Political Dysfunction Makes America Less Competitive

 
 
The American economy is “failing the test of competitiveness," according to a new Harvard Business School study written by Michael E. Porter, Jan W. Rivkin, and Mihir A. Desai.
 
 
by Dina Gerdeman

The American economy is a mess, and our broken political system is largely to blame, according to a Harvard Business School US Competitiveness Project report released today.

Harvard’s Michael E. Porter, Jan W. Rivkin, and Mihir A. Desai say American economic performance peaked in the late 1990s and since then has experienced a lingering period of weakness, with slower than usual productivity growth, job growth, and investment growth.

The report, Problems Unsolved and a Nation Divided: The State of US Competitiveness in 2016, which contains an in-depth analysis of the American economy and the results of surveys of global business leaders and the general public, says the US is “failing the test of competitiveness.”

Overall prosperity may be growing slowly—but only for a small slice of the population. Large companies and highly skilled, high-income workers are faring well, but many others, including working- and middle-class Americans, are struggling, as are many small businesses.

The single biggest thorn in the economy’s side: our dysfunctional political system.

While many political leaders individually agree with the federal policy priorities the researchers say would unlock US economic growth and competitiveness—including reforming the corporate tax code, easing immigration for high-skilled immigrants, investing in infrastructure, and aggressively addressing abuses in the international trading system—divisive political rhetoric seems to rule the day, and as a group, our political leaders aren’t compromising, seeking pragmatic solutions, and reaching compromises.

In short, our political system is paralyzed.

“We looked at the progress we’re making and the answer is, basically none,” Porter says. “In the last 15 to 16 years, we’ve gotten very little, if anything, done on the major priorities that are holding back economic growth. What we’ve discovered through countless trips to Washington and discussions with political leaders (is that) in their offices, they agree with all of this. They would say, ‘Yeah, we need to improve the tax system and infrastructure.’ The problem is, (when they get together as a body), nothing gets done.”

Harvard Business School launched the US Competitiveness Project in 2011 in an effort to make sense of the disappointing performance of the American economy and recommend steps business and government leaders can take to restore economic growth and prosperity.

The news isn’t completely bleak. The US still retains a variety of key strengths in areas like higher education, entrepreneurship, and innovation. But those advantages are being offset by weaknesses in other areas, including the corporate tax code, the K-12 education system, transportation infrastructure, and healthcare.

Business leaders have grown increasingly pessimistic and aren’t expecting much of an uptick in the near future. Fifty percent of those surveyed expect US competitiveness to decline in the next three years, while only 30 percent forecast an improvement and 20 percent predict the situation won’t change.

The Harvard researchers are hoping this report might help spur Washington to get its act together.

“We think this is an American issue, not a Republican issue or a Democrat issue or a high-income or low-income issue. What we want in this country is shared prosperity,” Porter says. “This moment, with this particular election, with this particular discourse and dialogue, is an important moment to talk about this.”

About the Author

Dina Gerdeman is a senior writer for Harvard Business School Working Knowledge

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