The news: Wealth inequality between the titans of industry and the American middle-class worker is growing, and unless necessary changes are made, things are only going to get worse.
This dire prediction comes courtesy of a Harvard Business School study released Monday. The researchers found that some economic players — big businesses and highly skilled workers — are recovering nicely from the Great Recession that rocked the nation in 2007. Others, however — working-class citizens and small businesses — are falling further and further behind. And this means that the U.S. will struggle and inevitably fail to remain competitive in the global economy.
"We argue that such a divergence is unsustainable," the report said.
Image Credit: Harvard Business School
The study, titled "An Economy Doing Half Its Job," surveyed 1,947 alumni on economic issues like competition from international businesses and the strengths and weaknesses of the U.S. working environment.
It also placed the responsibility for America's economic stagnation squarely on the shoulders of the nation's business and political elite. "We see a need for business leaders to act," the authors write. "Without such actions, the U.S. economy will continue to do only half its job, with many citizens struggling. Businesses cannot thrive for long while their communities languish."
Growing socioeconomic stagnation is an inherent part of the problem. The study noted that the parts of the U.S. business environment that usually propel the middle-class families forward — the education system, the quality of technical skills and the capability of the political system — are falling behind compared to other advanced nations. Meanwhile, the elements that primarily benefit businesses — high quality management, successful capital markets and innovation, things that aren't of major consequence to the average American family — are only improving.
The chart below paints a portrait of an economy with grossly misplaced priorities — and, as the authors argue, a fundamental flaw: "Workers are captives of the weakest aspects of the U.S. business environment, while firms are beneficiaries of America's greatest strengths."
The HBS alumni surveyed in this study seem to recognize that these deficiencies aren't sustainable: 47% reported that they anticipated American companies would be less competitive internationally and less able to provide high wages and benefits over the next three years. Though this is an improvement from 2012, when 58% thought that, it's still not a promising sign.
Sadly, this is just more of the same. Warnings like this can only be repeated so many times before they begin to sound like broken records, and that's exactly what's happening now. The Harvard Business School report, while damning, is also entirely unsurprising. Middle-income Americans — the 99% — are slipping further and further down the totem pole, while the wealthy 1% are living like kings.
Image Credit: Dorsey Shaw
But there's an important difference. The opinions in the report don't come from some random rabble-rousers protesting in Zuccotti Park; they're coming from America's business elites. Forty percent of the respondents claimed the title of president, chair, chief executive or other similar positions. If those folks are admitting there's a problem, you can bet that they're not making it up.
"Shortsighted executives may be satisfied with an American economy whose firms win in global markets without lifting US living standards. But any leader with a long view understands that business has a profound stake in the prosperity of the average American," the report cautioned.
So what can we do? It's incredibly difficult to map out a pragmatic solution to the issue of income inequality, but the report's first steps — that business leaders take a lion's share of the responsibility — is a good start. But the U.S. economy is at a pivotal stage: Will America's elites, as the authors write: "Will we as a society now sigh in relief and continue business as usual? Or will we seize the opportunity to repair structural weaknesses in our economy."
"Respondents were much more hopeful about the future competitive success of America's firms than they were about the future pay of America's workers," the report concludes. That's a terrifying — and unsustainable — prospect.