The U.S. Economy Has Become Two-Faced, Here’s Why it’s a Problem

Source: Thinkstock

Source: Thinkstock

News regarding the economy has been a mixed bag. On one hand, many have continuously knocked the president and his administration for the lack of growth, and on the other, the stock market has roared to new heights and corporate profitability is as good as its ever been. Even unemployment numbers are lower than pre-recession levels. So why does it feel like a good portion of the U.S. population is still stuck in a rut?

New research from the Harvard Business School indicates that it may have something to do with the economy actually splitting onto two separate tracks; one in which big businesses and highly skilled individuals are prospering, and another where almost everyone else is struggling. HBS’ data, collected through an alumni survey on U.S. competitiveness, leads to the conclusion that while the aim of the economy — in the big picture, anyway —  is to ensure prosperity for all citizens, the current path we’re headed down appears to be completely unsustainable. This conclusion, based on the current state of economic affairs, boils down to one simple assertion: the economy is essentially doing only half of its job.

If only a portion of businesses and individuals are seeing any positive outcomes from the current state of economic affairs, then is it truly acting in the best interests of society? Likely not — and that is something that will need to change. As far as how that change can actually be manifested, or, how the economy can be reshaped to ensure prosperity for all players, HBS identified several patterns in respondents’ answers that provide some insight.

Among those identified patterns are a pessimistic take on U.S. competitiveness (although less pessimistic than in previous surveys), aspects of weakness in the middle and lower classes, aspects of strength in factors that drive company success, and a far more negative take on the current state of things from respondents working in small businesses than those employed by larger firms.

Source: Harvard Business School

Source: Harvard Business School

The major areas of concern

In addition to those major themes, the survey identified three other major areas of concern. Those areas, if  handled with care, could improve the prospects for working and middle class members of society. Specifically, those three areas were K-12 education, the development of workplace skills, and transportation infrastructure. Without a doubt, all three of these factors are incredibly important to the long-term success of the economy, yet they are all either underfunded or ignored.

These are areas that not only should be recipients of public investment, but from private enterprise as well. They are public resources in which everyone — both the general public and private organizations — use to their advantage, and are vital elements of society going into the future. There are plenty of businesses and private interests who do invest in these essential components of society, but the HBS warns that failure to see an increase in those investments will cost everyone over time.

“Cutting across these three areas, we see a need for business leaders to act — to move from an opportunistic patchwork of projects toward strategic, collaborative efforts that make the average American productive enough to command higher wages even in competitive global labor markets,” the HBS says. “In the long run, American business will suffer from an inadequate workforce, a population of depleted consumers, and large blocs of anti-business voters. Businesses cannot thrive for long while their communities languish.”

Is it likely that more businesses and private individuals will be spurred to invest more in their communities and the long-term success of the U.S. economy? Or will the focus remain on short-term gains and calming shareholder worries? It’s hard to say right now, but the HBS is sending the message that something definitely needs to change.

We can look at the current state of the economy — with unemployment sitting at 5.8%, student debt levels sitting at around $1.2 trillion, and business dynamism levels dropping quickly — and come to the conclusion that something is definitely off, in a sense. While government leaders continue to brag that the economy is on the fast-track to success — and it is in far better shape now than it was when Obama took office — the gains and economic victories have gone and continue to go to the wealthiest classes.

“The folks in the middle and at the bottom haven’t seen wage or income growth, not just over the last three, four years, but over the last 15 years,” said President Obama during an interview on ABC with George Stephanopoulos. Although the president does tout a string of economic victories during his time as president, it looks as though he is completely aware that the economy has taken on a dual nature. Although, he may be more or less limited in his capacity to do anything about it.

Win McNamee/Getty Images

Win McNamee/Getty Images

Who can do anything about it?

So, what can be done? As much as people don’t like to hear it, it looks as if either the nation’s top earners step up and help shoulder more of the burden that the country now faces, or the government will have to do it for them in the form of higher taxes and expanded social programs. That option is sure to be met with fierce hostility, and may not be the best way to fix the problem. But it appears to be the simplest and most straight forward to even the deck, and may be the only option if voluntary sacrifices can’t be made.

As far as the two-faced facade that the economy has adopted, what can be done to reintegrate it back onto one track? And in a way in which not only the fat cats thrive, but also the little guy? HBS has a handful of suggestions: investment in infrastructure strategies, promotion of mobility (both social and physical), improving government transparency, and engaging entrepreneurs, business, and civic leaders are chief among them. These are merely stepping stones, but it will also take contribution from everyone to actually see America return to economic prosperity.

“Getting the American economy to do its full job will require concerted, coordinated, and sustained action — in other words, a strategy. State and local officials, federal policymakers, and business leaders must all contribute,” the report says. “The issues are scale, collaboration, and ambition. Will enough business leaders step up to such investments in the commons? Will business leaders collaborate effectively with educators, civic leaders, workers, nonprofits, and one another to multiply their impact? And will business aim to transform the commons, not simply apply band-aids? If so, business leaders will lift American living standards and, in the long run, benefit their companies.”

In brief, America is only as strong as its weakest link. If we can manage to pull everyone up to a higher level of prosperity, those at the top will benefit just as much as those at the bottom. Spurring ourselves to action is the key.

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