America's Slow, Painful Techno-Economic Transition

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Since the collapse of the tech bubble in 1999, the U.S. economy has been transitioning from the Installation Phase of the Digital Revolution into its Deployment Phase. This transition is painful because the institutions that underpinned the Mass Production paradigm of the 20th century have to be transformed to accommodate the 21st century Digital Paradigm.

Just as in the last such transition, called the Great Depression, the U.S. economy has been experiencing a sustained period of economic weakness. This has become apparent in the widening deviation that we've seen from the economy's long-term trend line since 2007.

To get to the root causes and solutions, managers, investors, and policymakers need to understand which institutions are driving our economic competitiveness, and the degree to which they are inhibiting or enhancing our ability to compete.

Legendary Harvard Business School strategist Michael Porter set out in 2011 to answer those issues and, after three years of research, he has developed some powerful answers.1

Competitiveness was assessed based on the position of the U.S. economy relative to other countries, and whether it was improving or declining. Based on input from roughly 2,000 Harvard Business School alumni, it became clear that the institutions undermining American competitiveness are:

  • The Political System
  • Macroeconomic Policies
  • The Tax System
  • The Legal System
  • The Healthcare System
  • K-12 Education
  • The Regulatory System

Notably, all of these institutions are primarily operated and controlled by the government. More importantly, all of these institutions were seen as deteriorating relative to our competitors.

In other words, our weakest institutions are getting weaker.

Based on this same assessment, the primary institutions enhancing America's competitive advantage are:

  • Logistics Infrastructure
  • Skilled Workforce
  • Communications Infrastructure
  • Property Rights
  • Industry Clusters (like Silicon Valley)
  • Flexible Labor Practices (related to hiring and firing)
  • Management Expertise
  • Capital Markets
  • Research Universities
  • America's Context for Entrepreneurship
  • Our Innovation Infrastructure

Notably, all of these institutions are primarily operated and controlled by the private sector...

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