The United States claims a position as a world leader in many fields. And in a few of those fields, it still is. We like to think of ourselves as leaders in business, the free market, the entrepreneurial spirit. But the country is falling further and further behind in key competitive areas, giving up a lot of ground in the past 10 to 13 years.
The numbers are not encouraging, and as a consequence no one pays much attention to them. Don't look to party politics, though. The decline has continued through Republican and Democratic administrations and Congresses alike.
Our Competitive Edge Is Slipping Further Away
From the World Economic Forum:
1 – U.S. ranking on the 2008 – 2009 Global Competitiveness Index
7 – U.S. ranking, out of 144 countries on the 2012 – 2013 Global Competitiveness Index
9 – U.S. ranking for its legal system and property rights in 2000
33 – U.S. ranking for its legal system and property rights in 2010 on the Fraser Institute's Economic Freedom Index
433 – Total number of days it takes in the U.S. to start a business, register a property, get and import/export license and enforce a contract.
368 – Total number of days it took to do the same thing in 2006
Some argue that more government intervention, more stimulus, would get things moving again. Others argue that government should pull back completely, let the markets work themselves out, scale back regulations. But what if none of these solutions is the key to getting the country back to the top?
According to Niall Ferguson, the blame lies with the character and quality of our institutions. Our institutions, government and otherwise, are there to ensure the wheels of society keep turning. Courts of law, legislatures, banks, market exchanges, and so on. Our institutions are decaying, bloating and rotting, subject to Byzantine laws and regulations and a hopelessly top-heavy bureaucracy. But just how well-entrenched is this bureaucracy?
The Fourth Branch
As schoolchildren, Americans are taught that there are three branches of government: the Legislative, the Executive, and the Judicial. But it's become apparent that there are actually four branches, once you consider the Administrative branch. This purported branch would consist of Cabinet departments and all the bureaucracy and special interests flowing therefrom.
When our Constitution was put into effect, President George Washington had six Cabinet-level departments – including the Vice President of the United States. In the year 2013 there are are fully 16. In 224 years, we've abolished or consolidated just four Cabinet departments. And at various times, another 19 additional Cabinet departments have been proposed or considered. From each of these cabinet departments proceeds a virtual fiefdom, with a great deal duplication of duties and roles across departments.
There are few, if any, checks and balances on this Administrative branch. The patience of judges with a legion of lawyers might be the only one. For the most part, the lawyers, the compliance departments, and the bureaucracy operate largely unchecked. Their indefinite yet constant interaction with special interests and the other three branches of government completes the depressing picture. And it's all to our great detriment.
It's Not Too Late to Change
The prevailing regulations are so complex, and so poorly thought through, that the system becomes vulnerable to abuse. Those looking for evidence need look no further than the parade of 10,000+ page legislation passed over the years. No sensible person would argue for the complete repeal or abolition or regulations, but those countries that at least make an attempt at sensible regulation and laws are beating the United States in the competitiveness stakes.
The ease of conceptualizing, planning, and then opening a business in the United States has become an almost hopelessly fraught affair, taking an average of 433 days. Why not just up sticks and take advantage of the more favorable climate in Canada or the United Kingdom? Some decide to do just that, and it's our loss.
A country's economy becomes competitive when its institutions are improved, Ferguson says. Consider for instance, a developing country with a new multiparty democracy, or a newly independent judiciary.
Our institutions are old, it's true, but not as old as in other countries. And there's nothing except inertia stopping us from reforming them. The American system affords the chance to make leaner, more impactful regulations that are designed to tackle issues and enforce the law. In this way, we can provide opportunities for our citizens – not just the lawyers.
- The Wall Street Journal:
How America Lost Its Way