This is a link to a video presentation at the Harvard Business School. The dean of the school and two professors summarize the findings from a survey that Harvard conducted on the competitiveness of the US. They got responses from 10,000 of its alumni and the results are published in March edition of the Harvard Business Review. I have made a few comments below.
They define national competitiveness as a factor that enables firms to successfully compete in international markets, while also retaining the ability to grow wages and support public services. That can only be accomplished by growth in productivity. In turn, productivity growth is dependent upon innovation, advances in technology and growth in human capital.
The presenters made it very clear that their intent was not to encourage a competition between nations. Harvard serves an international clientele and it assumes that a good environment for business in every nation is the desired outcome. A more prosperous world is a better world. They also argue that the prosperity of other nations is related to the continued competitiveness of the US. That is because US leadership provides public goods, as well as an export market that many other nations depend upon.
The performance of the US economy prior to the recession suggests a preexisting weakness in competitiveness. Most of the growth in jobs has been in sectors that do not have import competition. There has been a loss of jobs in manufacturing sectors that compete with imports. Moreover, there has been slow growth in productivity.
The key finding of the survey is that the US has a deep competitiveness problem as it has been defined above. Only 16% of the respondents reported that the US was better on the two dimensions, and 14% have seen no changes in US competitiveness. Around 70% of the respondents do not believe that the US will be successful in international markets while also improving the standard of living for its citizens.
1,700 of the respondents, which included US and international firms, were involved in decisions about where to locate a business or service. The great majority of the decisions were made to locate outside of the US. Most of the decisions were to locate in emerging markets. These were not all decisions about low value added jobs. More of the decisions on where to locate R&D services, for example, went against the US. The two biggest motivations for locating outside of the US were lower wages and proximity to a market. The Harvard presenters believe that it makes sense to locate closer to one's market. They did not feel good about decisions made to offshore primarily to reduce costs and then to re-import products to the US.
The survey included questions about specific areas of strength and weakness in US competitiveness. The number one weakness reported in the survey was the quality of the US political system. The areas of competitive strength most mentioned were the quality of higher education, the climate for entrepreneurship and the quality of US management.
When asked what can be done to improve US competitiveness most of them targeted government. Some of the suggestions were the typical business pleadings for lower taxes, less regulation and trade protections. The Harvard team argued that business has helped to create the very problems that it finds in government by lobbying government for favors. For example, many complained about the complexity of the tax code. One of the reasons for the complexity, is that it is layered with loopholes in response to business lobbying. Most of the problems in government are well known and could be fixed without an heroic effort. The Harvard team was positive about fixing most of the frequently reported problems in government.
The survey also asked for suggestions on what business can do to improve US competitiveness. Not surprisingly, there were fewer comments about the contributions that business can make, relative to the comments on government. On the other hand, many in the business community have come to believe that improving the competitiveness of the US is in their interest. Harvard is going to focus attention on the things that business leaders can do to address some of the problems that they reported. For example, business has cut back on training budgets. They can do a better a job of providing skills to their workforce. They can also work with community colleges to make them more effective in producing graduates with the skills required by business. They also complain about the high cost of healthcare. They have not been actively involved in helping government to reform a very inefficient healthcare system.
The bottom line is that business will only be able to compete in international markets, and also provide growth in jobs and wages, by becoming more productive. High wages in the US relative to the rest of the world were the result of higher productivity in the US. The US workforce was well educated, and the labor force was provided with capital that increased labor productivity. The rest of the world has become better educated, and productivity enhancing capital is more available in many countries. Convergence should be expected as the rest of the world catches up to the US. On the other hand, the US has many strengths that could be leveraged, and it should not be impossible to fix some of the areas in which it has problems. Harvard has signed up to enlist the business community in doing its part. It would be an achievement if Harvard can get the business leaders that it educates to take on broader responsibility for the community that has provided the infrastructure for its success in the past.
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