Mark Weinberger on the US economy
I've seen America's biggest economic challenge and it is ourselves, says Mark Weinberger, Global Chairman and CEO of EY.
When we look around the world today, the US economy is doing pretty well. China is logging its slowest growth in 24 years. Russia has been downgraded to junk bond status. The EU teeters on the brink of an uncertain future. Meanwhile, the United States is growing steadily – and racking up its longest sustained period of job growth in history.
This is only part of the story, however. The US economy may be growing, but not nearly fast enough. We have strengths we aren't using – and potential unfulfilled. And as we work to reach that potential, the biggest obstacle might be … ourselves.
As the world economy has evolved, the US hasn't always kept up. Too often, we've allowed politics to paralyse us. But now it's time to put aside politics and focus on policies that position our economy to grow, compete and succeed on the global stage.
This is critical because, right now, 95 per cent of consumers and 80 per cent of the world's purchasing power is outside the United States. Asia's middle class is almost twice the size of our entire country. US companies earn more than half their income abroad today. Thirty years ago, it was closer to a third.
These issues present opportunities and challenges, something we talked about in April at the Milken Global Conference in Santa Monica – where leaders in business, politics, and academics gather every year. On the panel I joined, three issues in particular stood out – and getting them right will be critical.
First, if we want growth and jobs at home, we need a trade policy that empowers American businesses to compete and win worldwide. Unfortunately, we've often missed that opportunity in recent years. Around the world, countries are striking regional deals to liberalise trade and remove barriers to business. But in many of these cases, the US is not at the table.
From 2000 to 2010, Asian nations entered into 48 trade agreements. Of those, the US was part of only two – and our exports to that region dropped by over 40 per cent in the same timeframe. We can't afford to stand on the sidelines – especially in critical emerging regions such as Asia. As President Obama said: "If we don't write the rules, China will write the rules in that region … We will be shut out … That will mean a loss of US jobs."
The US is negotiating two ambitious free trade agreements right now: the Trans-Pacific Partnership (TPP) in Asia and the Transatlantic Trade and Investment Partnership (TTIP) with Europe. Combined, they span economies that make up two-thirds of the world's GDP – and they're projected to create up to two million jobs in the United States.
Our markets are already open to these other countries. These deals will open their markets to us, and lower tariffs.
Tax reform: Key to maintaining our edge
If our country is going to compete in the global economy, we need to compete with our tax code.
Thirty years ago, the US had one of the lowest business tax rates in the world. Some considered our country a tax haven. But a lot has changed. In recent years, 90 per cent of OECD countries have lowered taxes to attract businesses – and we've been left behind. Today, the US has the highest corporate tax rate among OECD countries. We are the only country on Earth that taxes worldwide income, with a rate above 30 per cent.
Due to this uncompetitive tax regime, our businesses are at an international disadvantage. Consider the M&A market, where foreign buyers acquired more than $200bn of US companies and business assets between 2003 and 2013. If our tax rate had been more competitive – even the OECD average of 25 per cent – that decade could have been very different. US firms would have acquired $590bn in assets – and 1,300 American companies would not have been purchased by foreign organisations.
It's time to catch up to the rest of the world. The Business Roundtable and Rice University have estimated that tax reform would increase America's GDP by 0.9 per cent in two years, and 3.1 per cent in 10 years. It would also drive higher incomes on average. This is a reform that's long past due – and the rest of the world isn't waiting around.
Immigration: Keep the top talent in America
Our immigration system is inefficient and outdated. EY regularly recruits on university campuses, and I can't tell you how many times we've had to turn away some of our best applicants because they can't get the visas they need to stay in the US.
Even worse, our immigration system isn't just turning away promising young people – it's turning away future leaders. All you have to do is look at the list of Fortune 500 founders to see that. Of these entrepreneurs, 40 per cent of them are either immigrants, or children of immigrants.
It's clear that immigration reform isn't just a nice thing to do. It's the smart path to drive economic growth in a big way. One study found that immigration reform would increase America's GDP by almost five per cent, increase average wages, and cut the deficit by more than $1tn over 20 years.
The opportunities and obstacles are clear – and now it's up to us to decide what to do with them. In a real way, the only thing standing in the way of America's economic potential is … us.
This article first appeared online as part of the LinkedIn Pulse series.