In the drive to double US exports, Washington has been focusing on manufacturers. But that may be the wrong target.
With an educated workforce, a culture of innovation and strong capital markets, the United States has a larger comparative advantage in high-skilled services like engineering, law and finance than in lower-skilled manufacturing jobs that rely on cheap labor.
For these reasons, economists see tremendous potential for growth - if, that is, Washington helps clear the way.
"There is for some reason this manufacturing fetish in America that is not consistent with U.S.'s fundamental economic interests," said Aaditya Mattoo, the research manager at the World Bank.
"Meanwhile, there are these barriers which American services companies face in establishing abroad, and no one talks about them."
Under current policy, manufacturing companies enjoy special tax cuts and other subsidies, and can count on the government to protest when U.S. goods face unfair tariffs.
For example, when India passed tariffs on alcohol imports that tripled the price of Jack Daniels whiskey, the United States fought back. But when India told New York Life Insurance that it would have to give three-quarters of its Indian profits to a local partner, Washington did not intervene.
As the developed world has gotten wealthier, global demand for skills and services - especially the higher-end ones - has risen.
In the United States, services increasingly dominate the economy. Employment in this sector has risen steadily since the 1960s, with 70 percent of Americans now working in service industries.
And the U.S. already exports more services than any other country in the world, even more than the next two competitors combined. In 2011, that amounted to $605 billion exported in services, up 10.2 percent from 2009, and up 202 percent since 1994.
Still, there is great untapped potential for more, since all of these exports are being sold from a tiny share of all the U.S. companies that could participate in the global marketplace.
"There is this huge infrastructure boom where these big, fast-growing economies are going to need to build out their roads, sewers, telecommunications networks, factories, airports, harbors, you name it," said J. Bradford Jensen, an economist at the Peterson Institute for International Economics and author of a recent book on global services trade.
"All those projects require armies of architects, engineers, project managers, financial insurers. These are all the kinds of tradable services that we have an advantage in providing."
Given these opportunities, Jensen estimates that the United States has the potential to more than double its annual exports of services annually, creating an additional $800 billion in tradable business services like engineering and law alone. ("Tradable" refers to services that can easily be done across borders, as opposed to work like cutting hair or drawing blood.)
Meeting this potential in business services would support or create about 3 million jobs, by his estimate. These jobs pay significantly higher wages than manufacturing jobs, even when controlling for how educated workers are and other demographics, he added.
To some extent U.S. companies are staying at home because of cultural or language barriers, worries about intellectual property protection and corruption, and sometimes disinterest.
indiatimes.com
With an educated workforce, a culture of innovation and strong capital markets, the United States has a larger comparative advantage in high-skilled services like engineering, law and finance than in lower-skilled manufacturing jobs that rely on cheap labor.
For these reasons, economists see tremendous potential for growth - if, that is, Washington helps clear the way.
"There is for some reason this manufacturing fetish in America that is not consistent with U.S.'s fundamental economic interests," said Aaditya Mattoo, the research manager at the World Bank.
"Meanwhile, there are these barriers which American services companies face in establishing abroad, and no one talks about them."
Under current policy, manufacturing companies enjoy special tax cuts and other subsidies, and can count on the government to protest when U.S. goods face unfair tariffs.
For example, when India passed tariffs on alcohol imports that tripled the price of Jack Daniels whiskey, the United States fought back. But when India told New York Life Insurance that it would have to give three-quarters of its Indian profits to a local partner, Washington did not intervene.
As the developed world has gotten wealthier, global demand for skills and services - especially the higher-end ones - has risen.
In the United States, services increasingly dominate the economy. Employment in this sector has risen steadily since the 1960s, with 70 percent of Americans now working in service industries.
And the U.S. already exports more services than any other country in the world, even more than the next two competitors combined. In 2011, that amounted to $605 billion exported in services, up 10.2 percent from 2009, and up 202 percent since 1994.
Still, there is great untapped potential for more, since all of these exports are being sold from a tiny share of all the U.S. companies that could participate in the global marketplace.
"There is this huge infrastructure boom where these big, fast-growing economies are going to need to build out their roads, sewers, telecommunications networks, factories, airports, harbors, you name it," said J. Bradford Jensen, an economist at the Peterson Institute for International Economics and author of a recent book on global services trade.
"All those projects require armies of architects, engineers, project managers, financial insurers. These are all the kinds of tradable services that we have an advantage in providing."
Given these opportunities, Jensen estimates that the United States has the potential to more than double its annual exports of services annually, creating an additional $800 billion in tradable business services like engineering and law alone. ("Tradable" refers to services that can easily be done across borders, as opposed to work like cutting hair or drawing blood.)
Meeting this potential in business services would support or create about 3 million jobs, by his estimate. These jobs pay significantly higher wages than manufacturing jobs, even when controlling for how educated workers are and other demographics, he added.
To some extent U.S. companies are staying at home because of cultural or language barriers, worries about intellectual property protection and corruption, and sometimes disinterest.
indiatimes.com
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