Communities, businesses need the other to thrive

American business leaders express guarded confidence in the economic recovery, yet many low- and middle-income households continue to experience stagnant incomes and bleak prospects. This marks a dangerous and decisive moment for the country, says a new report from the Harvard Business School.

The report, “An Economy Doing Half Its Job,” is based on a survey of Harvard business graduates and the school’s own academic research. The research team writes that the nation is competitive when U.S. firms “can (1) compete successfully in the global economy while also (2) supporting high and rising living standards for the average American.” Our problem, unprecedented, is that today the “trajectories on those two goals point in very different directions.”

The current divergence makes this a dangerous time, because “businesses cannot succeed for long while their communities languish.” I’d add it works both ways. Communities cannot thrive without successful, competitive businesses.

With shared prosperity, business benefits from productive employees, willing consumers and voters who support pro-business policies. When the prosperity is not shared, you get some of what we see now: flagging consumer confidence, disgruntled workers and a rise in anti-business sentiment.

As a society, we have a choice, an opportunity to repair what the analysts identify as structural weaknesses in the economy and improve conditions for most Americans. They report that firms wanting to bring work back to the states “often struggle to find the skilled labor, the reasonable costs of doing business and the physical infrastructure they need.”

The finding leads directly to familiar recommendations to “take a smarter approach” to K-12 education, workplace skills and transportation.

These are the policy perennials, things that are never static and must always be pursued in a competitive world, one in which the U.S. risks losing its historical advantages.

None of this will be news to Washingtonians. The Harvard Business School recommendations effectively mirror the recent legislative agendas of the state’s major business associations. In these areas, leadership must come from the states.

New international research reveals that America is falling behind in workplace skills. One way to track that is to look at performance by age group. While older Americans remain competitive or better on measures of literacy, math and problem solving, workers below age 44 test below our global competition. Recent education reforms, including higher standards and increased accountability, should reverse the decline. But as we’ve seen in our state, change and innovation in education comes slowly.

Another challenge to workplace competitiveness stems from changing hiring practices. The Harvard research found that “business leaders in America are reluctant to hire full-time workers,” preferring instead to automate, outsource or hire part-timers. Public policies that drive up employment costs create an incentive for employers to dampen hiring, resulting in fewer opportunities for workers to develop skills.

The combined effect of insufficient education and the decline of employer training contribute to a skills gap, a shortage of qualified workers for available jobs. Research conducted for the Washington Roundtable identified 50,000 unfilled positions attributable to that skills gap in our state. In business school jargon, the mismatch is “a classic hallmark of dysfunctional supply chains: oversupply alongside shortages,” with some workers forced to accept positions for which they are overqualified while other jobs go unfilled because the right skills match cannot be found.

The Harvard analysts acknowledge the common understanding that business relies heavily on transportation to move goods and personnel. But they also make the often overlooked point that “mobility is opportunity” for the less affluent, who often live where options are limited and public transit uneven.

Here, too, the federal government is an unreliable partner. And in our trade-dependent state, deteriorating infrastructure and increased congestion put our economy at risk. Yet, lawmakers still can’t agree on a comprehensive funding plan.

Politicians here have attempted to address the problem of income stagnation by mandating higher wages and benefits. It’s a flawed tactic, one that will depress job creation, foreclosing opportunities for many young and unskilled workers.

Successfully addressing the education, workforce and transportation deficits, the Harvard analysts write, can “make the average American productive enough to command higher wages even in competitive global labor markets.” That way, communities thrive and everyone benefits. There is, simply, no other solution.

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