the looming challenge of u.s. competitiveness ... files/20140311-us...2014/03/11 · n s rce sm n s...

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

• 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

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

WHAT IS COMPETITIVENESS?

U.S. COMPETITIVENESS PROJECT 2

-1%

0%

1%

2%

3%

1975 1981 1987 1993 1999 2005 2011

DISTURBING TRENDS ROLLING 10-YEAR COMPOUND ANNUAL GROWTH RATE IN TOTAL NUMBER OF

U.S. PRIVATE NONFARM EMPLOYEES, 1975-2013

U.S. COMPETITIVENESS PROJECT

Source: Bureau of Labor Statistics, Current Employment Statistics survey; author’s calculations.

1975-2001

AVERAGE: 2.12%

3

2013

0

20

40

60

80

100

120

1998 2000 2002 2004 2006 2008 2010

Em

plo

yme

nt

(millio

ns o

f jo

bs)

Note: CAGR is over the period 1998-2011. 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.

INDUSTRIES SERVING LOCAL

MARKETS

(CAGR= 0.80%)

INDUSTRIES EXPOSED TO

INTERNATIONAL COMPETITION

(CAGR= –0.18%)

DISTURBING TRENDS PRIVATE, NONFARM EMPLOYMENT BY TYPE OF INDUSTRY

2011

4 U.S. COMPETITIVENESS PROJECT

0.0

0.5

1.0

1.5O

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rel

U.S. TRADED CLUSTER EMPLOYMENT 2011 VERSUS 2001

Ra

tio

of

20

11

to

20

01

Em

plo

yme

nt

Source: Prof. Michael E. Porter, Harvard Business School; U.S. Cluster Mapping 2014 Benchmark Definitions (Delgado-Porter-Stern 2013), Richard Bryden, Project Director.

2001 Employment Level

2011 Traded Employment Has Declined to 93% of 2001


62%

66%

70%

74%

78%

1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008

DISTURBING TRENDS U.S. LABOR FORCE PARTICIPATION RATE


Note: Rolling 12-month average in civilian labor force (not seasonally adjusted) over civilian noninstitutional population. Source: Bureau of Labor Statistics, author’s calculations.

1982

1997

POPULATION AGED

16-64 INVOLVED IN

THE WORKFORCE

2014

90

95

100

105

110

115

120

125

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012


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.

95th PERCENTILE

80th PERCENTILE

60th PERCENTILE

40th PERCENTILE

20th PERCENTILE

Pre

-ta

x re

al h

ou

se

ho

ld in

co

me

(all s

eri

es in

de

xed

to

19

90

= 1

00

) DISTURBING TRENDS

REAL HOUSEHOLD INCOME BY QUANTILE, 1990-2012 (INDEXED)

WHO COMPETES WITH THE U.S. FOR BUSINESS INVESTMENT?


Source: HBS Survey on U.S. Competitiveness

Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication

of Company

Operations and

Strategy

Quality of the

Business

Environment

State of Cluster

Development

Endowments

Human Development

and Effective

Political Institutions

Sound Monetary

and Fiscal Policies

WHAT DETERMINES COMPETITIVENESS?

• 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 U.S. COMPETITIVENESS PROJECT

Research Organizations

Biological Products

Specialized Risk Capital VC Firms, Angel Networks

Biopharma-

ceutical

Products

Specialized Business

Services Banking, Accounting, Legal

Specialized Research

Service Providers Laboratory, Clinical Testing

Dental Instruments

and Suppliers

Surgical Instruments

and Suppliers

Diagnostic Substances

Containers

Medical Equipment

Ophthalmic Goods

Health and Beauty Products Teaching and Specialized Hospitals

Educational Institutions Harvard, MIT, Tufts,

Boston University, UMass

Cluster Organizations MassMedic, MassBio, others

STATE OF CLUSTER DEVELOPMENT: MASSACHUSETTS LIFE SCIENCES

Analytical

Instruments

Cluster 10

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


ASSESSMENT OF THE U.S. BUSINESS ENVIRONMENT


U.S

. tr

aje

cto

ry

12

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

-60% -40% -20% 0% 20% 40% 60% 80% 100%

Current U.S. position

Strength and Improving

Weakness and Deteriorating Strength but Deteriorating

Weakness but Improving


U.S

. tr

aje

cto

ry


13

UNIVERSITIES ENTREPRENEURSHIP

INNOVATION

CLUSTERS CAPITAL MARKETS PROPERTY RIGHTS

FIRM MANAGEMENT

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

-60% -40% -20% 0% 20% 40% 60% 80% 100%







U.S

. tr

aje

cto

ry

14

LOGISTICS

INFRASTRUCTURE

COMMUNICATIONS

INFRASTRUCTURE


SKILLED LABOR

FLEXIBILITY IN

HIRING AND

FIRING

INNOVATION

CLUSTERS CAPITAL MARKETS PROPERTY RIGHTS

FIRM MANAGEMENT

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

-60% -40% -20% 0% 20% 40% 60% 80% 100%






U.S

. tr

aje

cto

ry

15


LOGISTICS

INFRASTRUCTURE

COMMUNICATIONS

INFRASTRUCTURE

TAX CODE

K-12 EDUCATION

SYSTEM


SKILLED LABOR

FLEXIBILITY IN

HIRING AND

FIRING

INNOVATION

REGULATION

CLUSTERS CAPITAL MARKETS

MACRO

POLICY

POLITICAL

SYSTEM

PROPERTY RIGHTS

LEGAL

FRAMEWORK

FIRM MANAGEMENT

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

-60% -40% -20% 0% 20% 40% 60% 80% 100%





-20

-15

-10

-5

0

5

10

ADULT EDUCATIONAL COMPETENCY U.S. VS. INTERNATIONAL PEERS, BY AGE COHORT

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 2014-008). U.S. Department of Education. Washington, DC: National Center for Education Statistics.


U.S

. a

dva

nta

ge

Literacy Problem-solving Numeracy

16-24 25-34

35-44

45-54

55-65

16-24

16-24

25-34

25-34

35-44

35-44

45-54

45-54

55-65

55-65

U.S

. d

isa

dva

nta

ge

16

REAL HOURLY WAGE GROWTH BY EDUCATIONAL ATTAINMENT- 1979-2000


Source: Economic Policy Institute, “A Decade of Flat Wages,” August 2013. Based on Current Population Survey.

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Less than high

school

High school Some college College degree Advanced

degree

Co

mp

ou

nd

an

nu

al gro

wth

ra

te

REAL HOURLY WAGE GROWTH BY EDUCATIONAL ATTAINMENT- 1979-2000 VERSUS 2000-2012


Source: Economic Policy Institute, “A Decade of Flat Wages,” August 2013. Based on Current Population Survey.

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Less than high

school

High school Some college College degree Advanced

degree

Co

mp

ou

nd

an

nu

al gro

wth

ra

te

1979-2000

2000-2012

EMPLOYMENT TO POPULATION RATIOS BY EDUCATIONAL ATTAINMENT


Note: Cohorts include persons 25 to 64 years old. Source: National Center for Education Statistics, Digest of Education Statistics, 2012. Based on U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment and Unemployment Statistics.

40

50

60

70

80

90

1975 1980 1985 1990 1995 2000 2005 2010

Pe

rce

nt

of

Co

ho

rt

Less than

high school

High school

Some college

Bachelor’s or

higher degree

COMPARATIVE METRO WAGE PERFORMANCE 2001 - 2011

Notes: Average wage for private, non-agricultural employment. Growth calculated as compound annual growth rate. 50 largest MSAs displayed.

Ave

rage

Wa

ge

, 2

01

1

High but declining

versus U.S.

Low and declining

versus U.S.

Low but rising

versus U.S.

High and rising wages

versus U.S.

U.S. Average Wage Growth Rate: +2.8%

U.S. Average Wage,

2011: $45,535

Growth in Average Wage, 2001 to 2011

Source Census CBP


New York

Los Angeles

Chicago

Washington

Houston

Dallas

Philadelphia

San Francisco

Boston

Atlanta

Miami

Seattle

Minneapolis

Detroit (+1.95, $48,621)

Phoenix

San Jose (+3.3%, $89,857)

San Diego

Denver Baltimore

Portland

St. Louis, MO

Charlotte

Pittsburgh

Tampa

Riverside

Kansas City, MO

Cleveland

Orlando

Indianapolis Cincinnati

Columbus

Sacramento

Austin

Las Vegas

Hartford

Milwaukee

Bridgeport, CT (+3.0%, $77,922)

San Antonio

Nashville

Virginia Beach

New Orleans (+4.2%, $44,486)

Salt Lake City Providence

Memphis

Richmond

Jacksonville

Oklahoma City (+3.8%, $40,114)

Louisville

Raleigh

Birmingham

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

2.0% 2.5% 3.0% 3.5%

Source: BLS. 50 largest MSAs displayed.

COMPARATIVE METRO LABOR MOBILIZATION PERFORMANCE 2008 - 2012

Low but rising labor force

participation versus U.S.

Pro

po

rtio

n o

f W

ork

ing A

ge

Po

pu

lati

on

in

th

e W

ork

forc

e, 2

01

2

Change in Proportion of Working Age Population in the Workforce, 2008-2012

High but declining labor force


Low and declining labor force


High and rising labor force


U.S. Change in Labor Force

Participation Rate: -2.3%

U.S. Labor Force

Participation Rate: 63.7%


Atlanta

Austin

Baltimore

Birmingham

Boston

Bridgeport

Charlotte

Chicago

Cincinnati

Cleveland

Columbus

Dallas

Denver

Detroit

Hartford

Houston

Indianapolis

Jacksonville

Kansas City, MO

Las Vegas Los Angeles

Louisville

Memphis, TN

Miami

Milwaukee

Minneapolis

Nashville

New Orleans

New York

Oklahoma City

Orlando Philadelphia

Phoenix

Pittsburgh

Portland

Providence

Richmond

Riverside

Sacramento

St. Louis, MO

Salt Lake City

San Antonio

San Diego

San Francisco San Jose

Seattle

Tampa

Virginia Beach

Washington

55%

60%

65%

70%

75%

-7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3%

Change in Philadelphia Share of National Employment, 2001 to 2011

Ph

ila

de

lph

ia N

ati

on

al E

mp

loym

en

t S

ha

re,

20

11

Employees 7,000 =

TRADED CLUSTER COMPOSITION OF THE PHILADELPHIA REGION 2001 - 2011

Added

Jobs

Lost Jobs

Employment

2001-2011

Overall change in the Philadelphia Share of

US Traded Employment: -.104%

Philadelphia Overall Share of US

Traded Employment: 2.25%

Source: Prof. Michael E. Porter, Harvard Business School; U.S. Cluster Mapping 2014 Benchmark Definitions (Delgado-Porter-Stern 2013), Richard Bryden, Project Director.

Marketing, Design,

and Publishing

Distribution and

Electronic Commerce

Education and Knowledge Creation

Transportation and Logistics

Aerospace Vehicles and Defense

Biopharmaceuticals (5.5%)

Performing Arts

Agricultural Inputs and Services

Footwear

Business Services

Financial Services

Insurance Services

Information Technology and Analytical Instruments

Printing Services

Downstream Chemical Products

Automotive

Electric Power Generation and Transmission

Communications Equipment and Services

Furniture

Water Transportation

Upstream Metal Manufacturing

Oil and Gas Production and Transportation

Upstream Chemical Products

Vulcanized and Fired Materials

Wood Products

Textile Manufacturing

Nonmetal Mining

Jewelry and Precious Metals Leather and Related

Products

Trailers, Motor Homes, and Appliances

Forestry Fishing and Fishing Products

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5%

RESTORING U.S. COMPETITIVENESS WHAT WASHINGTON SHOULD DO


1. Create a sustainable federal budget, combining greater revenue

(including fewer exemptions) and less spending

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

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

2013. (Nov 2012).

23

MACRO

MICRO

STRATEGIC PRIORITIES FOR FEDERAL POLICY: APPROVAL PERCENTAGES


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%

U.S. business leaders General public

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


the looming challenge of u.s. competitiveness ... files/20140311-us...2014/03/11 · n s rce sm n s...

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