Emerging economies coming on strong: the global economic landscape is changing dramatically, but the United States can continue to prosper as long as
The Council on Competitiveness released its flagship publication, Competitiveness Index: Where America Stands, last November. While theUnited States remains the global economic leader, the Index makes thecase that its position is not guaranteed. The data and our analysisclearly point to a changing global environment, confirming the need to revisit how the United States will sustain its past position of economic strength and dominance under these new circumstances. The growth of emerging economies will reduce the U.S. share of the global economy, but it is unclear exactly how this will affect U.S. prosperity.
Two issues in particular must factor into the calculus as we proceed:
* Knowledge is becoming an increasingly important driver of value in the global economy. A larger share of trade is also captured by services, and a larger share of assets and investments is intangible. This shift to services, high-value manufacturing, and intangibles creates more opportunities for the United States with its traditionally strong position in knowledge-driven activities and an already high stock of tangible as well as intangible assets.
* Multinational companies are evolving into complex global enterprises, spreading their activities across value chains over different locations to take advantage of regional conditions and competencies. This process creates more competition as regions now must prove their competitiveness in order to attract and retain companies and investments. For the United States, it begs a fundamental rethinking of how states and localities strategize and execute economic development activities.
The United States will almost inevitably be a smaller part of a growing world economy due to the structural changes under way across theglobe. However, there is no reason why the United States cannot retain its position as the most productive and prosperous country in theworld.
The coming economy will favor nations that reach globally for markets, and those who embrace different cultures and absorb their diversity of ideas into the innovation process. It will be fueled by the fusion of different technical and creative fields, and thrive on scholarship, creativity, artistry, and leading-edge thinking. These conceptsare U.S. strengths. These concepts are the nation's competitive advantage. These concepts are uniquely American--for now.
Deborah L. Wince-Smith is president and CEO of the Council on Competitiveness in Washington, D.C. The full text of The Competitiveness Index can be downloaded at
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Growing share of the global economy
In the past five years, China, India, and Russia, together with other fast-growing economies mostly in Asia and Latin America, have averaged almost 7% growth compared with 2.3% in rich economies. Accordingto Goldman Sachs, by 2039, Russia, India, China, and Brazil togethercould be larger than the combined economies of the United States, Japan, the United Kingdom, Germany, France, and Italy. China alone could be the world's second-largest economy by 2016 and could surpass theUnited States by 2041.
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Most populous and still growing
Fast-growing populations and economies are translating into a largeworldwide increase in middle-income consumers. While industrializedcountries will add 100 million more middle-income consumers by 2020,according to projections by A.T. Kearney, the developing world will add more than 900 million, and China alone will add 572 million.
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Large professional workforce
In a sample of 28 low-wage countries, the McKinsey Global Institutefound about 33 million "young professionals" (university graduates with up to seven years experience), compared to 18 million in a sampleof eight high-wage countries, including 7.7 million in the United States. However, McKinsey found that only 2.8 million to 3.9 million ofthe 33 million in low-wage countries had all the skills necessary towork at a multinational corporation, compared to 8.8 million in high-wage countries.
Young Professionals, 2003 (Thousands)
;
Finance/Life sciences
EngineersAccountingresearchersAnalysts
;
China1,589 945543202
United States6671615852175
India5282273674537
Russia 4861082108107
Emerging markets
Japan317 702180 55
Phillippines 290 423 14 16
Brazil 158 355 75 16
U.K. 150 165100 27
Developed economies
Germany128 137 31 26
Mexico 115 319 238
Poland82 231 25 22
Canada81 150 89 18
Malaysia4983 19 11
Hungary 275921
Ireland 223243
Czech Republic153325
;
Source: McKinsey Global Institute, The Emerging Global Labor Market:
Part II--The Supply of Offshore Talent in Services (June 2005)
Technology export leaders
Foreign multinationals have played a critical role in the development of advanced technology capabilities in emerging economies. For example, 90% of China's information technology exports come from foreign-owned factories. The United States, still the world's largest overall producer of advanced technology, now has a trade deficit in this area, in part because U.S. technology firms have expanded production globally to meet both foreign and domestic demand.
Top Ten High-Tech Exporters (1986)
Billions of 1997 U.S. Dollars
1. United States $65
2. Japan $53
3. Germany $31
4. United Kingdom $24
5. France $14
6. Netherlands $9
7. Italy $8
8. Switzerland $8
9. Taiwan $7
10. South Korea $7
Top Ten High-Tech Exporters (2005)
Billions of 1997 U.S. Dollars
1. China $406
Emerging economies
2. United States $284
3. Japan $212
Developed economies
4. Germany $183
5. South Korea $167
6. Hong Kong $157
7. Taiwan $145
8. Singapore $126
9. Malaysia $99
10. United Kingdom $95
Source: Global Insight, Inc.
U.S. foreign operations outpace exports
Despite their global expansion, the activities of U.S. multinationals are still overwhelmingly based in the United States. The U.S. share of their total employment, investment, and production has changed relatively little even as globalization has accelerated. The primary motivation for moving production offshore is to search for new customers. Overall, 65% of U.S. foreign affiliate sales are to the local market, 24% to other countries, and only 11% are exported back to the United States. Foreign multinationals have played a critical role in the development of advanced technology capabilities in emerging economies. For example, 90% of China's information technology exports come from foreign-owned factories. The United States, still the world's largest overall producer of advanced technology, now has a trade deficitin this area, in part because U.S. technology firms have expanded production globally to meet foreign and domestic demand.
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Steady increase of offshore investments
For decades, multinational corporations have set up foreign subsidiaries to perform manufacturing and assembly for overseas markets. Inrecent years, this model has evolved, as companies have developed global infrastructures that allow them to locate other business activities--from customer services and computer programming to R & D--nearlyanywhere in the world.
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