A Blueprint for Success
Stop whining about taxes and bureaucrats. If you want your company to remain competitive, it pays to invest in superior brainpower.
By Jeffrey Pfeffer

(Business 2.0) – I recently listened in as the head of the Silicon Valley Manufacturing Group complained on a local radio talk show that the tech industry needs less taxation and more investment in education to compete effectively in the global economy. I chuckled at his obvious contradiction, but it was hardly unusual: I often hear executives gripe that taxes, regulation, and red tape are smothering American competitiveness.

It's hard to feel sorry for these miserable titans of industry. Regulatory enforcement has generally become more lax in recent decades, while federal revenue from corporate taxation has declined from 2.2 percent of GDP in 1998 to just 1.6 percent today. More important, a variety of studies have come to the same conclusion: The factors that are often cited as diminishing global competitiveness--high taxes and regulation--aren't the problems that most demand our attention.

Look at the countries that consistently score highest on surveys of global competitiveness: The World Economic Forum's 2004 competitiveness study ranks Finland first, with Sweden, Norway, and Denmark--Nordic countries with generally high tax rates, vibrant trade unions, and generous social welfare programs--also in the top six. (The United States ranked second overall in the WEF survey.)

Likewise, Harvard strategy guru Michael Porter, an author of an innovation index that ranked the United States first in 2002, compiled the data for an unpublished 2004 index that showed that the United States had fallen to third place, behind Japan and Finland.

Author and researcher Richard Florida argues that the United States built the most powerful economy in the world during the past several decades by attracting the best human capital from all over the planet. Now, however, Florida's global creative-class index, measured as the proportion of high-value "creative" jobs in the total economy, ranks the United States 11th, behind countries such as Ireland, the Netherlands, Belgium, Canada, and, once again, Finland.

These studies point to economic trends that have a real impact on economic performance. Take labor productivity, an important barometer of economic efficiency and wealth creation. From 1994 to 2004, U.S. labor productivity grew by an average of 2.5 percent annually, while Finland's and Sweden's grew by 3 percent and Denmark's by 2.7 percent.

How is this possible? Simple: Today the most valuable form of labor--in both countries and companies--is knowledge work. Skills, talent, and educational attainment loom large as determinants of who wins and who loses in the global economy. Yet study after study shows the United States lagging in elementary school performance and in the number of people who pursue higher education in science, mathematics, and engineering. Historically, immigration has filled the gap, but since 9/11 the United States has become a less accessible destination for skilled immigrants. A 2004 report by the Council of Graduate Schools found that the number of Chinese students applying to U.S. graduate programs had fallen by 45 percent and the number of Indian students had shrunk by nearly 28 percent.

What's a patriotic CEO to do? First, stop whining about taxes and regulation. Instead, press for investment in infrastructure, particularly higher education. Second, companies need to accept responsibility for some of the costs associated with worker training. General Electric and Motorola famously built effective management teams by investing heavily in staff development. The Container Store's new employees average 241 hours of training. Textile manufacturer Milliken reportedly requires workers to participate in 40 hours of training annually. These firms consistently turn in excellent results in highly competitive industries.

The evidence is compelling: Bureaucrats don't determine the long-term viability of American business; brainpower is what matters, and nurturing the capacity for innovation and invention is a sound investment. My hunch is that cranky executives will be no more satisfied (or competitive) when they realize that lower taxes today mean companies will get exactly what they pay for tomorrow--and nothing more.