Published; Dec. 18, 2019
‘America has squandered the economic recovery’: Harvard business professor says US failed to reduce deficits and shore up economic weaknesses during expansion – and blames hyper-partisan gridlock
-New report claims that America has wasted the nation’s economic recovery
-Accuses leaders of failing to use expansion period to trim fiscal deficits
-US has also failed to fix weaknesses holding economy back, study claims
-Authors say that structural partisan gridlock is largely to blame for the failures
-They advocate reforms like ranked choice voting to boost political competition
A new report co-authored by a Harvard Business School professor accuses the U.S. of wasting a lengthy period of economic expansion, and blames the failure on partisan gridlock.
‘America has squandered the nation’s economic recovery,’ reads the report issued on Wednesday, which was co-authored by Harvard Business School professor Michael Porter.
‘Despite a long-running economic expansion, the U.S. has failed to address the policy and implementation weaknesses that are holding back our economy and our society,’ the report continues.
The current recovery, which began in June of 2009 following the Great Recession, is currently the longest period of economic expansion in U.S. history.
However, through the years the recovery was often characterized as ‘weak’ or ‘sluggish.’
Unlike every other post-war recovery, annual growth in GDP has failed to crack 3 percent in any year through 2018.
The gains have also been unevenly distributed for much of the recovery, with much of the growth in GDP going to the top 1 percent of households.
In the new report, the study authors argue that America has failed to use the expansion period to strengthen the business climate and make the country more competitive on the world stage in the future.
‘Unfortunately, we also have historical strengths that are deteriorating: the skills of America’s workforce are not keeping up with global standards, for example, and our fiscal deficits are growing beyond prudent levels,’ the report states.
‘Worse yet, we have weaknesses that are getting worse: a paralyzed political system, high-cost health care with limited availability, crumbling infrastructure, and a weak K–12 education system,’ the authors continue.
The study also notes that federal deficits have soared during the recovery, and have yet to return to pre-recession levels.
Typically, deficits rise during and immediately after recessions, as the federal government raises spending to try to stimulate the economy.
During expansion periods, deficits typically shrink or even turn into surpluses, as happened in the late 1990s, as federal revenues increase and stimulus spending slows.
‘Today’s deficit level is extremely high this far into an economic expansion. A significant contributor is recent tax reform, which sharply reduced revenue,’ the report states, referencing the Republican tax cuts of 2017.
The report places the blame for the ‘squandered recovery’ squarely at the feet of a broken political system that incentivizes hyper-partisanship.
‘America is stuck because we have a structural political system problem,’ the report states. ‘Our political system has been optimized by the entrenched duopoly to advance partisan interests rather than the public interest. Electoral and legislative rules serve the parties well but cause the gridlock and dysfunction that disable our democracy.’
The authors argue that America’s political problems are not a matter of electing the wrong individuals, noting that the same issues have persisted over multiple administrations and many legislators.
They argue that some of the better known proposals, including eliminating gerrymandering and campaign finance reform, would not be the most powerful reforms.
Instead, the study argues that the most powerful reforms would be those that invigorate competitiveness in elections, such as open primaries and ranked choice voting.
The report also calls for tighter restrictions and disclosure rules for lobbying, estimating that $6 billion is spent on lobbying efforts in every election cycle.
The report surveyed thousands of business leaders, including 5,713 Harvard Business School alumni and 1,006 members of the general public.
‘A striking pattern in our survey findings is that no such shared understanding [of the challenges America faces] exists today,’ the report states.
‘We have uncovered a lack of shared reality across party lines about the trajectory of U.S. competitiveness, a poor understanding of the structural nature of our political problems, little grasp of the political reforms that are most powerful, a spotty knowledge of how one’s own firm participates in politics and the consequences, meaningful gaps between business leaders and the general public in their beliefs about the impact of immigrants, and other gaps in understanding,’ the authors add.
The independent study and data devastatingly confirms a significant relationship between business and bank contributions to #Texas State Supreme Court justices and the votes of those justices in cases involving these corporations and banks. #Corruption https://t.co/l3Mu4gZwqi pic.twitter.com/iSFRNHC6pG
— LawsInTexas (@lawsintexasusa) December 14, 2019
Published; 18 DEC 2019
U.S. Competitiveness Report: Business Leaders Pessimistic, Political Gridlock Biggest Obstacle to Strengthening America’s Competitiveness
Business leaders partly to blame for political dysfunction and critical to fixing it. 6th U.S. competitiveness assessment polls business leaders and general public on steps that could improve competitiveness, such as political reform and immigration reform.
Structural failures in the U.S. political system have prevented meaningful progress on actions needed to improve U.S. competitiveness, according to research released today by Harvard Business School’s (HBS) U.S. Competitiveness Project. Based on surveys of HBS alumni and the general public, as well as faculty research, A Recovery Squandered: The State of U.S. Competitiveness 2019 documents how the U.S. has wasted the decade-long expansion following the Great Recession by not addressing underlying impediments to U.S. competitiveness. In addition to assessing the factors that have contributed to this situation, the report outlines the steps that must be taken to improve America’s economic prospects for both workers and companies.
“Structural failures in our political system have caused America to fritter away a decade’s expansion without addressing core economic and social weaknesses,”
said HBS’s Jan W. Rivkin, the C. Roland Christensen Professor of Business Administration and co-chair of the U.S. Competitiveness Project.
“While the economy has grown, many Americans have been left behind. We know many of the steps needed to restore shared prosperity, but taking those steps will require a shared view of where we are and how we got here. Unfortunately, the country doesn’t have such a perspective today.”
The central reason the U.S. has done little to address underlying structural weaknesses, including in infrastructure and health care, the authors write, is our dysfunctional political system—a system that has been optimized by the two major political parties to advance their partisan interests rather than the public interest.
“Our major political parties have turned the political system into a duopoly that serves the parties rather than the public,”
said HBS’s Michael E. Porter, the Bishop William Lawrence University Professor and co-chair of the U.S. Competitiveness Project.
“We need political reform that refocuses the system on the interests of the people. To achieve this, a public education campaign is essential, to help American citizens understand the nature of the problem and the reforms that will actually work. We also need business leaders to change, fundamentally, how companies engage in politics. Many companies today have been drawn into the party game and are making partisanship and gridlock worse.”
HBS professors Porter, Rivkin, Mihir A. Desai, and William R. Kerr and Venn Innovations founder and CEO Katherine M. Gehl authored the report.
Business leaders foresee declining U.S. competitiveness; general lack of agreement when assessing the country’s competitive strengths and weaknesses
To understand how business leaders see U.S. competitiveness—that is, the ability of companies operating in the U.S. to compete successfully in the global economy while supporting high and rising living standards for the average American—today and in the future, the Project asked HBS’s global network of alumni about the position and trajectory of America’s business environment. The 2019 survey revealed deepening pessimism about U.S. competitiveness.
A central concern is that Democrat and Republican alumni disagree sharply on whether the country’s key weaknesses, and U.S. competitiveness overall, are getting better or worse. Compared to results from the 2016 survey, Democrats saw every weakness as having gotten worse, while Republicans saw every weakness as having gotten better.
From the survey:
48 PERCENT OF ALUMNI survey respondents expect U.S. competitiveness to decline, with companies less able to compete, less able to pay well, or both.
52 PERCENT OF ALUMNI surveyed predict that U.S. companies will employ fewer people in three years, while only 15 percent foresee the typical company employing more.
SIMILARLY, 36 PERCENT predict that companies will be less able to support high wages and benefits in three years, while only 27 percent expect firms to be more able to do so.
51 PERCENT OF REPUBLICANS expect America’s competitiveness to improve in the next three years, compared to only 24 percent of Democrats.
MEMBERS OF THE GENERAL PUBLIC are far more likely than alumni to foresee improving U.S. competitiveness (47 percent vs. 31 percent). This contrasts with 2016, when the two groups saw similar probabilities of rising U.S. competitiveness (34 percent for the general public and 30 percent for alumni).
Political parties are advancing their partisan interests rather than the public interest; political system innovation needed
Election rules and legislative processes benefit the political industrial complex well, but they are also the key cause of gridlock and our dysfunctional politics. At the same time, the 2019 survey results show that Americans do not fully grasp the structural nature of these problems with the current political system.
Respondents support reforms but tend to express stronger support for widely publicized proposals, such as campaign finance reform and efforts to counter gerrymandering, than for innovations the authors believe would be more effective for systemic change, such as the combination of top-five non-partisan primaries and ranked-choice voting in general elections.
“Most Americans are dissatisfied with the outcomes of our political system, but many incorrectly assume that the answer lies in electing different people,”
said Katherine Gehl, founder and CEO of Venn Innovations, an organization working for powerful and achievable political change.
“In fact, the solution is found in addressing the underlying structural drivers of dysfunctional competition in politics—chiefly the rules for how we vote and the rules for legislating—which is a new way for most Americans to look at both the problem and the solutions.”
From the survey:
68 PERCENT OF HBS ALUMNI AND 51 PERCENT OF THE GENERAL PUBLIC agreed with the statement that “democracy in America is at risk.”
67 PERCENT OF ALUMNI attributed the country’s political problems primarily to not electing the right people, while 74 percent of alumni attributed them also to structural issues in the political system such as election rules, campaign finance rules, and governing rules. Among the general public, 56 percent said that political dysfunction was primarily due to not electing the right people, with only 48 percent blaming structural problems as well.
GERRYMANDERING REFORM AND CAMPAIGN FINANCE REFORM have the most support among potential changes to the political system, supported by 84 percent and 76 percent of alumni, respectively, and by 47 percent and 53 percent of the general public, respectively.
PRIMARY REFORM, RANKED-CHOICE VOTING, AND REDUCING PARTISAN control of the legislative process in Congress—reforms the report authors believe are among the most powerful—received support from 47 percent, 43 percent and 58 percent of alumni, respectively. These changes were supported by 38 percent, 34 percent and 42 percent of the general public, respectively.
Business leaders partly to blame for today’s hyper-partisan, gridlocked politics
The research also examines the prevalence and consequences of how businesses engage in politics today—by lobbying, spending on elections and ballot initiatives, influencing employees’ votes and donations, and hiring former government officials—with interesting results.
The report concludes that business funds, perpetuates, and sometimes even profits from political dysfunction that favors special interests over the public interest. However, business leaders do support changes in how business interacts with the political system.
From the survey:
JUST 25 PERCENT OF ALUMNI believed that their companies engaged in lobbying, a significantly lower portion than prior research on the prevalence of lobbying has found.
OUT OF 25 PERCENT OF ALUMNI who believed that their companies engaged in lobbying, 81 percent believed that their companies’ lobbying practices provide useful information to inform public policy, and the majority did not believe their companies’ lobbying had an adverse effect on the public interest.
61 PERCENT OF ALUMNI agreed that business’s overall engagement had an adverse effect on the political system by advancing policies that benefited special interests. 49 percent of alumni agreed that business’s overall engagement had worsened partisanship, but only 14 percent saw their own companies’ engagement as having that effect.
67 PERCENT OF ALUMNI agreed that both companies and trade associations should reduce spending on special interest lobbying. 79 percent agreed that the business community should support political system reforms that would reduce partisanship and align rules and practices with democratic principles.
60 PERCENT OF ALUMNI who were asked about business as a whole, not their own company, responded that companies should not have corporate PACs as a vehicle that employees can use to contribute to candidates the company supports.
Tax reform: the good, the bad, the ambiguous
The report also takes a close look at the 2017 Tax Cuts and Jobs Act (TCJA). The results show that alumni were muted when asked about what specific investment decisions may have changed as a result of the TCJA.
“The 2017 tax reform represented a much overdue reform of the corporate tax system—but the investment reaction has been muted because of its fiscal cost, policy ambiguity, and the lack of clarity about how much of the law would work,” said Mihir Desai, the Mizuho Financial Group Professor of Finance at HBS. “Our alumni manifested this muted reaction and signaled a deep appetite for changed redistribution through the tax system in the country.”
From the survey:
60 PERCENT OF ALUMNI RESPONDENTS indicated that the TCJA made the U.S. more competitive.
ONLY 17 PERCENT OF RESPONDENTS reported that the reforms caused their companies to increase investment in the U.S.
65 PERCENT OF ALUMNI RESPONDENTS AGES 18-44 said the U.S. should use the tax system to undertake more redistribution toward lower-income individuals. 52 percent of alumni ages 45-64, and 54 percent of alumni ages 65 and older, agreed.
Foreign skilled immigrants a critical source of advantage for the United States
Political gridlock and partisanship are arguably doing the greatest, longest-lasting damage to America’s competitiveness by undermining the country’s ability to attract and welcome highly skilled immigrants.
“Business leaders and the general public agree on the vital role of high-skilled immigration for U.S. competitiveness,” said William Kerr, D’Arbeloff Professor of Business Administration at HBS and co-director of Harvard’s Managing the Future of Work initiative. “Reforming the outdated rules that govern high-skilled immigration is a key priority, and we need to build stronger pathways for employment-based entry into America. We simply need to get our political act together.”
From the survey:
68 PERCENT OF ALUMNI said that their companies’ operations would be harmed if denied access to foreign skilled workers, and 56 percent blamed the U.S. immigration system for causing project delays.
55 PERCENT OF ALUMNI believe the current political rhetoric around immigration is harming their organization’s ability to attract foreign skilled workers.
87 PERCENT OF ALUMNI believe more highly skilled immigrants should be allowed to move to the U.S. to work and live, compared to 63 percent of general public Democrats and 43 percent of general public Republicans.
75 PERCENT OF ALUMNI supported giving permanent residence to DACA recipients, while 65 percent opposed building a wall along the U.S.-Mexico border.
70 PERCENT OF ALUMNI supported increasing the number of available H-1B visas by 50 percent or more.
ABOUT THE HARVARD BUSINESS SCHOOL U.S. COMPETITIVENESS PROJECT
The U.S. Competitiveness Project is a research-led effort to understand and improve the competitiveness of the United States. The Project focuses especially on the roles that business leaders can and do play in promoting U.S. competitiveness. Current faculty research focuses on fostering local cross-sector collaboration for shared prosperity; addressing structural problems in the nation’s political system; closing the middle skills gap; and improving America’s aging infrastructure for moving people, goods, and information. For more information about Harvard Business School’s U.S. Competitiveness Project, please visit: www.hbs.edu/competitiveness and www.hbs.edu/competitiveness/survey/.
ABOUT HARVARD BUSINESS SCHOOL
Founded in 1908 as part of Harvard University, Harvard Business School is located on a 40-acre campus in Boston. Its faculty of more than 200 offers full-time programs leading to the MBA and doctoral degrees, as well as more than 70 open enrollment Executive Education programs and 55 custom programs, and Harvard Business School Online, the School’s digital learning platform. For more than a century, HBS faculty have drawn on their research, their experience in working with organizations worldwide, and their passion for teaching to educate leaders who make a difference in the world, shaping the practice of business and entrepreneurship around the globe.