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America's secret competitive advantage is a dirty secret

Sreedharan, Ranjan (2009): America's secret competitive advantage is a dirty secret.

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Michael E Porter, a leading management thinker, identifies seven uniquely American competitive advantages to explain the country’s pre-eminence. He points to America’s environment for entrepreneurship, its science, technology, and innovation machine, its institutions for higher learning, its strong commitment to competition and free markets, its efficient capital markets (especially for risk capital), and its fundamental dynamism and resilience that embraces a willingness to restructure and take losses.

In this paper, I argue there is another critical competitive advantage for America in relation to its other democratic peers. It is the fact that in American presidential and congressional elections, about half of the electorate never turns out to vote. And the unique competitive advantage arises from the fact that unlike in other Western democracies, the people who end up staying away from voting in the U.S. belong overwhelmingly to its poorest, least educated sections.

Before considering why this should amount to a competitive advantage, I look at reasons why the poor in America vote in far lesser proportions than their numbers. For instance, the rules governing voter-eligibility are determined by state, as well as, federal laws. Historically, many of the southern states have had a nasty record of officially and unofficially making it more difficult for blacks and poor whites to vote, a position that largely prevailed until the Voting Rights Act of 1965. Other reasons include the disenfranchisement of its prison population, which, at two million, is the largest in the world. Moreover, felony disenfranchisement laws in most states make it difficult for ex-felons to vote. As a result, about 5.4 million offenders and ex-offenders (about 2.5 percent of the electorate) were excluded from the voting rolls in the 2004 presidential election. Also, the fact that Election Day in the U.S. is not a national holiday makes it difficult for those holding low paying jobs (where wages are paid by the hour) to go out and vote.

The upshot of it all is that the average voter turnout in America has been historically lower compared to its peers, and the poor in America vote in far lesser proportions than their numbers. For instance, during the presidential elections of 2008, despite extraordinary efforts by the Obama campaign to mobilize poor and minority voters, a CNN exit poll found that only 18 percent of those who turned out to vote, earned an income of less than $30,000 per annum against the 34 percent of American households that belong to this category.

Why should this amount to a competitive advantage for the American economy?

A critical factor which determines the economic success of a country is how well it strikes a balance between its short term needs and long term requirements. The short term interests veer towards more spending and consumption, while the long term interests lie in greater investment for the future and in shaping an environment conducive to creation of wealth.Essentially, the poor and the disadvantaged within a country would tend to have a short term outlook. Their interest would lie in having the government spend more on generous social security benefits and subsidies and in laws that protect labour. They would be far less enthused by the investments and sacrifice required to further the economic well-being of the country over the long term, or in promoting the entrepreneurial class. I argue that it is the short term considerations that hold sway in democracies where the poor vote in large numbers. I cite the example of India where populist policies have always pulled in the votes, with negative long term economic consequences.

America’s overriding economic success has much to do with its “national consensus”, built around old-fashioned virtues like respect for property rights, free trade and free markets, lower taxes, flexible labour laws, and a culture that fosters individual responsibility and celebrates individual success. I contend that this consensus has been kept alive in large measure by keeping its poor away from voting.

In contrast, Western Europe and Canada have seen an alternative consensus emerge which emphasises more frequent state intervention in economic matters, a comprehensive social security net, and a tax regime with a higher burden on the rich—in the cause of a more equitable society. Arguably, this alternative consensus could emerge in Europe because the national elections in these countries do not effectively (and insidiously) keep out the poor as they do in the U.S.

In the concluding parts, I look at some of the recent trends in the voting patterns in U.S. national elections and predict a swing towards the more liberal values of the Democratic Party. I argue that the current “Republican revolution” that began with Reagan in 1980 may have come to an end for now.

I conclude with the contention that America is headed towards a future where it becomes more equitable (like Europe) but at likely cost to its hitherto extraordinary competitive edge.

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