To Be Productive: India Must Build Clusters, US Must Stop Divisive Politics

Iconic economist Michael E. Porter shares learnings from his research on how India can increase competitiveness and why USA has been the least competitive its been in the past 20 years. From the event “India’s National Competitiveness Forum and Porter Prize”.

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“125th rank for GDP/capita according to World Bank data for entire world. It’s not bad. But India should want to be higher than 125th.”

“Doesn’t matter how smart and great entrepreneurs are if bureaucracy will exist. India must continue to work on these issues too.”

“Cluster is an interconnected group of companies and associated institutions in particular field, in a particular region that are mutually reinforcing. We don’t determine our success, our cluster determines our success.”

“India has a long complicated economic history because of politics, philosophies, deep rooted beliefs. These factors have affected the nation’s ability to be competitive across businesses. The PM Modi regime there has been a discontinuity of these unfavourable factors.”

Cluster building – It’s not about building companies but about building clusters. A cluster based economy development is the key to success.

“Too often businesses think their success is dependent on what they do. Think it’s about “our strategy, products, choices etc”. while this is true to a certain extent. We learn from research that external factors maters a lot, competitiveness of a company depends on its external environment and the cluster it is in. cluster companies do better than isolated ones. This is not a familiar idea in business but has a lot to do with each company’s personal success.”

Example – take Bollywood in Mumbai. How the talent agencies, cinemas, make up academies, studios companies are concentrated in one area close to each other geographically.

“Getting clusters right is critical, you must participate in creating these clusters. Be proactive here.”

A country has healthy competitiveness only if businesses are able to successfully compete globally and locally, and if this productivity will lead to increased quality of life for all citizens.

“Both must win. Only productivity will allow this. Companies must enable a totally productive work force, with low unemployment rates. It’s a not a zero-sum game, not a political battle between workers and the managers.”

Productivity starts with endowments such as bridges, airports, and roads etc., these are the resources a companies will inherit. To really prosper it’s how you use endowments that will drive prosperity.

“Also stable Macroeconomic conditions, microeconomic conditions, Human development and political institutions, demanding customers who will drive companies to be better, Protection for IP – Taiwan never made progress until they protected IP must be worked out too.”

About the US economy he said, “US economy has been least competitive its been in last 20 years – the country is at an odd place. Since ww2 the economy has been dynamic with rapidly rising wages, and creating jobs rapidly. However the economy peaked in 1999/2000 and trended in opposite direction for job, growth and productivity.

“Our research at Harvard Business School shows us the US has lots of strength like science and tech, entrepreneurship and academics research.”

“But weaknesses have been allowed and mostly due to political inaction – public education quality is low, skilled development is not as high as it used to be – US had the highest skilled workers in the world, cost of doing business is too high, infrastructure is not efficient – take a flight from Shanghai airport to Kennedy airport, it feels like landing at an airport in a developing country compared to the Shanghai airport; Healthcare cost are too high at 18% of GDP, but quality isn’t better than rest of world; we have highest corporate tax rate in the world which is driving away business investments.”

“The root cause is political which used to be a strength of US – we haven’t had any legislation passed in any of the weak areas.”

“Furthermore, this presidential election is a catastrophe. It’s divisive, and slamming each other. There is no collaborative discussion on how the country can be developed.”

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