Making the United States Competitive
Firms are profitable, but the nation’s living standards aren't rising.
The United States is struggling: wages are stagnant, millions are jobless, government debt is large and growing, Congress is polarized, and businesses can’t find skilled employees. For the first time in a quarter-century, says Michael Porter, Lawrence University Professor at Harvard Business School (HBS), U.S. firms are able to compete internationally, but they’re not producing a rising standard of living for American workers. An economy isn’t competitive if it doesn’t do both, and Porter and his colleagues at HBS’s Competitiveness Project are worried. “U.S. companies are okay, but the U.S. location is not,” Porter told an audience in the Spangler Auditorium Wednesday evening. “I spend a huge number of my waking hours thinking about this issue.”
What has happened to the great American job machine? It’s tempting to blame the recession, but Porter and Rauner professor of business administration Jan Rivkin argued that both job and wage growth began to slow in 2000, well before the financial crisis of 2008. That points to structural, not cyclical, problems in the American economy, and the purpose of the Competitiveness Project is to address those problems.
Of special concern, Porter and Rivkin said, are the segments of the economy “exposed” to international competition: many of these companies—Apple is the perfect example—are profitable, but their successes have done little for U.S. workers. The country’s richest are doing better and better, but real wages for the middle class have remained basically unchanged since 1980. And labor-force participation, which measures the percentage of Americans currently working, is as low as it has been at any time since the late 1970s: just 63 percent of those who are able to work actually are working. If rising living standards are key to competitiveness, the United States is being beaten, badly, in international markets.
How did this happen? One answer, and the subject of a panel discussion led by Arbuckle professor of business administration Rosabeth Moss Kanter, is a failure of the American higher-education system. Millions of U.S. manufacturing jobs have moved overseas since 1990, but offshoring doesn’t entirely explain the unemployment crisis. In fact, Kanter noted, between 3 million and 4 million domestic jobs are unfilled right now simply because employers can’t find workers with middle-level technical skills—machinists, skilled construction workers, even fund accountants for firms like State Street in Boston. Those skills are no longer taught in community and technical colleges, and many of those same colleges are graduating students at remarkably low rates. Panelist Mary Fifield, president of Bunker Hill Community College (BHCC), agreed that, particularly in New England, many two-year schools formerly emphasized preparing students to transfer to four-year colleges, rather than providing them with job skills—a “transfer function” she said was bad for employers and students alike. But that has “changed now…really quite rapidly.” BHCC, for example, is partnering with a consortium of local businesses to create the “Learn and Earn” program for its students, which she hoped would eventually involve other community colleges in the state.
Another problem, outlined by Baker Foundation professor Robert S. Kaplan and former U.S. Comptroller General David Walker, is the expanding federal debt. Mandated spending on interest and entitlement programs now accounts for more than 60 percent of expenditures, up from 3 percent a century ago. Kaplan and Walker argued that this spending—particularly on entitlements that benefit middle-class, not poor, Americans—is crowding out public investments in areas of the economy critical for competitiveness: health and technology research, transportation infrastructure, and K-12 education.
The earlier shift in focus for community colleges is one example of what Rivkin called the deterioration of the “commons” in the United States. “Commons”—infrastructure, clear tax and regulatory codes, access to skilled labor—are collectively created and essential for thriving business, but the United States, Rivkin said, is neither creating nor preserving its most important commons.
The question, of course, is “What’s to be done?”According to the Competitiveness Project, the answer is lots: tax and immigration reform in Washington; educational pilot programs (like Fifield’s at Bunker Hill) that focus on remedial skills training and that pair community-college students with local internships; more precise accounting within the federal government. Kanter, for her part, said she wanted to see businesses and universities collaborate more on projects like the Massachusetts Green High Performance Computing Center in Holyoke, a $95-million facility funded by five Boston-area colleges, including Harvard and MIT, that provides computing capacity greater than any single school could create. Kaplan and Walker argued that the battle consuming economists of the left and right in Washington—about whether to boost the economy with a stimulus, or to cut government spending to restore fiscal balance—is the wrong battle. Do both, they said, because both are necessary.
The Competitiveness Project is unique for the Business School: it’s less about scholarship than about putting existing research to work. Porter is planning what he calls a “march on Washington,” and he urged the conference’s audience, a group of mostly local business leaders, to join him. “Too often,” he said, “we go to Washington to argue for our own tax deal, our regulatory loopholes. Let’s march in a different way.”