the looming challenge to us competitiveness - Institute for Strategy ...

THE LOOMING CHALLENGE TO
U.S. COMPETITIVENESS
Michael E. Porter
Harvard Business School
G100 Spring Meeting
New York, NY
June 1, 2012

WHAT IS COMPETITIVENESS?
The United States is a competitive location to the extent that firms operating in
the U.S. are able to compete successfully in the global economy while supporting
high and rising wages and living standards for the average American
• Competitiveness depends on improving long-run productivity per working
age citizen
– Not low wages or a cheap dollar
– Not job creation for its own sake
• Competitiveness is not a zero-sum game among countries
U.S. COMPETITIVENESS PROJECT 2

3%
DISTURBING TRENDS
ROLLING 10-YEAR COMPOUND ANNUAL GROWTH RATE IN TOTAL NUMBER OF
U.S. PRIVATE NONFARM EMPLOYEES, 1975-2011
1975-2001
AVERAGE: 2.11%
2%
1%
0%
-1%
1975 1980 1985 1990 1995 2000 2005 2010
Source: Bureau of Labor Statistics, author’s calculations.
U.S. COMPETITIVENESS PROJECT 3

DISTURBING TRENDS
U.S. LABOR FORCE PARTICIPATION RATE, 1948-2011
78%
Labor force participation
74%
70%
66%
LABOR FORCE
PARTICIPATION
RATE
POPULATION AGED
16-64 INVOLVED IN
THE WORKFORCE
62%
1948 1957 1966 1975 1984 1993 2002 2011
Source: Bureau of Labor Statistics.
U.S. COMPETITIVENESS PROJECT 4

WHAT ARE THE CAUSES?
U.S. trajectory
40%
20%
0%
-20%
-40%
-60%
-80%
Weakness but Improving
TAX CODE
POLITICAL
SYSTEM
MACRO
POLICY
LEGAL
FRAMEWORK
REGULATION
K-12 EDUCATION
SYSTEM
Weakness and Deteriorating
LOGISTICS
INFRASTRUCTURE
Strength and Improving
COMMUNICATIONS
INFRASTRUCTURE
UNIVERSITIES
ENTREPRENEURSHIP
FIRM MANAGEMENT
INNOVATION
PROPERTY RIGHTS
CLUSTERS
CAPITAL MARKETS
SKILLED LABOR
FLEXIBILITY IN
HIRING AND
FIRING
Strength but Deteriorating
-100%
-60% -40% -20% 0% 20% 40% 60% 80% 100%
Current U.S. position
U.S. COMPETITIVENESS PROJECT 5

POLICY NO-BRAINERS FOR U.S. COMPETITIVENESS
1. Ease the immigration of highly skilled individuals, starting with international
graduates of U.S. universities
2. Simplify the corporate tax code with lower statutory rates and no loopholes
3. Create an international taxation system for multinational companies that is
consistent with practices in other leading countries, eliminates the need for tax
havens, and encourages repatriation of profits
4. Aggressively address distortions in the international trading system in other
countries that disadvantage the United States, using established international
institutions
5. Find simpler and faster ways to regulate business and the financial markets,
focusing on outcomes instead of costly reporting and compliance for every business
6. Enact policies that accelerate the responsible development and conversion to
natural gas, as an interim, cleaner and low-cost domestic energy source
7. Create a sustainable federal budget through a combination of revenue increases
weighted towards reducing deductions, efficiencies in entitlement programs, and
updating of spending priorities, embodying a compromise such as Simpson-Bowles
U.S. COMPETITIVENESS PROJECT 6

THE ROLE OF BUSINESS IN COMPETITIVENESS
ACTION AGENDA
Improving skills
• Create or expand an apprentice program to train workers to be employable by
company and others
• Create or expand a training program to upgrade the skills and productivity of current
or prospective employees
• Partner with a community college, technical school, or university to align its
curriculum with the needs of business, and commit to hire a number of its graduates
Upgrading supporting industries
• Identify and increase sourcing from capable local suppliers
• Mentor local suppliers to upgrade their capabilities and make them more attractive
partners
• Join consortia that help small companies access procurement contracts
Supporting innovation and entrepreneurship
• Participate in research collaboratives in company’s field that build technologies and
businesses of the future
• Invest in or incubate promising startups related to company’s business
U.S. COMPETITIVENESS PROJECT 7

Locating in the U.S.
THE ROLE OF BUSINESS IN COMPETITIVENESS
ACTION AGENDA
• Move back to the U.S. business activities that can be productive here
Bolstering cluster and regional development
• Participate in a cluster competitiveness initiative in your field
• Participate in a regional competitiveness initiative in your region
Shifting the business-government relationship
• Advocate business-wide improvements rather than lobby for special interests
U.S. COMPETITIVENESS PROJECT 8