What the Deepening US Competitiveness Problem Means for Urban Businesses

Source: The Educated Society: http://bit.ly/xoPXGg

Recently, Harvard Business School’s Institute for Strategy and Competitiveness, led by Dr. Michael Porter (ICIC’s founder), released the results of its first annual Survey on U.S. Competitiveness. The survey sought to pinpoint the roots of the country’s competitiveness problem. Specifically making their definition of competitiveness holistic enough to include rising living standards (and by extension employment), the survey provides an interesting snapshot of commercial realities, attitudes, and expectations. Below is an outline of the result’s implications for urban businesses.

1)      Urban Employment Continues to Suffer

To state the painfully obvious, America’s economic morass has lasted much longer than most experts originally anticipated. A large majority of survey respondents (71%) expect U.S. competitiveness to decline over the next three years, with worker’s living standards under greater pressure than firm’s successes. As was recently reported in Atlantic Cities, most metro areas won’t return to pre-recession employment levels until 2015—a  stunning 8 years after the beginning of the financial crisis. Unemployment results in diminished consumer purchasing power, affecting urban small business directly, but can also result in indirect costs like higher crime rates—impacting not just businesses but entire communities.

2)      Decreasing Desirability of the U.S. as a Business Location

According to Dr. Porter, “The U.S. is losing out on business location decisions at an alarming rate, and those activities being offshored are more job-rich than those coming in.” The survey found that, in offshoring decisions that had been resolved by the time of the questionnaire, the U.S. lost the activity 84% of the time, a deeply distressing figure for employment. The most common alternatives considered for relocation were, predictably: China (42%), India (38%), Brazil, Mexico, and Singapore.

So, how does the offshoring of U.S. businesses impact our urban areas? Business, especially large corporations, are increasingly investing in “shared value” – i.e. turning a profit while simultaneously investing in their local communities. Whether through workforce development initiatives or the unbundling of purchasing agreements to subcontract to minority- and women-owned businesses, businesses can have an immense impact on urban vitality. In fact, central to ICIC’s vision of urban development is the idea that private sector investment can reinvigorate distressed communities through this virtuous cycle of private gains leading to public investment and cooperation.

3)      American Impediments to Investment are Preventable

When asked to identify the greatest impediments their firms faced in investing in and creating jobs in the United States, respondents cited tax and regulation policy as major factors along with labor costs and immigration issues. While labor costs are a problem encountered by most developed nations, reforming our tax code, easing regulations, and aligning immigration policy with the needs of talented foreigners all represent low-hanging fruit to create jobs and profits.

But this problem is not just one faced at a national level. Many of our cities can take action to reform outdated and complicated tax and business policies to be more conducive to business growth. Otherwise, just as companies move businesses offshore, cities risk losing businesses to other cities and states.

Philadelphia is just one of several cities trying to improve its local business climate. According to a recent study by the Sustainable Business Network, 98% of businesses in Philadelphia are small businesses; 65% of jobs are created by small businesses; and 65% of jobs are created by businesses five years old or younger. Yet Philadelphia has a long history of being anything but a business-friendly city. The report recommended that Philadelphia reduce the time, cost and confusion of obtaining City approvals; simplify their tax compliance burden for small businesses; and ensure that laws do not unnecessarily harm small businesses. In doing so, they can expect to reap new business development and spur job creation.

It’s clear that oftentimes, what’s hindering business at a national level is also hindering us at the inner city level—but this doesn’t have to be the case.

As HBS Professor Jan Rivkin eloquently has stated, “The findings [from the U.S. Competitiveness Survey] allow us to assess whether individual elements of the U.S. business environment, such as the complexity of our tax code or our K-12 education system, each strengthens or weakens U.S. competitiveness. This provides important insight for leaders who are seeking ways to boost America’s long-run prosperity.”

Moreover, given that cities and their metros account for nearly 90% of U.S. economic output, it is crucial that local and state policymakers don’t defer the task of business development and retention to national politicians. As the survey shows, the onus is on everyone to contribute if America is to dominate the 21^st century as it did the century prior.

Sources:

• Prosperity at Risk – HBS http://bit.ly/zGsalj
• Metro Job Recovery Remains a Long Way Off - Jobs & Economy - The Atlantic Cities http://bit.ly/zHsWJ6
• Harvard Business School Survey Reveals Deepening U.S. Competitiveness Problem - MarketWatch http://bit.ly/A6CChi

BY Sathya Vijayakumar on January 23rd, 2012

TAGS: jobs | economic development | employment | competitiveness | hbs | shared value | study