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Posted at 07:00 AM ET, 01/18/2012

Harvard survey delivers more bad news for future of U.S. competitiveness


Tourists gather in front of the Harry Elkins Widener library on the campus of Harvard University in Cambridge, Mass., on June 21, 2011. (Kelvin Ma - BLOOMBERG)
“What ails the American economy?”

This is the leading question of a new Harvard Business School (HBS) survey released Wednesday. The answer, according to the survey’s nearly 10,000 HBS alumni respondents, is this: Just about everything.

Of course, the question of whether the nation is losing its competitive edge is being debated inside and outside of Harvard’s gates. And it is taking on increasing urgency as the latest Washington Post-ABC News poll shows that the economy is “the single most important issue” for a sizable majority of voters in the 2012 presidential race. But the HBS study provides one of the most detailed views of how business leaders who graduated from one of the nations’ most selective business schools see the nation’s future ability to compete with the rest of the world.

We spoke with HBS Professor Michael Porter in November, who, along with colleague Professor Jan Rivkin, is leading the multi-year U.S. Competitiveness Project. Three months ago, Porter was positive about the nation’s future competitiveness saying, “I have incredible optimism — it’s not optimism — it’s certainty that if we could just deal with some of these basic things, ... America will have another revitalization.”

But respondents had an everything-but-the-kitchen-sink list when it came to their perception of the nation’s “current or emerging weaknesses.” That list includes the U.S. tax code, political system, K-12 education, macroeconomic policies, legal framework, regulations, infrastructure and workforce skills.

So, it’s no surprise that 71 percent of respondents to the school’s first survey on U.S. competitiveness expect the nation to decline in its ability to compete over the next three years. On the other hand, asked about the current business environment, participants were slightly more optimistic with 57 percent seeing it as “somewhat or much better than average.” A majority of respondents also see the country as being outpaced by emerging economies, with 66 percent seeing the U.S. as falling behind these countries and only 8 percent seeing the country as pulling ahead.

The findings are not entirely unexpected, considering that many of the respondents are leaders within the business community. All of the respondents are described as “central actors in the global economy.” But those between ages 40 and 60 — the ones most likely to hold senior positions — were among the most pessimistic about the nation’s future competitiveness. Meanwhile, of the total respondents, those in the U.S. were more pessimistic than their peers working abroad. The study’s authors did not weigh one group’s perspective as better or more useful than the other and refrained from making a conclusion as to why respondents at home were more pessimistic than their overseas peers.

U.S. manufacturers, meanwhile, were among the most pessimistic by sector — more so than respondents in business, public administration and finance. The authors found these results “troubling,” since “it will be hard for America to tackle its competitiveness problem if leaders in the country lack a shared perspective on the issue and a common sense of urgency.” In other words, making policy that satisfies the competitiveness needs of Ford and General Motors while satisfying those of Google and Apple isn’t easy when the two industries have differing priorities and senses of urgency.

But one finding should make policy makers and politicians nervous: 1,700 of the study’s respondents were involved with deciding whether to keep business activity in the U.S. or abroad, and two-thirds of their decisions resulted in business activity being sent overseas. A U.S.-based respondent was three times as likely to be considering moving a business activity out of the country than a non-U.S. respondent was to be considering moving a business activity into the U.S. And, worse yet for the U.S., 42 percent of those decisions involved R&D and “engineering activities.”

“For the first time in decades, the business environment in the United States is in danger of falling behind the rest of the world,” the authors write, “With this, pressures on jobs, wages and living standards will only grow.”

And America’s workers, according to a majority of the survey’s respondents, will feel that pressure more greatly than companies. This is key, since respondents said that barriers to talent were more often a reason to leave the U.S. These barriers included cost, immigration policy, K-12 education, STEM skills and labor unions. This multi-faceted talent barrier ranked high along with regulations and taxes (rate and complexity) in enticing firms to go abroad.

Respondents found these impediments to be growing weaknesses within the U.S. business environment, while the nation’s skilled labor force and logistics and communications infrastructure were perceived to be strengths in decline. Respondents were undecided as to whether “hiring and firing” was a deteriorating or improving strength, and they did not find any of the nation’s weaknesses to be improving.

But the news wasn’t entirely bad, with respondents finding that innovation, entrepreneurship, the nation’s universities, clusters, property rights and capital markets being strong and improving elements of the U.S. business environment.

The authors concluded that there was “no single silver bullet that will fix” the nation’s competitiveness problem and called for a “multidimensional, holistic, and sustained” strategy.

As for who is responsible for executing this strategy, authors point the finger not only at politicians and policymakers, writing “it would be wrong to place either the U.S. competitiveness problem or its solution at the feet of the government,” but at business.

“Part of the business agenda for U.S. competitiveness,” they write, “is to stop taking actions that benefit one’s own firm but, collectively, weaken America’s business environment.”

This is, undoubtedly, a harsh critique and a call to arms for not only the HBS alumni, but for business at large. The question is: Will any of them heed it?

Read more news and ideas on Innovations:

HBS tackles U.S. competitiveness

Scholar: America not handling ‘dizzying changes’ well

Wadhwa | It’s China’s turn to worry

By  |  07:00 AM ET, 01/18/2012

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