Report Finds 'Troubling Divergences' in U.S. Economy

UPDATED: September 11, 2014, at 11:35 a.m.

Harvard Business School alumni are still pessimistic about the American economy, according to a new report from the school entitled “An Economy Doing Half Its Job.”

The report, which was written by Business School professors Michael E. Porter and Jan W. Rivkin and released Monday, highlighted a “troubling divergence” in the U.S. economy, where large firms have recovered from the economic recession and highly-skilled workers are prospering, but small businesses and working-class citizens continue to be in distress.

“A lot of the confusion in the public discourse [about U.S. competitiveness] starts at the definition,” Rivkin said. “When we say the U.S. is competitive, we mean that firms here can do two crucial things: win in the global marketplace but also lift the living standards of the average American citizen.”

Only 33 percent of survey respondents were optimistic about U.S. competitiveness, while 47 percent, a plurality of respondents, said they expect U.S. competitiveness to deteriorate. The remaining 20 percent expected the conditions to remain the same.

These numbers have declined from previous years, where survey numbers reflected that 71 percent and 58 percent of respondents, respectively, expected U.S. competitiveness to decline in future surveys.

Survey participants where asked, “how can we create a U.S. economy in which firms both thrive in global competition and lift the living standards of the average American?”

The results identified three general areas of weakness where improvements might lead to increased competitiveness for U.S. firms: K-12 education, workplace skills, and transportation infrastructure. These areas are consistent with the responses of surveyed alumni, who felt that the aforementioned areas were crucial to the growth and development of middle- and working-class citizens.

“Without an educated populace and a pool of skilled labors the firms here will suffer,” Rivkin said.

Respondents were more positive about other areas of the U.S. economy.

“They saw strengths in aspects that influence company success, such as the quality of management, the vibrancy of capital markets, and firm access to innovation,” according to the report.

Rivkin noted that many firms are making efforts to compensate for their weaknesses by investing in mutually beneficial resources that both workers and firms need to be competitive, such as education partnerships.

“Business leaders are recognizing their interests in the commons,” Rivkin said. “They do it not just out of patriotism or altruism, but out of pure interest.” He emphasized that the U.S. economy is at a crossroads, where decisions should be made to address the existing structural weaknesses, despite signs of recovery.

“Will we as a society now sigh in relief and continue business as usual?” the report asks. “Or will we seize the opportunity to repair the structural weaknesses in our economy?”

With the help of the research firm Abt SRBI, Rivkin and Porter surveyed 1,947 HBS alumni from 46 U.S states and 72 foreign countries. This is the third version of the survey, which was previously conducted in 2011 and 2012, with the purpose of gauging the outlook of business leaders in regard to U.S. competitiveness.

—Staff writer Carolina I. Portela-Blanco can be reached at cportelablanco@college.harvard.edu.