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08 Sep 2014

Harvard Business School Survey Highlights A Troubling Divergence in the U.S. Economy

Message for Business Leaders and Policy Makers: A Coordinated Strategy Is Needed to Lift Living Standards for the Average American
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BOSTON—A new survey of Harvard Business School (HBS) alumni focuses on “An Economy Doing Half Its Job”: large and midsize firms in America have rallied strongly from the Great Recession, but middle- and working-class citizens are struggling, as are small businesses.

“The United States is competitive to the extent that firms operating here do two things: win in global markets and lift the living standards of the average American. The U.S. economy is doing the first of these but failing at the second,” said Harvard’s Michael E. Porter, Bishop William Lawrence University Professor, based at Harvard Business School, and co-chair of HBS’s U.S. Competitiveness Project. “This is a critical moment for our nation. Business leaders and policy makers need a strategy to get our country on a path towards broadly shared prosperity.”

Added Jan W. Rivkin, Bruce V. Rauner Professor of Business Administration and co-chair of the Project, “The findings of the 2013-14 survey shed light on why the fates of firms and citizens are diverging. American workers are captives of what the survey shows to be the weakest aspects of the U.S. business environment—for instance, our polarized politics and our struggling systems for educating young people and developing their workplace skills. Firms, in contrast, are beneficiaries of our nation’s greatest strengths—like our research universities and vibrant capital markets. Firms can escape the weaknesses in the U.S. business environment by moving abroad, but workers can’t.”

This new survey, designed by HBS faculty and conducted by Abt SRBI, is the latest in a series of annual surveys conducted by Harvard Business School’s U.S. Competitiveness Project. Every year, HBS asks its alumni worldwide to share their perceptions about the current state and future trajectory of both U.S competitiveness and the U.S. business environment. Questions focus on the structural strengths and weaknesses of the economy as well as deep dives into specific drivers of competitiveness. In addition to the annual diagnosis of the U.S. economy, the 2013-14 survey captures input from HBS alumni on three key areas of competitiveness: K-12 education, workforce skills, and transportation infrastructure.

Pessimistic Outlook on U.S. Competitiveness Remains; Smaller Businesses Disadvantaged

In gauging the trajectory of U.S. competitiveness, survey respondents were pessimistic on balance. A plurality, 47%, foresaw a decline in U.S. competitiveness in the next three years, while only 33% predicted an improvement. The rest foresaw no change.

  • Like many other economic indicators in recent months, the survey findings suggest that the prospects of companies and workers are moving in opposite directions. Respondents who thought U.S. firms would be better able to compete in the global economy in three years outnumbered those who expected firms to be less able to compete. But those who predicted lower wages and benefits outnumbered those who foresaw better earnings for workers.

− “Shortsighted executives may be satisfied with an American economy where firms operating here are winning without lifting U.S. living standards,” said Professor Porter. “But leaders with longer perspectives understand that companies can’t thrive for long while their workers and their communities struggle.”

  • While pessimistic overall, respondents were less negative than in past surveys. The proportion of respondents expecting U.S. competitiveness to deteriorate in three years fell from 71% in the 2011 survey to 47% in 2013-14. Assessments of every element of the U.S. business environment improved between the 2011 and 2013-14 surveys. The improvements seem to reflect the cyclical rebound of the U.S. economy.

− “Ironically, the recovery makes this a risky moment,” commented Professor Rivkin. “It’s tempting now to sigh in relief after the Great Recession and carry on with business as usual. But this is precisely when we need to redouble our efforts to repair the structural weaknesses in our economy.”

  • Compared to the typical respondent, alumni working in smaller businesses had more negative (or less positive) views of virtually every aspect of the U.S. business environment. This finding echoes growing evidence from other sources that smaller businesses are disadvantaged in America.

Paths Forward in Areas that Can Lift Businesses and the Average American

This year’s findings and subsequent research emphasize three areas that are critical for America’s future competitiveness: (1) the K-12 education system, (2) the skills of the American workforce, and (3) transportation infrastructure. “These are areas where improvements could boost U.S. competitiveness and especially lift American living standards,” explained Professor Rivkin. “Better schools, upgraded skills, and stronger infrastructure would make American workers more productive in the long run and better able to sustain high wages.”

K-12 Education System

From the survey:

  • Business engagement in America’s schools is broad—but not deep. Of the alumni working at firms with U.S. operations, 63% reported that their firm participates in at least one company activity to support schools. But only 7% of alumni respondents described their firms as “deeply involved” in public education.

What can be done:

  • Business must go beyond “checkbook philanthropy” to partner better with educators. They need to support policies that enable innovation in the education system, help educators scale programs that boost student outcomes, and partner with others to craft community-level strategies that guide young people from cradle to career.

    Workplace Skills

    From the survey:

    • Business leaders in America are reluctant to hire full-time workers. Instead, many prefer investing in technology to perform work, outsourcing to third parties, or hiring part-time workers. Only 27% of respondents reported that their firms engage with institutions like community colleges to prepare students with workforce skills.

    What can be done:

    • Employers need to track and share more openly the skills they require, collaborate more effectively with education institutions to develop curricula that impart those skills, and spread best practices within and across regions and industries to create a more efficient marketplace for skills and workers.

    Transportation Infrastructure

    From the survey:

    • Forty-two percent of respondents reported that the condition of infrastructure like airports, ports, and roads had declined over the past three years. For every respondent who thought infrastructure had improved, nearly five felt it had worsened.
    • Just over half of the respondents (51%) said U.S. logistics infrastructure is falling behind that of other advanced economies.

      What can be done:

      • Business and government leaders need to work together to develop a national infrastructure strategy. This would include addressing the population shift from suburbia to cities, strengthening trade corridors such as with Canada and Mexico, and investing in high-speed communication networks.

      Commitment to a Strategy Is Needed to Improve U.S. Competitiveness

      “It’s time to shift away from opportunistic, piecemeal efforts on U.S. competitiveness,” said Professor Porter. “Getting the American economy to do its full job will require concerted, coordinated, and sustained action—in other words, a strategy. Policy makers and business leaders alike must be involved. If business continues to do well without similar success for the average American, the U.S. will lose its position as a competitive location. U.S. competitiveness has eroded largely because of choices made, and not made, by Americans. Not because of immutable forces in the global economy. Now we must come together as a society to restore U.S. competitiveness.”

      For more information about Harvard Business School’s U.S. Competitiveness Project and this year’s survey, please visit: www.hbs.edu/competitiveness & http://www.hbs.edu/competitiveness/survey/.

      About Abt SRBI
      Abt SRBI, a leading public policy and market research organization, is a subsidiary of Abt Associates, a mission-driven, global leader in research and program implementation in the fields of health, social and environmental policy, and international development. Abt SRBI is headquartered in New York City, with offices in the Washington, DC area, Chicago, IL, Cambridge, MA, Fort Myers, FL, Durham, NC, and other cities.
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