Gauging emerging challenges to economic competitiveness

By Donald C. Fry

What caused the Great Recession of 2008?

Most of us would offer the same answer. The massive economic downturn that, though “officially” over, continues to linger tenaciously in the United States and in Maryland was caused by the housing bubble, right?

Not entirely, said Stephen J. Ezell, an expert on innovation economics who will be a featured speaker at the Greater Baltimore Committee’s September 26 Economic Outlook Conference, “The Innovation/Entrepreneur Economy: Is it Maryland’s Future?”

“Neither the recession nor the slow recovery can be attributed simply to a random financial crisis caused by the bursting housing bubble,” contend Ezell and co-author Robert D. Atkinson in a new book, Innovation Economics: The Race for Global Advantage.

A major contributing factor, prior to the recession and now, is that the United States is “falling behind” as a global competitor, they say.

Their book examines fundamental issues relating to global competition, including who is winning and losing, why and what’s needed to recapture leadership in innovation.

Ezell, senior analyst at the Information Technology and Innovation Foundation, will be joined at the GBC conference by Maryland 6th District Congressman John Delaney, a vocal advocate on Capitol Hill for national policies to nurture entrepreneurship, and Newt Fowler, a partner at the law firm of Rosenberg Martin Greenberg LLP and advisor to technology companies in the region.

The United States ranks No. 4 in the Information Technology and Innovation Foundation’s scoring for global competitiveness and innovation. But our nation scores second to last among more than 40 countries evaluated for improving innovation capacity, Ezell reported in an August presentation to the BioPharma Research Council’s biotech symposium in North Carolina.

With technology companies evolving from just “shopping the states to shopping the world,” recent studies show the United States is increasingly losing “locational” decisions, according to Ezell.

Ezell points to a 2012 Harvard Business School survey to measure perspectives on U.S. competitiveness among 10,000 Harvard graduates. Survey respondents included 1,700 who were personally involved in making decisions about whether to place business activities and jobs in the United States or elsewhere.

“In these choices, the United States competed with virtually the entire world and fared poorly, losing two-thirds of the decisions,” reported the Harvard study. There is strong evidence the United States faces “a deepening competitiveness problem.”

Survey respondents see the U.S. business environment as relatively strong, “but not keeping pace with other economies,” according to the report. Respondents cited America’s tax code, regulations, workforce skills, K-12 education, political system and economic policies among “impediments” to investing in the United States.

Interestingly, Harvard researchers noted many competitive weaknesses articulated by survey respondents relate to public policy, raising a concern that “perhaps the survey findings reflect little more than business people grousing about the government and politicians.”

Whether it’s grousing or reality, there is ample evidence that “a series of structural changes” in the U.S. economy that began well before the Great Recession threaten to undermine long-term U.S. competitiveness, researchers assert.

Among other things, they note that the U.S. government “is more fiscally constrained and politically gridlocked” than it was three decades ago.

I note the same could be said of Maryland’s government.

Productivity growth must be a top-tier priority for boosting competitiveness, contends Ezell. He notes that renowned economists have long touted productivity growth as the key factor to economic success and that science, technology, innovation and entrepreneurship must be placed at the heart of economic policymaking.

Harvard Business School researchers agree. “In today’s global economy, American wages and living standards are deeply influenced by whether our productivity offsets lower wages elsewhere,” they note in the school’s 2012 report, Prosperity at Risk.

In reporting these issues regarding competitiveness, I do not mean to disparage Maryland or the United States as places where businesses can thrive. Both remain strong, but must focus more strategically on the future.

In Maryland, for example, economists and business-climate experts universally cite the tremendous resources and potential for private-sector innovation and growth that exist here.

But it’s critically important for our state’s business sector and government policymakers to find a way to get on the same page when it comes to a strategy for innovation and growth, agreed business leaders who gathered in June at the Greater Baltimore Committee’s Chesapeake Conference of CEOs for day-long discussions about competitiveness. Hence, conference participants’ call for a “Compact for Competitiveness.”

It seems clear that the need for a public-private strategic consensus is a fundamental prerequisite that exists in both Annapolis and Washington.

It’s the starting point for Maryland and the nation to convert our still-tremendous potential for innovation into renewed strength in the global economy.

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