Savings, Capital Formation, and National Security

SAVINGS, CAPITAL. FORMATION, AND NATIONAL SECURITY James L. Hecht andJames K. Oliver .he American industrial base, the foundation of the United States' security, is weakening. The relationship between economic competitiveness , future economic strength, and security must be recognized. The national security policies of the United States have not adjusted to a changing world. Curtailing consumption is one approach, but another way is to shift resources from near-term military strength to long-term economic growth. The problem ofU.S. economic competitiveness has been recognized for years. In 1980 the Committee for Economic Development concluded: "Over the past decade there have been serious signs that the United States is losing its technological lead."1 At the same time economist Lester C. Thurow observed, "Not long ago Americans enjoyed the world's highest standard of living. Today our position is no longer so lofty . . . and our standing continues to slip."2 Two years later the Business Week Team noted that between 1960 and 1980 the share of domestic markets for U.S. manufacturers decreased from 98 to 93 percent, and during this period 1 . Report by the Research and Policy Committee of the Committee for Economic Development (New York, 1980). 2.Lester C. Thurow, "The Productivity Problem," Technology Review, November/December 1980, 50. James L. Hecht is an adjunct professor in the department of political science at the University of Delaware. He spent thirty-one years in various research assignments with E.I. du Pont de Nemours & Company. James K. Oliver is professor and chairman of the department of political science at the University of Delaware. Ill 112 SAIS REVIEW U.S. manufactured goods went from 25 to 18 percent of the exports of industrial nations.3 Yet U.S. policymakers have failed to understand that for the United States to improve its economic competitiveness, it must increase the amount of attention paid to capital formation. Perhaps the best single evaluation of U.S. competitiveness and how it can be improved is the report of the President's Commission on International Competitiveness.4 The President's Commission concluded: "our ability to compete in world markets is eroding. Growth in U.S. productivity lags far behind that of our foreign competitors. Real hourly compensation of our work force is no longer improving. U.S. leadership in world trade is declining." The President's Commission endorsed a number of recommendations, most of which, if not all, had been proposed before. These recommendations were divided into four categories: • Create, apply, and protect technology; • Increase the supply of capital available for investment, reduce its cost to American business, and improve its ability to flow freely to its most productive uses; • Develop a more skilled, flexible, and motivated work force; and • Make trade a national priority. . . . Domestic and export policies should encourage U.S. trade and industry adjustment to global competition. Little has been done to implement any of these recommendations, however. Competitiveness has aroused neither the interest nor the passion of other issues. For most Americans, competitiveness does not appear to be a vital concern, and few appear to identify future competitiveness with national security. While many good recommendations have been made to improve competitiveness, increasing capital investment stands out as the most important and essential policy option. Yet increasing capital formation frequently is not even included in most political agendas. Business executives and many economists have emphasized the need for capital investment for economic growth, but the case clearly has not been made strong enough. For decades the United States has invested a lower percentage of its gross national product (GNP) than any other major industrial nation in the free world. In order to reverse this trend, difficult hurdles must be overcome. 3.The Business Week Team (Seymour Zucker et. al.), The Reindustrialization ofAmerica (New York: McGraw-Hill, 1982). 4.President's Commission on International Competitiveness, Global Competition: The New Reality (Washington, D.C: U.S. Government Printing Office, 1985). ECONOMIC COMPETITIVENESS 113 The Difficulties of Improving Capital Formation An anti-big business sentiment prevails in the United States, which causes skepticism about any proposal that may favor large corporations. Moreover, most proposals to increase capital formation favor wealthy investors . This notion runs counter to...