Harvard Study Says US Competitiveness Will Decline

More than 70% of those surveyed in a recent study conducted by the Harvard Business School expect American competitiveness to decline over the next three years. The survey was distributed to alumni of the HBS and 9,750 were used as the basis for the study. Of those surveyed, more than 1,700 “were personally involved in decisions about whether to place business activities and jobs in the U.S. or elsewhere.”

Here’s how the US stacked up generally:

[T]he United States competed with virtually the entire world and fared poorly, losing two-thirds of the decisions that were resolved. Facilities involving large numbers of jobs, high-end work, and groups of activities located together moved out of the U.S. much faster than they moved in.

Respondents also had opinions on what was causing the problem:

[The] greatest current or emerging weaknesses [were perceived] to be in America’s tax code, political system, K-12 education system, macroeconomic policies, legal framework, regulations, infrastructure, and workforce skills.

The study’s authors, Michael Porter and Jan Rivkin, define US competitiveness as “the extent to which firms operating in the U.S. are able to compete successfully in the global economy while supporting high and rising living standards for Americans.”

Respondents from firms that manufacture goods are more pessimistic than respondents who work in fields like financial services, public administration, or other sectors less exposed to international competition. As the authors point out, “[I]t will be hard for America to tackle its competitiveness problem if leaders in the country lack a shared perspective on the issue and a common sense of urgency.”

Of more than 1,000 decisions that respondents were directly involved in and that had to do with locating company facilities, 84% of the decisions were made to locate outside the US. Another bit of bad news about offshoring: 42% of decisions to move US activities offshore include high-value activities like research & development and engineering.

When the study turns to cause for the loss of American competitiveness, the US political system is judged to be falling behind foreign competitors as is the K-12 education system. Areas where the US is considered to be strong are in university education, entrepreneurship, innovation, management talent, property rights, and capital markets. No surprises there.

In fact, the surprising thing about the study is that there really are no surprises. The value of the study lies in its attempt to quantify the impact of some elements related to US competitiveness or its lack as viewed by a highly educated and successful portion of the US population (Harvard Business School graduates).

The press release is here and the executive summary is here. A more detailed statistical analysis is scheduled to be included in the March issue of the Harvard Business Review.

Paul Ausick