THE COMPETITIVENESS INDEX:WHERE AMERICA STANDS

Deborah Wince-Smith

December 5, 2006National Governors Association

Phoenix, AZ

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS2

The Competitiveness Index: Where America Stands

• The Changing Global Competitiveness Environment

• U.S. Prosperity — How Are Americans Doing?

• U.S. Economic Performance — How Is the American Economy Doing?

• Foundations of Future U.S. Competitiveness

> Innovation — Can the United States Sustain Its Advantage?

> Entrepreneurship — Does the U.S. Economic Engine Face Threats Or Is It Primed for Continued Success?

> Education — Are Americans Equipped to Prosper in the 21st Century?

> Energy — How Will We Fuel Future Growth?

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS3

• Competitiveness depends on the productivity with which a nation can utilize its human, capital, and natural resources. High incomes require high productivity.

COMPETITIVENESS IS NOT BASED ON> The size of the economy> Low-cost labor> Share of exports> The rate of economic growth

• Competitiveness raises the bar for performance• Competitiveness is a positive-sum game

> As productivity improves, wages rise, markets expand and more human needs can be met

• American prosperity depends on:The ability to create the conditions under which companies operating in the U.S. can achieve high and rising productivityAn international economic system in which American productivity is not undermined by subsidies, government intervention, and theft of intellectual property in other nations

What is Competitiveness?

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS4

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

The United States Has the World’s Largest Economy and Growth Has Outpaced Other Developed Economies

Source: Global Insight, Inc.

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS5

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: Global Insight, Inc.

The United States Leads All Major Economies in GDP Per Capita

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS6

Source: Global Insight, Inc.

U.S. Productivity Growth Has Accelerated, Increasing Its Lead over Europe and Japan

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS7

Source: Global Insight, Inc.

America Continues to Attract the Largest Share of Foreign Direct Investment

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS8

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: U.S. Bureau of Labor Statistics

The United States Has High Levels of Job Churn

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS9

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: U.S. Census, Income, Poverty, and Health Coverage in the U.S.: 2005 (Aug. 2006)

The Greatest Gains in Income Have Gone to the Highest Income Households

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS10

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Emerging Markets Already Have the Largest, Fastest Growing Populations

Source: U.S. Census

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS11

Source: U.S. Bureau of Economic Analysis

U.S. Multinationals Sell Three Times More Through Foreign Operations Than Through Exports

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS12

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

The United States Has Trade Surpluses in Services and Intangibles

Source: U.S. Bureau of Economic Analysis

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS13

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements

Only Households Headed By a College Graduate Saw Their Incomes Rise over the Past 20 Years

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS14

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: OECD, Education at a Glance (2006)

The United States Invests Significantly More in Education, Yet Test Scores Are Low Compared to Other Nations

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS15

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: U.S. Bureau of Labor Statistics

High-Wage, Fast-Growth Occupations Require Higher Levels of Education

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS16

Source: Updated version of Figure 1 in David H. Autor, Frank Levy, and Richard J. Murnane, “The Skill Content Of Recent Technological Change: An Empirical Exploration,” Quarterly Journal of Economics, 118(4), November 2003. See also Frank Levy and Richard J. Murnane, “How Computerized Work and Globalization Shape Human Skill Demands,” (May 31, 2006)

Higher-Order Skills Have Grown in Importance, Driven by Technological Change and Globalization

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS17

THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: NSF, Science and Engineering Indicators (2006), OECD, Main Science and Technology Indicators (2006), U.S. Patent and Trademark Office

U.S. Share of Global Output Has Fallen Across a Range of Science and Technology Metrics

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THE COMPETITIVENESS INDEX: WHERE AMERICA STANDS

Source: Global Entrepreneurship Monitor, 2005 Executive Report and High Expectation Entrepreneurship, 2005

Total Entrepreneurial Activity In The United States Continues To Outpace All Major Industrial Economies

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Source: Office of Advocacy, U.S. Small Business Administration

Small and Medium-Sized Firms Create Most New Jobs