America's biggest single competitive advantage

I keep on reading articles that point out weaknesses in the American economy. In fact when reading some of these opinion pieces, one would get the impression that America has no strong points. I think that a balanced assessment of Americas position needs to be given greater attention.

The negative case generally concentrates on:

  • The size of the current account deficit
  • The decline of manufacturing (linked to the rise in low cost Chinese production)
  • High levels of consumer debt
  • Fears of a fall in property values
  • A monetary policy that was too loose for too long.

Undoubtedly these are weaknesses but lets turn our attention to what I believe is the biggest single strength in the American economy because this seems to receive far less attention.

In my opinion corporate America remains a clear global leader in a number of crucial industries and more importantly I believe that they can sustain this leadership for the foreseeable future.

American companies dominate the following industries:

  • High end technology: software, internet, analogue semiconductors, etc. Microsoft, Google, Oracle, Ebay, Yahoo and Cisco.
  • Biotech and medical devices: Johnson & Johnson, Amgen, Medtronic, Genentech.
  • Consumer Products: Coca Cola, Procter& Gamble, Colgate, Pepsi.
  • Financial Services: American Express, Citigroup, GE Financial, Goldman Sachs, Merrill Lynch, Berkshire Hathaway.
  • Entertainment: Hollywood, Pixar, MTV, Disney.

I believe that dominance of these industries is crucial because they all have one common characteristic and that is they do not need to compete on the basis of low wages. They compete on the basis of R&D, patents, brands, human capital. Highly paid jobs in these globally competitive industries can support numerous jobs in the domestic non traded goods sector.

The reasons behind this dominance are numerous. I would include things like:

  • entrepreneurial culture
  • a willingness to accept creative destruction
  • a strong venture capital industry
  • a third level system that attracts the best in the world.

There are plenty of industries where clearly America does not dominate. Personally I donft care that America is weak in autos, steel, shipbuilding, textiles, commodity technology. All of these industries require low wages to be competitive and therefore are continuously moving to the new lowest cost location.

This mirrors the argument that is taking place here in Ireland. Many people seem to worry about the decline in traditional manufacturing but what excites me is that we continue to replace jobs lost with new higher added value jobs. The recent announcement by Amgen being a prime example of this process.

This process is all part of the onward march of globalisation. These manufacturing jobs have moved to China but we should remember that as the Chinese get richer they will have more wealth to spend on drugs, software and financial services. In other words globalisation is not a zero sum game and America will benefit from a stronger India and China.

As long as America retains leadership in these industries I believe that it gives them the time to deal with their problems and hopefully the world economy can continue to muddle its way through without a major crisis.

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Siobhan Power