Government Systems Performance Wars

“Are Living Standards Higher in Denmark or the United States?

Posted by Daniel J. Mitchell

The left loves Scandinavia, but for the wrong reason. Nations such as Denmark and Sweden have much to admire, particularly their open markets, low levels of regulation, sound money, and honest governments. Indeed, if fiscal policy is removed from the equation, both Denmark and Sweden are more laissez-faire than the United States according to Economic Freedom of the World (as I noted in this recent video).

But fiscal policy is where the Scandinavians have serious problems. Taxes are confiscatory, punishing people who work, save, and invest. High levels of government spending, meanwhile, reduce economic growth by diverting resources from the productive sector of the economy and funneling them into the stifling welfare state.

Not surprisingly, this is the reason why statists admire Scandinavian nations. Matthew Yglesias, for instance, recently expressed his great admiration for Denmark. And I suppose I would agree with him if asked to pick the world’s best welfare state. I’ve been to the country several times and there is no question that laissez-faire policies in areas other than fiscal policy have helped the nation remain relatively prosperous.

But Yglesias is a bit lovestruck about the Danes (an understandable impulse for non-economic reasons), and it leads him to make some rather strange assertion — presumably because he wants us to believe that Denmark’s good points are because of (rather than in spite of) an onerous fiscal burden. What jumped out at me was his claim that Danes enjoy a “higher average material standard of living” than Americans. I’m not sure where he gets that, since the World Bank, CIA, United Nations, and IMF all show that the United States has more per-capita economic output.

To be fair, measures of per-capita gross domestic product are not a  perfect measure, even if they are adjusted for purchasing power parity. So let’s take a look at other statistics that try to compare living standards. The two that I found (perhaps Yglesias found others, in which case I look forward to his identifying the source) are from the Organization for Economic Cooperation and Development and, coincidentally, the Danish Finance Ministry.

The OECD, many of you already know, is not my favorite organization. The bureaucracy’s anti-tax competition campaign is a reprehensible attempt to hinder the flow of jobs and capital from high-tax nations to low-tax jurisdictions. So surely nobody will claim that the OECD is a collection of market fundamentalists trying to manipulate statistics to make high-tax nations look bad. So let’s now look at this chart, which is based on the OECD’s calculations of average individual consumption per capita, pegged against an average for member nations of 100. It certainly appears that living standards in the United States are much higher.”

“U.S. losing high-tech manufacturing jobs to Asia

By Peter Whoriskey, Published: January 17

The United States lost more than a quarter of its high-tech manufacturing jobs during the past decade as U.S.-based multinational companies placed a growing percentage of their research-and-development operations overseas, the National Science Board reported Tuesday.

The rapid expansion of science and engineering capabilities in China and its neighbors pose a more formidable economic challenge to the United States, according to the group, with Asia rapidly boosting the number of engineering doctorates it produces and research dollars it spends.

 A recent study breaks down how graduates with various college degrees are faring in today’s difficult job market.

The report comes as the Obama administration is seeking to make U.S. manufacturing more competitive through engineering and innovation. In June, it announced its Advanced Manufacturing Partnership and sank $500 million into the effort.

But as the National Science Board publication shows, vast government efforts in Asia are working along similar lines. It offered abundant evidence Asia’s efforts to attract and develop engineering outfits, and not just low-wage factories, have paid off. Since 2000:

•Research-and-development expenditures in China and nine other Asian countries have risen to match that of the United States.

• The number of doctoral degrees in engineering awarded in China has more than doubled, and now far exceeds the number awarded in the United States.

• The number of research workers for U.S.-based multinationals working overseas has more than doubled.

“Over time, global science and technology capabilities have grown, nowhere more so than Asia,” according to the report. “In most broad aspects of science and technology activities, the United States continues to maintain a position of leadership. But it has experienced a gradual erosion of its position in many specific areas.”

The report also highlights the broader loss of related U.S. jobs.

The number of high-tech manufacturing jobs in the United States has declined by 687,000, or 28 percent between 2000 and 2010, according to the report.

Although the long decline of manufacturing employment in the United States is often attributed to the cheaper wages in developing countries, China and developing countries in Asia have in recent years sought to lure more sophisticated manufacturing operations — and better jobs — by expanding their engineering prowess through government investment in education and research.

The decline in U.S. manufacturing as a share of the nation’s economy and employment over the past decade “is not solely due to low-wage competition,” the president’s Council of Advisors on Science and Technology wrote recently. “We cannot remain the world’s engine of innovation without manufacturing activity.”

The National Science Board publication issued Tuesday found that other nations, by increasing their research and education spending, “challenge the world leadership role of the United States.”

“The continued increase in the trends of these indicators are cause for concern,” said Jose-
Marie Griffiths, chairman of the effort by the National Science Board, which is a policy arm of the National Science Foundation.

Just as China and other Asian countries appear to be gaining in engineering, however, other factors at work are expected to give a boost to U.S. manufacturing by making it more competitive with China.

Wages in China have been growing rapidly, lessening their advantage over those in the United States. Moreover, increasing automation in the United States is lowering labor costs. Finally, analysts said, U.S. workers are far more productive.

“When you add all this up together, there’s a lot of opportunity in the U.S.,” said Eric Spiegel, chief executive of Siemens, which has 65,000 employees and 137 manufacturing plants in the United States. “There’s still more skilled labor here than anywhere else in the world.”

Within five years, the cost gap between the United States and China to produce many goods consumed in North America will be virtually closed, according to a recent report from the Boston Consulting Group.

“China’s overwhelming manufacturing cost advantage over the U.S. is shrinking fast,” the report said.”