Why U.S. Competitiveness Matters to All of Us

Photograph: Margaret Bourke-White /Time & Life Pictures/Getty Images: Statue of Liberty, 1951 One good way to observe a culture may be to venture outside and see it from the perspective of smart people looking in. When it comes to understanding the state of American competitiveness, I often find that the sharpest insights come from the individuals I meet when I travel abroad. On a recent trip to China, what struck me most was the confidence its citizens have in their government—a distinct contrast to the current sentiment in the United States. Almost all the Chinese executives I met believe that their nation’s leaders possess the foresight and the courage to think long term. These executives are not Pollyannas: They recognize the existence of asset bubbles in parts of their economy, and they realize that the fevered output they’ve enjoyed is likely to slow. They understand the need to increase domestic consumption and imports to offset strong exports. But they see these challenges as surmountable. Mostly, they display an unshakable faith in their government’s sustained commitment to keeping China’s economy in good health. This allows them to invest with confidence. The Chinese care about China, of course, but they are rooting for America as well. Indeed, the Brazilians, the Indians, and the majority of others I have met outside the U.S. are also rallying for us. They understand that the world is interdependent and that the U.S. economy is still too large for anyone to profit from a rapid decline in its well-being. Americans may not realize this, but it’s true: The world wants us to be competitive. Recently, though, I’ve begun to get the sense that our friends abroad cheer for America with foreboding and pessimism, the way sports fans nervously pull for a team whose lead is slimming and whose energy is fading. These outsiders recognize that the system of democratic capitalism that produced centuries of American prosperity is troubled. Management educators talk frequently about best practices and use case studies to illustrate by example. For more than a century global observers have considered the U.S. economy to be an exemplar and America a country to envy and imitate. Unfortunately, that’s no longer the case. Increasingly, outsiders view our political system as riven by politicians preoccupied with their own reelection, resulting in a tragic stalemate. Long before Occupy Wall Street pitched its tents, many foreigners found America’s growing economic inequality worrisome. They see that U.S. corporations are skittish about making investments in a time of uncertainty about government policy, taxes, and regulations. They hear too many American CEOs talk about choosing to postpone decisions until after the next election, when things will be clearer—a profoundly disturbing attitude. U.S. prosperity and social mobility have attracted millions of immigrants, including me. But America’s reign as the global ideal seems to be waning. In the following pages, my colleagues at Harvard Business School and other institutions offer a detailed assessment of U.S. competitiveness. Some of the issues they highlight are familiar: the struggle of U.S. schools to produce employable workers, the hurdles faced by companies that hope to manufacture goods here, the federal government’s maddening inability to achieve fiscal discipline. What comes through most vividly in these articles is the multidimensional quality of our competitiveness problem. Despite what political rhetoric may suggest, there are no simple fixes. Discrete reforms in tax policy, regulation, corporate governance, K–12 education, and R&D policy would undoubtedly help, but real progress will come only from a systemic, well-choreographed approach to creating positive change. This insight was clear at a symposium of leaders from business, labor, government, the media, and academia that convened at Harvard Business School in late November. The sense of this remarkable gathering was that it is high time our government started addressing the long-term issues America faces. It was also clear, however, that business can take collective action without waiting for government. It can invest to create more-competitive local suppliers, schools and community colleges capable of training a more competitive workforce, and high-value-added jobs—steps that would restore optimism and confidence in the U.S. economy. In times of anxiety, it’s natural to begin pointing the finger of blame at others. That’s what is happening right now: Business blames government for getting in its way; government blames business for acting irresponsibly. Much of the public blames the rich and elite for exploiting everyone else. Parties on each side work hard to amplify these accusations, but their efforts do nothing to help solve the problem. They simply divide people, obscuring the fact that we’re all in this together. I recognize that special issues of business magazines rarely spur a nation’s citizens to join hands and work toward common goals. However, I do have three hopes. The first is that anyone who engages with this issue of HBR will conclude that we’re in a very serious situation, one that predates and goes well beyond the recent economic downturn. It won’t go away when an economic recovery occurs; in fact, absent systemic effort, it may get worse. The second is that the multidisciplinary approach of the experts we’ve brought together—who analyze the full gamut of issues, from education and entrepreneurship to financial innovation and sustainability—will deepen awareness of how interwoven our problems are. The third is that the solutions proposed here seem sufficiently attainable to inspire readers. Our problems are huge but not insurmountable. We can move forward, even at a time when it’s difficult to craft political compromise and even in a climate where businesses are feeling public hostility. As a society, we need to begin taking real action now. The prosperity not just of America but of the world depends on it. Special Report: U.S. Competitiveness Workforce American competitiveness depends to an extraordinary degree on the talent and training of the country’s workforce. Thomas Kochan looks at why U.S.-based companies are no longer committed to developing a core of technically sophisticated employees. Matthew Slaughter and Laura D’Andrea Tyson argue that multinationals, which have historically created a disproportionate number of good jobs in the U.S., may be shifting those jobs elsewhere. Stacey Childress suggests a surprising fix for K–12 education. Strategy New research from Michael Porter and Jan Rivkin examines how companies make location decisions—and why the U.S. so often loses out. Gary Pisano and Willy Shih write about what kinds of manufacturing should never be outsourced to a low-cost country. Robin Greenwood and David Scharfstein discuss what the U.S. financial sector gets right (a lot) and what it gets wrong (even more). Policy Corporate leaders can do much to create a good business climate, but the government needs to step up as well. Richard Vietor and Matthew Weinzierl propose reforms to fiscal practices. Josh Lerner and William Sahlman discuss how the government can support a bright spot in American business: entrepreneurship. Daniel Esty and Steve Charnovitz make the case that smart energy policies are critical to corporate and national competitiveness. Context Mihir Desai argues that the huge run-up in executive pay is a new bubble, one with terrible ripple effects. David Moss explores why Washington, DC, seems to be broken. And Rosabeth Moss Kanter writes about the need for stronger links among innovators, businesses, and universities.

Why U.S. Competitiveness Matters to All of Us

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