THE LOOMING CHALLENGE OF U.S. COMPETITIVENESS: IMPLICATIONS FOR PHILADELPHIA

Transcription

1 THE LOOMING CHALLENGE OF U.S. COMPETITIVENESS: IMPLICATIONS FOR PHILADELPHIA Michael E. Porter (and Jan W. Rivkin) Harvard Business School Innovation Leadership Speaker Series Fox School of Business March 11, 2014

2 WHAT IS COMPETITIVENESS? A nation or region is competitive to the extent that firms operating there are able to compete successfully in the regional and global economy while maintaining or improving wages and living standards for the average citizen Competitiveness depends on the long-run productivity and efficiency of a location as a place to do business The productivity of existing firms and workers The ability to achieve high participation of citizens in the workforce Competitiveness is not: Low wages A weak currency Jobs per se 2

3 3% DISTURBING TRENDS ROLLING 10-YEAR COMPOUND ANNUAL GROWTH RATE IN TOTAL NUMBER OF U.S. PRIVATE NONFARM EMPLOYEES, AVERAGE: 2.12% 2% 1% 0% -1% Source: Bureau of Labor Statistics, Current Employment Statistics survey; author s calculations. 3

4 Employment (millions of jobs) DISTURBING TRENDS PRIVATE, NONFARM EMPLOYMENT BY TYPE OF INDUSTRY INDUSTRIES SERVING LOCAL MARKETS (CAGR= 0.80%) INDUSTRIES EXPOSED TO INTERNATIONAL COMPETITION (CAGR= 0.18%) Note: CAGR is over the period Source: Prof. Michael E. Porter, U.S. Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director; 2014 Benchmark Cluster Definition (Delgado-Porter-Stern 2013) Underlying data drawn from U.S. Census Bureau County Business Patterns. 4

5 Oil and Gas Production and Transportation Education and Knowledge Creation Environmental Services Coal Mining Performing Arts Metal Mining Business Services Video Production and Distribution Agricultural Inputs and Services Distribution and Electronic Commerce Hospitality and Tourism Electric Power Generation and Transmission Medical Devices Marketing, Design, and Publishing Food Processing and Manufacturing Biopharmaceuticals Water Transportation Livestock Processing Transportation and Logistics Insurance Services Construction Products and Services Financial Services Music and Sound Recording Upstream Chemical Products Aerospace Vehicles and Defense Nonmetal Mining Fishing and Fishing Products Production Technology and Heavy Machinery Metalworking Technology Communications Equipment and Services Downstream Chemical Products Downstream Metal Products Plastics Forestry Paper and Packaging Upstream Metal Manufacturing Information Technology and Analytical Instruments Wood Products Printing Services Leather and Related Products Automotive Recreational and Small Electric Goods Trailers, Motor Homes, and Appliances Tobacco Lighting and Electrical Equipment Vulcanized and Fired Materials Furniture Jewelry and Precious Metals Footwear Textile Manufacturing Apparel Ratio of 2011 to 2001 Employment 1.5 U.S. TRADED CLUSTER EMPLOYMENT 2011 VERSUS Employment Level Traded Employment Has Declined to 93% of 2001 Source: Prof. Michael E. Porter, Harvard Business School; U.S. Cluster Mapping 2014 Benchmark Definitions (Delgado-Porter-Stern 2013), Richard Bryden, Project Director. 5

6 DISTURBING TRENDS U.S. LABOR FORCE PARTICIPATION RATE 78% % % POPULATION AGED INVOLVED IN THE WORKFORCE 66% 62% Note: Rolling 12-month average in civilian labor force (not seasonally adjusted) over civilian noninstitutional population. Source: Bureau of Labor Statistics, author s calculations. 6

7 Pre-tax real household income (all series indexed to 1990 = 100) DISTURBING TRENDS REAL HOUSEHOLD INCOME BY QUANTILE, (INDEXED) th PERCENTILE th PERCENTILE th PERCENTILE th PERCENTILE 20 th PERCENTILE Note: Household income includes wages, self-employment, retirement, interest, dividends, other investment, unemployment, disability, alimony or child support, and other periodic income. Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. 7

8 WHO COMPETES WITH THE U.S. FOR BUSINESS INVESTMENT? Source: HBS Survey on U.S. Competitiveness 8

9 WHAT DETERMINES COMPETITIVENESS? Microeconomic Competitiveness Quality of the Business Environment State of Cluster Development Sophistication of Company Operations and Strategy Macroeconomic Competitiveness Sound Monetary and Fiscal Policies Human Development and Effective Political Institutions Endowments Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but is not sufficient to ensure productivity Endowments, including natural resources, geographical location, population, and land area, create a foundation for prosperity, but true prosperity arises from productivity in the use of endowments 9

10 STATE OF CLUSTER DEVELOPMENT: MASSACHUSETTS LIFE SCIENCES Health and Beauty Products Teaching and Specialized Hospitals Cluster Organizations MassMedic, MassBio, others Surgical Instruments and Suppliers Medical Equipment Dental Instruments and Suppliers Biological Products Biopharmaceutical Products Specialized Business Services Banking, Accounting, Legal Ophthalmic Goods Specialized Risk Capital VC Firms, Angel Networks Diagnostic Substances Containers Research Organizations Specialized Research Service Providers Laboratory, Clinical Testing Analytical Educational Institutions Harvard, MIT, Tufts, Instruments Boston University, UMass Cluster 10

11 REGIONS AND COMPETITIVENESS Economic performance varies significantly across sub-national regions (e.g., provinces, states, metropolitan areas) Many essential levers of competitiveness reside at the regional level Regions specialize in different sets of clusters Regions are a crucial unit in competitiveness Each region needs its own distinctive strategy and action agenda Business environment improvement Cluster upgrading Improving institutional effectiveness 11

12 U.S. trajectory ASSESSMENT OF THE U.S. BUSINESS ENVIRONMENT 40% Weakness but Improving Strength and Improving 20% 0% -20% -40% -60% -80% Weakness and Deteriorating -100% -60% -40% -20% 0% 20% 40% 60% 80% 100% Current U.S. position Strength but Deteriorating 12

13 U.S. trajectory ASSESSMENT OF THE U.S. BUSINESS ENVIRONMENT 40% 20% 0% Weakness but Improving Strength and Improving UNIVERSITIES ENTREPRENEURSHIP FIRM MANAGEMENT INNOVATION PROPERTY RIGHTS CLUSTERS CAPITAL MARKETS -20% -40% -60% -80% Weakness and Deteriorating -100% -60% -40% -20% 0% 20% 40% 60% 80% 100% Current U.S. position Strength but Deteriorating 13

14 U.S. trajectory ASSESSMENT OF THE U.S. BUSINESS ENVIRONMENT 40% 20% 0% -20% Weakness but Improving Strength and Improving COMMUNICATIONS INFRASTRUCTURE UNIVERSITIES ENTREPRENEURSHIP FIRM MANAGEMENT INNOVATION PROPERTY RIGHTS CLUSTERS CAPITAL MARKETS FLEXIBILITY IN HIRING AND FIRING -40% SKILLED LABOR -60% -80% LOGISTICS INFRASTRUCTURE Weakness and Deteriorating -100% -60% -40% -20% 0% 20% 40% 60% 80% 100% Current U.S. position Strength but Deteriorating 14

15 U.S. trajectory ASSESSMENT OF THE U.S. BUSINESS ENVIRONMENT 40% 20% 0% -20% -40% -60% -80% Weakness but Improving TAX CODE POLITICAL SYSTEM MACRO POLICY LEGAL FRAMEWORK REGULATION K-12 EDUCATION SYSTEM Weakness and Deteriorating LOGISTICS INFRASTRUCTURE Strength and Improving COMMUNICATIONS INFRASTRUCTURE UNIVERSITIES ENTREPRENEURSHIP FIRM MANAGEMENT INNOVATION PROPERTY RIGHTS CLUSTERS CAPITAL MARKETS SKILLED LABOR FLEXIBILITY IN HIRING AND FIRING Strength but Deteriorating -100% -60% -40% -20% 0% 20% 40% 60% 80% 100% Current U.S. position 15

16 U.S. disadvantage U.S. advantage ADULT EDUCATIONAL COMPETENCY U.S. VS. INTERNATIONAL PEERS, BY AGE COHORT Literacy Problem-solving Numeracy Definition of Y axis (performance) = % of U.S. adults in top two proficiency categories - % of all int l. adults in top two proficiency categories. Source: Goodman, M., Finnegan, R., Mohadjer, L., Krenzke, T., and Hogan, J. (2013). Literacy, Numeracy, and Problem Solving in Technology-Rich Environments Among U.S. Adults: Results from the Program for the International Assessment of Adult Competencies 2012: First Look (NCES ). U.S. Department of Education. Washington, DC: National Center for Education Statistics. 16

17 Compound annual growth rate REAL HOURLY WAGE GROWTH BY EDUCATIONAL ATTAINMENT % 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Less than high school High school Some college College degree Advanced degree Source: Economic Policy Institute, A Decade of Flat Wages, August Based on Current Population Survey. 17

18 Compound annual growth rate REAL HOURLY WAGE GROWTH BY EDUCATIONAL ATTAINMENT VERSUS % 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Less than high school High school Some college College degree Advanced degree Source: Economic Policy Institute, A Decade of Flat Wages, August Based on Current Population Survey

19 Percent of Cohort EMPLOYMENT TO POPULATION RATIOS BY EDUCATIONAL ATTAINMENT Bachelor s or higher degree Some college High school 50 Less than high school Note: Cohorts include persons 25 to 64 years old. Source: National Center for Education Statistics, Digest of Education Statistics, Based on U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment and Unemployment Statistics. 19

20 Average Wage, 2011 $70,000 $65,000 High but declining versus U.S. COMPARATIVE METRO WAGE PERFORMANCE U.S. Average Wage Growth Rate: +2.8% New York Bridgeport, CT (+3.0%, $77,922) San Francisco San Jose (+3.3%, $89,857) High and rising wages versus U.S. $60,000 Boston Washington Seattle Houston $55,000 $50,000 $45,000 $40,000 U.S. Average Wage, 2011: $45,535 Low and declining versus U.S. Notes: Average wage for private, non-agricultural employment. Growth calculated as compound annual growth rate. 50 largest MSAs displayed. Low but rising versus U.S. $35, % 2.5% 3.0% 3.5% Growth in Average Wage, 2001 to 2011 Source Census CBP Detroit (+1.95, $48,621) Austin Hartford Dallas Indianapolis St. Louis, MO Las Vegas Louisville Orlando Chicago Riverside Denver Atlanta Kansas City, MO Sacramento Philadelphia Miami Columbus Portland Cincinnati Phoenix Tampa Minneapolis Los Angeles Charlotte San Antonio Milwaukee Cleveland Raleigh Pittsburgh Birmingham San Diego Memphis Salt Lake City Providence Virginia Beach Baltimore Nashville Richmond New Orleans (+4.2%, $44,486) Jacksonville Oklahoma City (+3.8%, $40,114) 20

21 Proportion of Working Age Population in the Workforce, % COMPARATIVE METRO LABOR MOBILIZATION PERFORMANCE High but declining labor force participation versus U.S. High and rising labor force participation versus U.S. 70% 65% Columbus Las Vegas St. Louis, MO Cincinnati Richmond Orlando Phoenix Charlotte Virginia Beach Washington Minneapolis Salt Lake City Austin Denver Kansas City, MO Atlanta Hartford Milwaukee Bridgeport Philadelphia Sacramento Seattle San Francisco Portland San Jose Providence Los Angeles Cleveland Jacksonville Boston New Orleans New York Dallas Nashville Chicago Oklahoma City San Diego San Antonio Baltimore Miami Pittsburgh Memphis, TN Indianapolis Houston Louisville U.S. Labor Force Participation Rate: 63.7% 60% Tampa Riverside Birmingham Detroit Low and declining labor force participation versus U.S. Source: BLS. 50 largest MSAs displayed. U.S. Change in Labor Force Participation Rate: -2.3% Change in Proportion of Working Age Population in the Workforce, Low but rising labor force participation versus U.S. 55% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 21

22 Philadelphia National Employment Share, % TRADED CLUSTER COMPOSITION OF THE PHILADELPHIA REGION Overall change in the Philadelphia Share of US Traded Employment: -.104% Biopharmaceuticals (5.5%) 4.0% Electric Power Generation and Transmission Education and Knowledge Creation Financial Services 3.0% 2.0% 1.0% Employment Added Jobs Lost Jobs Insurance Services Philadelphia Overall Share of US Traded Employment: 2.25% Marketing, Design, and Publishing Water Transportation Business Services Distribution and Electronic Commerce Printing Services Performing Arts Downstream Chemical Products 0.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% Change in Philadelphia Share of National Employment, 2001 to 2011 Source: Prof. Michael E. Porter, Harvard Business School; U.S. Cluster Mapping 2014 Benchmark Definitions (Delgado-Porter-Stern 2013), Richard Bryden, Project Director. Aerospace Vehicles and Defense Information Technology and Analytical Instruments Agricultural Inputs and Services Furniture Upstream Chemical Products Communications Equipment Transportation and Logistics and Services Upstream Metal Textile Manufacturing Manufacturing Jewelry and Precious Metals Leather and Related Vulcanized and Fired Products Materials Automotive Footwear Wood Products Oil and Gas Production Nonmetal Mining and Transportation Trailers, Motor Homes, and Appliances Fishing and Fishing Products Forestry Employees 7,000 =

23 RESTORING U.S. COMPETITIVENESS WHAT WASHINGTON SHOULD DO 1. Create a sustainable federal budget, combining greater revenue (including fewer exemptions) and less spending MACRO 2. Ease the immigration of highly skilled individuals 3. Simplify the corporate tax code with lower statutory rates and no loopholes 4. Tax overseas profits earned by American multinational companies only where they are earned 5. Aggressively address distortions and abuses in the international trading system MICRO 6. Simplify and streamline regulation 7. Improve logistics, communications and energy infrastructure 8. Responsibly develop American shale-gas and oil reserves Source: Porter, Michael, and Jan Rivkin. "An eight-point plan to restore American competitiveness." The Economist: The World in (Nov 2012). 23

24 STRATEGIC PRIORITIES FOR FEDERAL POLICY: APPROVAL PERCENTAGES U.S. business leaders General public All Liberal Conservative All Liberal Conservative Sustainable federal budget 90% 92% 85% 60% 62% 63% Corporate tax reform 91% 91% 92% 72% 75% 73% Infrastructure investments 85% 92% 75% 68% 74% 70% International trading system 80% 81% 79% 60% 67% 58% Responsible energy extraction 79% 75% 80% 64% 65% 64% Streamlined regulations 86% 71% 95% 52% 43% 62% High-skill immigration 89% 90% 88% 42% 55% 38% Territorial tax code 58% 34% 75% 25% 19% 30% 24

25 THE ROLE OF BUSINESS RESTORING U.S. COMPETITIVENESS 1. Vigorously pursue productivity and profitability within the business a. Position the company to draw on U.S. strengths b. Perform in the U.S. those activities that can thrive here 2. Tap opportunities to build the commons and benefit the business a. Improve skills b. Upgrade supporting industries and the U.S. supply chain c. Support innovation and entrepreneurship d. Bolster cluster and regional strength 3. Stop narrowly self-interested actions that undermine the commons, especially in government relations 25