Mudslinging no solution to U.S. shortcomings
Editor’s note: This is the second of two parts.
In my last column, I wrote about the Harvard Business School report titled “Problems Unsolved and a Nation Divided” by Michael E. Porter, Jan W. Rivkin, Mihir A. Desai and Manjari Raman, which is part of the school’s U.S. Competitiveness Project.
The report examines how the U.S. economy has arrived at its present position and the competitiveness challenges it faces in the future against other countries. The authors state that the factors which made the U.S. competitive in the post-WWII period — universal public education, public infrastructure, such as the federal highway system, and the funding of research — have succumbed to disconnectivity between businesses and their communities, reduced private-sector participation in education, misdirected government debt and a blame game between political parties that has resulted in a Washington, D.C., quagmire. Although the U.S. has perceived strengths, such as world-class research universities, strong entrepreneurship, innovation, quality management and vibrant capital markets, these are offset by a decline in the country’s workforce skills, flexibility in the labor market, questionable macroeconomic policy, and a complicated tax code, aging infrastructure, elementary-to-high-school education and health care system.
Two areas of the report strike me as being the most critical. The first is U.S. investment in the infrastructure needed to grow and attract businesses. In the 1960s, the U.S. invested approximately 2.2 percent of its GDP in transportation infrastructure, which has declined to just 1.6 percent today. This is less than what Europe and China are investing, which the report says is evidenced by the modern airports in these regions compared to aging U.S. airports, such as JFK airport in New York. The decline in infrastructure investment has the greatest impact on the “everyday American,” who heavily relies on public infrastructure to commute to work and to conduct business.
The second, and perhaps most disconcerting factor I read in the report, was the examination of the K-12 education system in the U.S., which traditionally has been the ticket for the working and poorer classes of society to create future opportunity in order to better their economic status. The report states, “Younger cohorts of U.S. workers have higher literacy scores than older cohorts in absolute terms, reflecting U.S. skills improvement over time. But workers elsewhere have improved even faster. American workers from earlier generations are more literate than their international peers of the same age, but younger U.S. workers are less literate than their peers.” In other words, while there have been gains in the U.S. education system, they are being outpaced by stronger gains in other countries. Future U.S. competitiveness will be affected if educational gains are not increased.
Last but not least, the report focuses on the broken political system by emphasizing that, while these challenges accrue, “What has Washington done?” The authors argue “little to none.” They strongly accuse the U.S. government of failure in areas for which it is responsible: tax code, health care, regulations and focusing on new infrastructure. While there is general bipartisanship in the business community about changes that need to take place, the two major political parties have failed through infighting and the blame game.
The authors use a couple of examples to highlight Washington’s failures. The first is free trade, which the report states has been a major advantage, and a reason why the U.S. economy became strong and a leader in the global economy. Rather than exploring how existing and new trade agreements can make the U.S.
more prosperous and competitive, Washington politicians adhere to political factions that serve to demonize free trade.
Second is the inability of policymakers to address the U.S. corporate tax code, which, at 39 percent, is behind only the United Arab Emirates (55 percent) and Chad (40 percent), and is the highest combined tax rate of any advanced country. This is spurring companies to locate operations in foreign countries and, while both parties agree something needs to be done, they sink further into political squabbles. Depressingly, the report is clear in its position that no candidate running for the presidency has adequately put forth a plan to address any of these issues.
On the brighter side, the authors state that some major changes the U.S. needs to remain competitive in the future, such as revising the tax code, can be done relatively quickly. In conclusion, the report states that an eight-point strategy is needed, which includes: simplifying the tax code; moving to a territorial tax system like other leading nations; making it easier for highly skilled immigrants to come to the U.S.; addressing distortions and abuses in the international trading system; improving logistics, communications and energy infrastructure; streamlining regulations; creating a federal budget that is sustainable, including a reform of entitlements; and “responsibly” developing the U.S. energy advantage, which is referred to as “unconventional.”
As I finished reading the report’s suggestions, it occurred to me how strikingly obvious and not necessarily groundbreaking they are. I think most Americans would agree with the suggestions, but what becomes frustrating for me is how does this translate into bipartisan political action in Washington? What we are seeing now is mudslinging from both sides of the aisle with no real bold plans of incorporating what obviously needs to be accomplished by people on the cusp of being elected.