As the weak recovery drags on, a hard reality has become clear: the US growth engine isn’t what it was in decades past. For domestic and international companies alike, this painful realization has been heightened by the slow emergence of Europe from its long recession and the serious speed bumps that emerging economies are now hitting.
Earlier this year, we spent several months investigating catalysts with the potential to revitalize the US economy. Five game changers emerged, with particular promise for adding momentum to the recovery and setting the nation on a higher long-term trajectory. These five are increasing shale-energy production, which could provide a competitive edge for the next 10 to 15 years; reversing the US trade deficit in knowledge-intensive goods, such as automobiles and aerospace products; harnessing big-data analytics to make broad areas of the economy more efficient; investing in infrastructure while transforming the selection, operation, and delivery of projects; and, finally, fully developing US human capital through better education and workforce training. We estimate these opportunities could raise US productivity and boost GDP by hundreds of billions of dollars over the next seven years (Exhibit 1). Three of them—energy, trade, and infrastructure—could create more than 1.5 million jobs each by 2020.
Market forces and simple self-interest are already prodding companies to move in some of these areas, such as developing shale energy or adopting big data in sectors like retailing and financial services. But others will need a concerted push from business leaders and policy makers, and grasping their full economic potential is far from assured. New standards and partnerships, as well as a focus on local innovation, can jump-start momentum. Above all, progress will require a willingness to stretch for new opportunities rather than wait for the old economy to bounce back—and a fresh mind-set that looks beyond this quarter’s results or the next election cycle. For business leaders in particular, four priorities loom large.
1. Cooperate in developing industry standards
Lingering uncertainties are slowing progress in a number of areas, but business leaders can move these issues forward without waiting for legislative or regulatory action. In big data, for example, standards for sharing consumer information and protecting privacy need to be resolved. Some companies already are working with universities and nonprofits to find technical and legal solutions for assuring privacy and cybersecurity.
In shale energy, oil and gas players can help mitigate environmental risks by pursuing standards for all producers to follow in fracking—and by continuing to improve drilling and well technologies to reduce its environmental impact. Some energy companies are joining with environmental groups, academic researchers, and foundations to monitor the risks and create operational standards. The Center for Sustainable Shale Development, for example, is a coalition of environmental groups (including the Clean Air Task Force and the Environmental Defense Fund) and energy firms (including Chevron and Shell). Mitigating these risks is crucial to protecting the air and groundwater while allowing the economy as a whole to reap the full benefits of shale development.
2. Build new types of partnerships
As the cybersecurity and shale examples suggest, companies hoping to stay in the vanguard of the new economy must look beyond their own boundaries and find new forms of collaboration. Big data, for example, is tailor-made for partnerships, such as a joint effort by Google and the US Patent and Trademark Office to create a new searchable database of intellectual property. Biotech and pharmaceutical companies are entering new multidisciplinary research partnerships to analyze enormous open databases of clinical and genetic information and collaboratively develop new drugs and diagnostics.
Or take the challenge of building a more competitive workforce. Some employers, facing mounting skill shortages, are forming industry associations to develop joint training programs, with agreements to protect participants from talent poaching. In one instance, AMTEC, a consortium of automotive manufacturers, has successfully teamed up with community and technical colleges to train skilled workers. Individual companies can work directly with educational institutions, as PG&E has done with California community colleges to create a training curriculum for future utility technicians. Competitors can also collaborate to develop industry-wide competency standards that enable educational institutions and private training providers to tailor individual programs.
Educational partnerships may be most important in STEM fields, for the United States has one of the lowest shares of college degrees awarded in science and technology. Relatively few incoming freshmen choose these subjects, and only half complete their degrees. Industry participation could help close the gap, with corporate internships, mentoring, and real-world research projects to keep students engaged. And companies can prime the talent pipeline even earlier, at the K–12 level. One intriguing experiment is P-TECH, a six-year New York City high school recently created through a partnership with IBM. Its STEM-intensive curriculum prepares students for entry-level IT jobs, offers one-on-one interaction with IBM mentors, and ultimately provides students with an associate’s degree.
Finally, innovative public–private partnerships (PPPs) may offer cash-strapped local and state governments the means to tap private expertise and capital for infrastructure projects. Such partnerships have, for example, built new high-occupancy toll lanes for the Capital Beltway, outside Washington, DC; a major light-rail expansion in Denver; and multiple toll roads in Texas. There is a new willingness to experiment with different types of financial vehicles and operating arrangements that can make public-works projects more efficient while creating more attractive opportunities for private-sector firms.
3. Drive local change
Local innovation is the key to realizing the game changers on a national level. Efforts to revitalize advanced manufacturing and US exports, for example, will naturally revolve around the industry-specific regional clusters that help fuel US economic vitality. Local business leaders not only set the direction for these innovation hubs but also sustain them through start-up incubators, coordinating organizations, venture capital, and collaboration with research universities. While Silicon Valley is the most compelling example, the United States has hundreds of innovative clusters, such as the Gulf Coast (chemicals), Ohio (polymers and advanced materials), South Carolina (automotive manufacturing), and Wichita, Kansas (aerospace).
Industry leaders can work with city and state officials to build on these local capabilities. The New Orleans Business Alliance, for example, recently unveiled a new five-year economic-development plan that focuses on supporting strategic industries. In Minneapolis, the Itasca project, a business-led economic-development task force, has made major contributions for more than a decade. These types of organizations should move the opportunities presented by the game changers to the top of the local agenda by expanding vocational training, developing infrastructure, promoting export industries, supporting the use of big data, and assessing the role a region can play in the shale-energy revolution.
4. Step out of your comfort zone
Fully exploiting the opportunities we have outlined so far will also require business leaders to stretch their thinking and their capabilities. For instance, the energy sector’s huge needs for new pipelines, drilling rigs, and related infrastructure equipment offers manufacturers a fast-growing market for existing and retooled offerings. In infrastructure, public–private partnerships are creating opportunities for not only engineering and construction firms but also insurance companies, pension funds, and other providers of long-term capital. In education, technology companies are seizing on the adoption by 45 states of Common Core standards—guidelines that create a much larger and less fragmented market for new digital learning tools.
The potential in energy, big data, and knowledge-intensive industries is large enough to spark the development of whole new supply chains. That could stimulate growth among a wide range of B2B goods, from fabricated metals to electronic controls, as well as service providers in areas such as logistics and data storage. What’s more, the big-data revolution is forging large new markets at the intersection of information technology and traditional economic sectors, such as health care, manufacturing, and retailing. Exploiting these opportunities could spur new zones of business activity as data aggregators and service providers analyze millions of medical records to lower costs and improve patient outcomes or comb through volumes of social-media data to glean insights for consumer-goods companies.
A number of multinationals headquartered outside the United States have been making bold bets in pursuit of these opportunities. Consider the recent surge of foreign direct investment into the United States from well-known international firms such as Airbus, Sasol, Shell, and Volkswagen. Domestic companies can similarly take advantage of changing factor costs and new technologies to expand—or even reimagine—their US footprints.
None of this is to suggest that business leaders can do everything themselves. Policy makers have a role to play, as well, but they need to take a nuanced approach. For game changers such as shale energy and the private sector’s use of big data, the government’s role will largely be laying the groundwork by setting legal and regulatory frameworks, often in conjunction with businesses.
In other areas, the main roles of the government will be to create an attractive business environment and to streamline the entire permitting process (which ranges from applications to inspection, disclosure, certifications, and, finally, the issuance of permits)—and then to get out of the way. To improve trade competitiveness, for example, national policy plays an important role in leveling the global playing field on taxes, foreign investment, and export promotion. Other countries, such as Ireland and Singapore, provide examples of how government agencies can coordinate their actions to create an attractive environment for investment and take these efforts to the next level.
For several game changers, government can be the catalyst for change. To realize the enormous potential of big data to cut costs in health care and government services, for example, policy makers will have to take a more active role in speeding its adoption and creating the right incentives. For infrastructure and talent, state and local governments will need to provide around half to three-quarters of the necessary investment (Exhibit 2).
Yet the private sector can create considerable momentum—and realize large opportunities—even if gridlock in Washington persists. It will take vision to recognize new markets, invest early, and create unconventional partnerships, but companies that act now may be able to seize first-mover advantages. They can also help to close out a period of sluggish US growth that has become nothing less than a slow-motion crisis for the unemployed, the underemployed, and future generations.