How Can We Make America More Competitive?

Although it is known as “the land of opportunity,” America has experienced several economic downturns since its founding; the most recent of these was the Great Recession, which began in late 2007. As the nation continues to cope with the reverberations still emanating from this crisis, many are asking, “What can we do to regain our competitive edge in the world?”

Some people suggest that a renewed commitment to education will safeguard future generations from calamity, while others claim that focused investments in certain technologies will help America by giving it a strong foothold in world markets. Still others advocate the outdated Keynesian notion of increasing government spending in an attempt to boost the economy.

While it’s always a good idea to invest in education and new technologies, these actions alone won’t solve our problems. In the end, the only real way to encourage economic growth and keep our country competitive is to strengthen free enterprise by reducing government regulations and giving businesses the freedom to grow.

What is free enterprise?

A core tenet of American economics, free enterprise has provided unprecedented opportunity and prosperity for generations of citizens. This system, and its promise of a better life, is what has drawn immigrants to our shores since our nation’s founding.

Friedrich Hayek

Friedrich Hayek

At its core, free enterprise is simply an economic system that is run by individuals, not the state. In a capitalist free-enterprise, or free-market, society, people individually decide which products and services to make and buy. Individuals and businesses voluntarily enter into contracts, and competitive bidding determines market prices. According to economist Friedrich Hayek, free-enterprise systems are examples of “spontaneous order,” which means that any planning or regulation involved in such a system arises naturally from the experiences and knowledge of the people actually involved, not from bureaucrats.

How does free enterprise make America more competitive?

Economic freedom leads to a variety of positive outcomes, both on an economic and a societal level. The following are only a few of these advantages:

It encourages personal freedom—Free enterprise empowers individuals, giving them responsibility for their own success. This encourages self-reliance, generates motivation, and promotes dignity. It also inspires people to test their limits and work harder to raise their standard of living.

It spreads prosperity—When business owners do well, they tend to reinvest in their companies to maintain or spur further growth. This creates new jobs and new opportunities for a number of people. Successful businesses also support their communities by donating money to charities, offering retirement and health care benefits, and growing the tax base that funds government services.

It stimulates competition—Businesses that want to win customers must continually search for ways to stand out in the market. Therefore, they will experiment with new technologies and ways of doing business to improve their customers’ lives.

It stabilizes governments—Individuals who have a sense of ownership over their lives and businesses will naturally want to protect what they have built. Hence, they will be more engaged in their local and national governments.

How does government suppress free enterprise?

“The competitive free enterprise system has given us the greatest standard of living in the world, produced generation after generation of technical wizards who consistently lead the world in invention and innovation, and has provided unlimited opportunities enabling industrious Americans from the most humble of backgrounds to climb to the top of the ladder of success.” 

– President Ronald Reagan

Even though free enterprise offers all of these benefits, some people think that we could improve our society by giving government a larger role in our lives and economy. However, nothing could be further from the truth. It is the private sector, not the government, that creates opportunity and drives innovation. Ideally, the role of government in increasing America’s competitiveness is to get out of the way of business—not micromanage it.

Government regulations and burdensome taxes not only stifle growth and reduce personal responsibility, but they also spawn expansive bureaucracies, which raise costs and lower efficiency. For example, the 2010 Dodd-Frank Act, which regulates the financial industry, has led to an estimated $24 billion in compliance costs. It has also created an astounding 61 million hours of paperwork for industry workers as of 2016.

Last year, the Small Business Administration put the annual price of federal regulations at $10,585 per employee for a business with fewer than 20 employees. Most businesses, especially small businesses, cannot hope to compete while burdened with regulatory costs of this magnitude.

Our current corporate tax rate also keeps US businesses from being competitive with the rest of the world. At 35 percent, it is the highest rate among all developed nations. This has led to companies leaving America for more tax-friendly locations. It has also prevented multinational companies from coming to our shores. Less than 60 years ago, 17 of the 20 biggest global firms maintained headquarters here. Today, only six remain.

One can see the inverse relationship between government interference and economic growth in the Heritage Foundation’s Index of Economic Freedom, which rates the freedom of economies across the world. On this year’s list, America came in at number 17, its lowest ranking ever.

For most of our nation’s history, government’s burden on society—at less than 10 percent of GDP—reflected the founders’ vision of a limited government. To remove the restraints of overregulation and taxation, and return to the level of competitiveness we once enjoyed, we need to work harder to reduce the size and scope of government.

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