U.S. COMPETITIVENESS AND
IMPLICATIONS FOR OUR ECONOMIC
FUTURE
Professor Michael E. Porter
Harvard Business School
2014 Inner City 100 Symposium: Icons of Industry Growth
October 16, 2014
QUESTIONS FOR TODAY
• Does America really have a competitiveness problem?
• How did America get here?
• What should leaders do to restore U.S. competitiveness?
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
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 the long-run productivity of the U.S. as a place to
do business
– The productivity of existing firms and workers
– The ability to achieve high participation of citizens in the workforce
Competitiveness is not:
– Low wages
– A weak currency
– Jobs per se
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
ROLLING 10-YEAR COMPOUND ANNUAL GROWTH RATE
IN TOTAL NUMBER OF U.S. PRIVATE NONFARM EMPLOYEES
3%
1975-2001
AVERAGE: 2.12%
2%
1%
0%
-1%
1975
1980
1985
1990
1995
2000
2005
2013
2010
Source: Bureau of Labor Statistics, Current Population Survey; author’s calculations.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
PRIVATE, NONFARM EMPLOYMENT BY TYPE OF INDUSTRY
140
Employment (in millions of jobs)
120
100
INDUSTRIES SERVING
LOCAL MARKETS
(CAGR= 0.89%)
80
60
40
INDUSTRIES EXPOSED TO
INTERNATIONAL COMPETITION
(CAGR= 0.02%)
20
0
1998
2000
2002
2004
2006
2008
2010
2012
Source: Prof. Michael E. Porter, Harvard Business School; U.S. Cluster Mapping 2014 Benchmark Definitions (Delgado-Porter-Stern 2013), Richard Bryden, Project Director.
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
REAL HOUSEHOLD INCOME BY QUANTILE IN THE INCOME DISTRIBUTION
Household income in thousands of 2012 U.S. dollars
200
180
160
95th PERCENTILE (CAGR = 1.2%)
140
120
100
80th PERCENTILE (CAGR = 0.9%)
80
60
60th PERCENTILE (CAGR = 0.6%)
40
40th PERCENTILE (CAGR = 0.3%)
20
0
1967
20th PERCENTILE (CAGR = 0.3%)
1972
1977
1982
1987
1992
1997
2002
2007
2012
2013
Note: Household income includes wages, self-employment, retirement, interest, dividends, other investment, unemployment, disability, alimony or child support, and other
periodic income.
Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements.
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
U.S. LABOR FORCE PARTICIPATION RATE
78%
1997
74%
1981
70%
POPULATION AGED
16-64 INVOLVED IN
THE WORKFORCE
66%
62%
1948
1957
1965
1973
1982
1990
1998
2007
Q2 2014
Note: Rolling 12-month average in civilian labor force (not seasonally adjusted) over civilian noninstitutional population age 16-64.
Source: Bureau of Labor Statistics, author’s calculations.
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
U.S. LABOR FORCE PARTICIPATION RATE FOR PRIME WORKING AGE MEN
98%
95%
PERCENTAGE OF PRIME
WORKING AGE MEN
(25-54 YEARS OLD)
INVOLVED IN THE
WORKFORCE
91%
87%
1948
1957
1965
1973
1982
1990
1998
2007
Q3 2014
Note: Rolling 12-month average in male civilian labor force age 25-54 (not seasonally adjusted) over civilian noninstitutional population age 25-54.
Source: Bureau of Labor Statistics, author’s calculations.
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
REAL HOURLY WAGE GROWTH BY EDUCATIONAL ATTAINMENT,
1979-2000 VS. 2000-2012
Compound annual growth rate
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
Less than high
school
High school
Some college
College degree
Source: Economic Policy Institute, “A Decade of Flat Wages,” August 2013. Based on Current Population Survey.
Advanced
degree
1979-2000
2000-2012
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
Total number of employees, indexed
(1978 = 100)
INDEX OF TOTAL NUMBER OF EMPLOYEES IN FIRMS OF VARIOUS SIZES
200
Number of
employees in
each firm
180
1,000–9,999
100–999
10,000 or more
160
10–99
140
1–9
120
100
80
1978
1982
1986
1990
1994
1998
2002
2006
2010
Source: U.S. Census Bureau Business Dynamics Statistics.
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
U.S. FIRMS CREATED AND DISSOLVED
650
GREAT
RECESSION
Number of firms
(000s)
550
FIRMS CREATED
450
FIRMS DISSOLVED
350
250
1978
1983
1988
1993
1998
2003
2008
2011
Notes: Shaded area indicates the recession of December 2007 to June 2009 as defined by the National Bureau of Economic Research.
Chart adapted from Ian Hathaway and Robert E. Litan, “Declining Business Dynamism in the United States: A Look at States and Metros,” Economic Studies at
Brookings, May 2014.
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
ANNUAL U.S. GDP GROWTH RATE, 5-YEAR ROLLING AVERAGE (1961-2013)
Annual growth rate (%, 5 year rolling average)
7%
6%
5%
4%
3%
2%
1%
0%
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: The World Bank.
U.S. COMPETITIVENESS PROJECT
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DOES AMERICA REALLY HAVE A COMPETITIVENESS PROBLEM?
IS THE DIVERGENCE SUSTAINABLE?
• Shortages of productive workers
• Weak consumer demand
• Disgruntled voters
• Less support for pro-business policies
• Skirmishes around minimum wage laws, tax inversions
U.S. COMPETITIVENESS PROJECT
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QUESTIONS FOR TODAY
• Does America really have a competitiveness problem?
• How did America get here?
• What should leaders do to restore U.S. competitiveness?
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
U.S. trajectory compared to other advanced economies
ASSESSMENTS OF ELEMENTS OF THE U.S. BUSINESS ENVIRONMENT
60%
Weakness but Improving
Strength and Improving
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
-60%
Weakness and Deteriorating
-40%
-20%
Strength but Deteriorating
0%
20%
40%
60%
80%
100%
Current U.S. position compared to other advanced economies
Source: Harvard Business School 2013–14 Survey on U.S. Competitiveness.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
U.S. trajectory compared to other advanced economies
ASSESSMENTS OF ELEMENTS OF THE U.S. BUSINESS ENVIRONMENT
60%
Weakness but Improving
Strength and Improving
40%
ENTREPRENEURSHIP
UNIVERSITIES
FIRM MANAGEMENT
CLUSTERS
PROPERTY RIGHTS
COMMUNICATIONS
INFRASTRUCTURE
20%
0%
CAPITAL
MARKETS
INNOVATION
HIRING AND
FIRING
-20%
-40%
-60%
-80%
-100%
-60%
Weakness and Deteriorating
-40%
-20%
Strength but Deteriorating
0%
20%
40%
60%
80%
100%
Current U.S. position compared to other advanced economies
Source: Harvard Business School 2013–14 Survey on U.S. Competitiveness.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
U.S. trajectory compared to other advanced economies
ASSESSMENTS OF ELEMENTS OF THE U.S. BUSINESS ENVIRONMENT
60%
Weakness but Improving
Strength and Improving
ENTREPRENEURSHIP
UNIVERSITIES
40%
FIRM MANAGEMENT
CLUSTERS
PROPERTY RIGHTS
COMMUNICATIONS
INFRASTRUCTURE
20%
0%
CAPITAL
MARKETS
INNOVATION
HIRING AND
FIRING
LEGAL
FRAMEWORK
-20%
SKILLED
LABOR
MACRO
POLICY
-40%
REGULATION
LOGISTICS
INFRASTRUCTURE
-60%
-80%
-100%
-60%
Weakness and Deteriorating
-40%
-20%
Strength but Deteriorating
0%
20%
40%
60%
80%
100%
Current U.S. position compared to other advanced economies
Source: Harvard Business School 2013–14 Survey on U.S. Competitiveness.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
U.S. trajectory compared to other advanced economies
ASSESSMENTS OF ELEMENTS OF THE U.S. BUSINESS ENVIRONMENT
60%
Weakness but Improving
Strength and Improving
ENTREPRENEURSHIP
UNIVERSITIES
40%
FIRM MANAGEMENT
CLUSTERS
PROPERTY RIGHTS
COMMUNICATIONS
INFRASTRUCTURE
20%
0%
LEGAL
FRAMEWORK
-20%
SKILLED
LABOR
MACRO
POLICY
-40%
REGULATION
HEALTH CARE
-60%
CAPITAL
MARKETS
INNOVATION
HIRING AND
FIRING
LOGISTICS
INFRASTRUCTURE
TAX CODE
-80%
-100%
-60%
K-12 EDUCATION
SYSTEM
POLITICAL
SYSTEM
Weakness and Deteriorating
-40%
-20%
Strength but Deteriorating
0%
20%
40%
60%
80%
100%
Current U.S. position compared to other advanced economies
Source: Harvard Business School 2013–14 Survey on U.S. Competitiveness.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
ADULT LITERACY COMPETENCY BY AGE COHORT
Percent of adults in top two
proficiency categories
70
60
50
U.S.
40
30
20
10
0
55-65
45-54
35-44
25-34
Source: Goodman, M., Finnegan, R., Mohadjer, L., Krenzke, T., and Hogan, J. (2013). Literacy, Numeracy, and Problem Solving in Technology-Rich Environments Among U.S.
Adults: Results from the Program for the International Assessment of Adult Competencies 2012: First Look (NCES 2014-008). U.S. Department of Education. Washington, DC:
National Center for Education Statistics.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
ADULT LITERACY COMPETENCY BY AGE COHORT
Int’l
average
Percent of adults in top two
proficiency categories
70
60
50
U.S.
40
30
20
10
0
55-65
45-54
35-44
25-34
Source: Goodman, M., Finnegan, R., Mohadjer, L., Krenzke, T., and Hogan, J. (2013). Literacy, Numeracy, and Problem Solving in Technology-Rich Environments Among U.S.
Adults: Results from the Program for the International Assessment of Adult Competencies 2012: First Look (NCES 2014-008). U.S. Department of Education. Washington, DC:
National Center for Education Statistics.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
ADULT LITERACY COMPETENCY BY AGE COHORT
Int’l
average
10
60
50
U.S. advantage (%)
Percent of adults in top two
proficiency categories
70
U.S.
40
30
20
5
0
-5
10
0
-10
55-65
45-54
35-44
25-34
55-65
45-54
35-44
25-34
Source: Goodman, M., Finnegan, R., Mohadjer, L., Krenzke, T., and Hogan, J. (2013). Literacy, Numeracy, and Problem Solving in Technology-Rich Environments Among U.S.
Adults: Results from the Program for the International Assessment of Adult Competencies 2012: First Look (NCES 2014-008). U.S. Department of Education. Washington, DC:
National Center for Education Statistics.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
ADULT COMPETENCIES BY AGE COHORT
U.S. advantage
Literacy
Problem-solving
Numeracy
10
55-65
55-65
5
45-54
0
U.S. disadvantage
45-54
-5
35-44
35-44
25-34
-10
55-65
45-54
16-24
25-34
16-24
35-44
-15
25-34
16-24
-20
Definition of Y axis (performance) = % of U.S. adults in top two proficiency categories - % of all int’l. adults in top two proficiency categories.
Source: Goodman, M., Finnegan, R., Mohadjer, L., Krenzke, T., and Hogan, J. (2013). Literacy, Numeracy, and Problem Solving in Technology-Rich Environments Among U.S.
Adults: Results from the Program for the International Assessment of Adult Competencies 2012: First Look (NCES 2014-008). U.S. Department of Education. Washington, DC:
National Center for Education Statistics.
U.S. COMPETITIVENESS PROJECT
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HOW DID AMERICA GET HERE?
RELATIVE ASSESSMENTS OF ELEMENTS OF THE U.S. BUSINESS
BY RESPONDENT’S FIRM SIZE
Number of employees
1-9
---------+
K-12 education
Communications infrastructure
Macroeconomic policy
Regulation
Health care
Innovation
Logistics infrastructure
Tax code
Universities
Political system
Entrepreneurship
Capital markets
Clusters
Hiring and firing
Legal framework
Property rights
Skilled labor
Firm management
10-99
+
+
+
+
++
+
+
+
++
++
++
+++
+
100-999
+++
++
++
+++
+
++
++
++
++
+++
+
+
++
-++
++
++
-
1,0009,999
+++
+
+++
++
++
+
+++
+++
++
+++
+
+
+
++
++
++
++
-
10,000
or more
-+++
+
--+
-+
+
+
++
++
+
+
Compared to the average respondent in 2013-14, respondents in this firm-size class placed this element:
---
--
-
5 to 10
0 to 5
10 or more
points to
points to
to the left
the left
the left
Source: Harvard Business School 2013–14 Survey on U.S. Competitiveness.
+
++
+++
0 to 5
points to
the right
5 to 10
points to
the right
10 or more
points to
the right
U.S. COMPETITIVENESS PROJECT
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QUESTIONS FOR TODAY
• Does America really have a competitiveness problem?
• How did America get here?
• What should leaders do to restore U.S. competitiveness?
U.S. COMPETITIVENESS PROJECT
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WHAT SHOULD LEADERS DO TO RESTORE U.S. COMPETITIVENESS?
IMMEDIATE FEDERAL POLICY PRIORITIES
1. Simplify the corporate tax code with lower statutory rates and no loopholes
2. Tax overseas profits earned by American multinational companies only where they are earned
3. Ease the immigration of highly skilled individuals
4. Aggressively address distortions and abuses in the international trading system
5. Improve logistics, communications and energy infrastructure
6. Simplify and streamline regulation
7. Create a sustainable federal budget, including revenue increases and cost control
8. Responsibly develop America’s shale-gas and oil reserves
Source: Porter, Michael, and Jan Rivkin. "An eight-point plan to restore American competitiveness." The Economist: The World in
2013. (Nov 2012).
U.S. COMPETITIVENESS PROJECT
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WHAT SHOULD LEADERS DO TO RESTORE U.S. COMPETITIVENESS?
APPROVAL RATES FOR PROPOSED FEDERAL POLICIES
U.S. business leaders
General public
All
Liberal
Conservative
All
Liberal
Conservative
Corporate tax reform
91%
91%
92%
72%
75%
73%
Sustainable federal budget
90%
92%
85%
60%
62%
63%
High‐skill immigration
89%
90%
88%
42%
55%
38%
Streamlined regulations
86%
71%
95%
52%
43%
62%
Infrastructure investments
85%
92%
75%
68%
74%
70%
International trading system
80%
81%
79%
60%
67%
58%
Repsonsible energy extraction
79%
75%
80%
64%
65%
64%
Territorial tax code
58%
34%
75%
25%
19%
30%
Source: Harvard Business School 2012 Survey on U.S. Competitiveness.
U.S. COMPETITIVENESS PROJECT
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WHAT SHOULD LEADERS DO TO RESTORE U.S. COMPETITIVENESS?
ROLE OF BUSINESS LEADERS
1. Vigorously pursue productivity and profitability within the business
a.
Position the company to draw on U.S. strengths
b.
Move back to the U.S. business activities that can be productive here
2. Tap the many opportunities to build the commons and benefit the business
a. Enhance cluster strength and regional economic strategy
b. Improve skills, through apprenticeships, training programs, and partnering with
educational institutions
c. Upgrade and tap the U.S. supply chain
d. Support innovation and entrepreneurship in the company’s field
3. Stop narrowly self-interested actions that undermine the commons,
especially in government relations
Source: Porter, Michael, and Jan Rivkin. "What Business Should Do to Restore U.S. Competitiveness." FORTUNE. (Oct 2012).
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