Harvard professor identifies the 'worst nightmare' in America right now Nicole Sinclair
September 14, 2016
“The confused national discourse about our economy and future prosperity in this election year is our worst nightmare,” Harvard Professor Michael Porter writes. “There is almost a complete disconnect between the national discourse and the reality of what is causing our problems and what to do about them. This misunderstanding of facts and reality is dangerous, and the resulting divisions make an already challenging agenda for America even more daunting.”
In its just-released report on competitiveness, “Problems Unsolved and a Nation Divided: State of US Competitiveness,” Harvard Business School (HBS) found the US economy currently faces grave concerns. And the path to a solution—namely tax reform, immigration reform, and infrastructure investment—is being hindered by the current political climate.
Led by Porter, along with Professors Jan Rivkin and Mihir Desai, the report finds that since the launch of the US Competitiveness Project in 2011, concerns about weak job creation and stagnating incomes—particularly for the middle class—have not waned. The severe 2009 recession is not the cause of our slow recovery
Porter explains while many pundits and politicians have focused on the Great Recession to diagnose America’s economic woes, this is misguided.
“Despite the hope of finding reasons for optimism, the ‘recovery’ remains slow and uneven, largely because America’s competitiveness problems took root long before the downturn,” Porter writes. “Since those problems remain unsolved, it should not be surprising that the average annual economic growth (1.6%) during the current recovery is slower than during any recovery since the late 1940s.”
The report adds that the wrong diagnosis, along with political paralysis in Washington, has meant that we have made no meaningful progress on any of the critical policy measures needed to address the nation’s underlying competitive weaknesses—which would restore economic growth and also the standard of living for the average citizen.
“America’s economic strategy defaulted to trusting that the Federal Reserve could solve our problems through monetary stimulus,” according to the report. The key problem: Lack of shared prosperity
Porter says the key issue for America today is a lack of “shared prosperity,” as working and middle-class citizens are struggling.
“The lack of shared prosperity has rightly been a central issue in the 2016 campaign, but the diagnoses and proposed solutions are way off the mark,” the report points out.
As the middle class began to stagnate amid globalization and technological change, instead of increasing investments, the US made “unsustainable promises” to maintain the “illusion of shared prosperity,” the report notes. That included extending credit, expanding entitlements and increasing public-sector benefits.
The report points out that while politicians resort to blame—from immigrants to Wall Street to well-off Americans to other countries, big business and international trade—the solutions offered are “emotionally appealing but simplistic and deeply misguided.”
The HBS report focuses on solutions to make the US more competitive, allowing businesses to compete in domestic and international markets while improving wages and living standards of the average citizen.
“When these occur together, a nation prospers,” according to the report. “When one occurs without the other, a nation is not truly competitive and prosperity is not sustainable.” Lackluster growth: A breakdown of metrics
The manifestation of competitiveness is productivity, Porter explains. A nation can only compete successfully and pay rising wages through high value of output per worker and per dollar of capital invested.
But productivity growth has been stuck below long-term levels, hitting negative territory in the last three quarters.
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