.S. as a destination for foreign capital and in 2003 was the largest recipient of foreign direct investment (FDI) in the world with $53.5 billion flowing into the country. Investment in U.S. businesses, meanwhile, dropped from $314 billion in 2000 to $30 billion in 2003 and $91 billion through the first three quarters of 2004.
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MANUFACTURING AND STEEL PRICES
Peter Morici*
University of Maryland at College Park
Febuary 2005

From 1989 to 2000, the manufacturing sector's share of real (inflation adjusted) GDP increased from 13.3 to 14.5 percent. In 2001, manufacturing’s share of real GDP declined to 13.6 percent, a normal occurrence in a recession. Since then, it has partially recovered to over 14 percent, but is not yet back to its pre-recessionary levels.

The durable goods sector, where steel is mostly consumed, has performed
comparatively better than overall manufacturing. As Chart 1 shows, durable goods' share of real GDP increased from 6.7 percent in 1989 to about 8.9 percent in 2004

Rising steel prices in the United States would cause manufacturers to relocate only if prices in the United States were rising relative to those in other countries. In fact, steel prices in foreign markets have generally risen at a faster rate than those in the United States. Hence, recent price changes have not placed U.S. manufacturers at a comparative disadvantage

From 1995 to 2004, output per hour in the U.S. private business sector increased more than 3.1 percent per year—about double the rate of the previous decade. Manufacturing
productivity grew 4.3 percent a year

When the tabulations are complete, official purchases by foreign (mostly Asian) governments of U.S. assets in 2004 will likely be in the range of about $350 billion, or about 23 percent of the value of all U.S. imports. Essentially, foreign governments are providing a 23 percent subsidy on their exports to the United States.

National Association of Manufacturers (NAM)
Overall, the NAM estimates costs of environmental regulation add another 4 percent to the costs of U.S. manufacturers. These costs sum to 12.7 percent. This amount is much greater than the impact of higher steel prices on even the metal fabricating industry. Moreover, these higher costs apply to practically all manufacturers.

Even if steel were made available to U.S. steel-using industries free of charge that would only reduce costs in steel-using industries by about 3 percent. That figure pales in comparison to the 23 percent subsidy currency market intervention imparts on imports, or the nearly 13 percent in cost disadvantages imposed by costly regulations and other structural costs identified by NAM. Manufacturers could be best helped by addressing currency manipulation and the overvalued dollar, rising health care costs, and other regulatory burdens

Morici provides an excellent evaluation of current ills; it should be read to compare with this Author's estimates. The trouble lies not with Durable Manufactures or Mining and Refining, as their growth remains sustained and healthy. The Problem enters from the NonDurable Manufactures which have declined drastically with the introduction of the Walmart Model to the overall Retail industry. Currency manipulation and Asian Government interventions comprise a major element subtracting from American production, but not near 23% subsidy; Morici ignores the added foreign expense of Transportation, a Author-estimated probable 8% increase in Production Costs. He also fails to note Corporate flight into foreign production to escape American taxation, an impact as great as the Walmart Model on the NonDurable Goods sector.

There real Problem, viewed from all angles, insists current American woes come from inadquency of American Tax Policy. It creates the fiscal deficit, which allows the foreign bank intervention which incites the Trade deficit, causing the loss of Jobs in both the NonDurable Goods Manufacturing and Retail sectors. lgl