Please turn on JavaScript

Brooks Wilson's Economics Blog: Krugman on Competitiveness

Thursday, January 27, 2011

Krugman on Competitiveness

In the State of the Union Address President Obama spoke of building America’s competitiveness as a theme.  Paul Krugman, a Nobel prize and John Bates Clark medal recipient, explains why the new buzzword is the old buzzword in “The Competition Myth.”   
Meet the new buzzword, same as the old buzzword. In advance of the State of the Union, President Obama has telegraphed his main theme: competitiveness. The President’s Economic Recovery Advisory Board has been renamed the President’s Council on Jobs and Competitiveness. And in his Saturday radio address, the president declared that “We can out-compete any other nation on Earth.”

This may be smart politics. Arguably, Mr. Obama has enlisted an old cliché on behalf of a good cause, as a way to sell a much-needed increase in public investment to a public thoroughly indoctrinated in the view that government spending is a bad thing.
But let’s not kid ourselves: talking about “competitiveness” as a goal is fundamentally misleading. At best, it’s a misdiagnosis of our problems. At worst, it could lead to policies based on the false idea that what’s good for corporations is good for America.

About that misdiagnosis: What sense does it make to view our current woes as stemming from lack of competitiveness?

…ultimately, we’re in a mess because we had a financial crisis, not because American companies have lost their ability to compete with foreign rivals.
Krugman’s current article echoes his classic work, “Pop Internationalism.”
Many people who know that "competitiveness" is a largely meaningless concept have been willing to indulge competitive rhetoric precisely because they believe they can harness it in the service of good policies. An overblown fear of the Soviet Union was used in the 1950s to justify the building of the interstate highway system and the expansion of math and science education. Cannot the unjustified fears about foreign competition similarly be turned to good, used to justify serious efforts to reduce the budget deficit, rebuild infrastructure, and so on?

A few years ago this was a reasonable hope. At this point, however, the obsession with competitiveness has reached the point where it has already begun dangerously to distort economic policies.
As an aside, I may owe Krugman an apology.  In the past I have criticized him for supporting less than truthful statements by politicians to achieve policy he deems beneficial because of statements like those bolded above, but maybe I have misunderstood his meaning.  Perhaps he just has more tolerance for this political behavior.   


  1. I appreciate and totally agree with Mr. Krugman's comment that we're in a mess because we had a financial crisis, not because our companies have lost their ability to compete.
    To me, this is the government passing the buck onto the American people, instead of taking the blame for their own bad decisions.
    We will all be facing higher taxes, and many cut services, as well, to pay for their bad judgment, and in some cases, perhaps their dishonesty.
    If left alone, our market might have corrected itself, "the invisible hand" might have brought the housing market back into more realistic, equilibrium prices.
    These are the causes of our problems, not a lack of competitiveness from our companies.

  2. Georges Bernanos said that “The first sign of corruption in a society that is still alive is that the end justifies the means.” Manipulation of the masses to achieve noble goals is a slippery slop. Although I agree that most people, including me, don't truly know what specific policies are going to get us back on the right track.

    This was the same thinking of the early American elitist. Women and slaves didn't have enough experience or knowledge to be trusted with making decisions that really mattered. This, of course, would turn out to be wrong. But, on some level people really aren't educated enough to understand global economies, global and domestic competitive markets and how best to proceed with policies domestically. Even well educated people who have not been exposed to related fields are many times just regurgitating what they have heard or what seems to make scene to them.

    I do not particularly subscribe to the theory that president Roosevelt knew about the impending attack on Pearl Harbor and allowed it to happen to force a reluctant country into an inevitable war. I think if that did happen then Roosevelt fell headlong down a dangerous "slippery slop." I think the question is how do decision makers balance the desire for a free representative government process and doing what is best for the country even though the country may not know it.

  3. Obama sees the United tates as competitors to other countries. This really to me is not a competition, it needs to be a way that we can all live together and survive in a way that we live in a peaceful world. Competition isn't always a good thing even if it is only in a small way. Someone always loses and the loser can often be not so happy with losing.Rational people do the best they can do to make peace and achieve their goals. Competition can lead to someone being irrational.