For Mature Economies, Stronger Global Competitiveness Goes Far Beyond Traditional Exports: Bart van Ark, Chief Economist, The Conference Board

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Jun 20, 2012, 10:00 ET

NEW YORK, June 20, 2012 /PRNewswire/ -- Against the backdrop of a slow American recovery — and increasing concern about much deeper calamity in Europe — revived competitiveness in manufacturing is often viewed as key to turning around mature economies. In the new issue of StraightTalk®, a quarterly newsletter for members of The Conference Board, Chief Economist Bart van Ark analyzes how mature economies can achieve even stronger competitiveness.

The report concludes that simplistic calls to bring assembly-line jobs back onshore miss the real interconnectedness of the manufacturing value chain and the opportunities it presents. "In today's world of global competitiveness, what you do matters more than what you sell," said van Ark. "A global value chain perspective on competitiveness challenges the view that cheap goods from China only destroy domestic jobs. The United States, for one, obtains large positive effects from the creation of service jobs that serve global value chains, especially if the jobs can be supported with higher skills."

Among his main findings:

Four years into the global economic and financial crisis, several mature economies, including the United States and Germany, show signs of stronger competitiveness in manufacturing, due to reductions in labor costs and increased productivity. Substantial reshoring or nearshoring from China back to the U.S. and a "manufacturing miracle" in Germany are signs of improved competitiveness.

However, raw export numbers are often a poor measure of competitiveness. Today's complex global value chains mean producers of crucial intermediate products and services in mature economies add significantly more to the final global expenditure on a product than export numbers suggest. For example, 15 percent of China's exports of high-tech and medium–high-tech products consist of imported content from the U.S., the E.U., and Japan.

Based on sophisticated measures that account for each country's value added to exports, irrespective of which country exports the final product, Europe has in fact significantly increased its income from the global value chain since 1995, while the U.S. has remained stagnant. Japan and other mature East Asian economies have lost large ground as China has captured more and more of global value chain income in the region.

Despite recent gains in auto-assembly and other industries, U.S. and European competitiveness in manufacturing is largely driven by non-manufacturing activities, in particular services. In 2008, 7 million of the 16 million jobs in the U.S. that contributed to global manufacturing value chains were non-manufacturing jobs. In Europe, the proportion was as high as 16.5 million out of 35 million jobs.

For mature and developing economies alike, a zero-sum view of competitiveness that encourages neomercantilist trade policies focused on exports is likely to be counterproductive. Especially in the U.S., the creation of high-skilled jobs related to the production of essential tools, components, and business services offer better competitiveness gains than challenge (or resentment) of cheap Chinese goods.

The report makes extensive use of the new World Input Output Database (WIOD), designed to facilitate macroeconomic measurement of global value chains. The publically available database has been developed by a consortium of universities and research institutes across Europe, including The Conference Board Europe. The project was financed by the European Commission in its 7th Framework and received institutional support from the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO).

About The Conference Board
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