In the weeks since the November mid-term election, much has been said or written about the economic impact of continuing dysfunction in Washington. Most of the comments have come from Wall Street analysts and prognosticators, many of whom see a silver lining in more such paralysis. After all, the reasoning goes, the stock market has produced annual gains averaging over 11 percent since Washington returned to divided government in January of 2011, when the Republicans gained control of the House of Representatives. Edward Yardeni, a noted independent economist and strategist recently wrote: "Gridlock has been bullish for stocks in the past and should remain so."

But this sort of thinking, while perhaps applicable to short term fluctuations in the stock market, has little bearing on the long term outlook for the economy. And it is self evident that, over the longer term, we must have a strong and growing economy to sustain a lasting bull market. So the question becomes, what is the longer range outlook for the U.S. economy, given that political gridlock is likely to continue at least until 2016, if not much longer ?

Advertisement

Important work is being done on this critical question by the Harvard Business School in examining the competitiveness of the U.S. economy in the global marketplace. The co-chairs of this project, Professors Michael Porter and Jan Rivkin, have, through exhaustive surveys distributed to thousands of graduates of the Harvard Business School, documented that a broad range of business leaders from all points of the political spectrum agree that U.S. industry, despite recent economic gains, is slipping competitively and that a series of public policy issues must be addressed in order to arrest this slippage. Indeed, Professors Porter and Rivkin see the accelerating pace of recovery from the 2008-2009 crisis as a source of concern if, as a society, we fail to repair the structural weaknesses in our economy. Their work is covered in the "World in 2013" issue of the Economist (dated Nov. 21, 2012) under the title " What Washington Must Do Now — An 8 Point Program to Restore US Competitiveness."

None of the elements of the Harvard Business School program are surprising; they are all common sense steps such as fixing our broken corporate tax code, immigration reform and rebuilding the nation's infrastructure. Professors Porter and Rivkin's work documents clearly that because of our immigration policies, for example, we are training the world's best and brightest at our outstanding universities and then making it difficult for these future innovators to remain in the U.S. The result is that they are forced to leave the U.S. and compete against us. The much talked about Senate bi-partisan immigration reform bill would help greatly to address this problem, but because the GOP leadership in the House has steadfastly refused to bring the Senate bill to the floor for a vote, no action has been taken. The president's recent executive action on immigration reform does little to address the so called "high skill" immigration issue.

Similarly, the president has proposed numerous initiatives to invest in the nation's aging and deteriorating physical infrastructure, all of which have been blocked by the Republicans in Congress, another example of the dangerous effects of gridlock.

We must remember that business leaders, such as those cited in Professors Porter and Rivkin's work, are the folks who are making the daily decisions regarding the taking of risks, creating jobs, starting new ventures, locating businesses, etc. that so govern economic activity. It would behoove us to play close attention to this groundbreaking research, which dramatically points out that business leaders, perhaps more than stock market analysts, expect government to function and to make the public policy decisions necessary to enhance the competitiveness of U.S. business and therefore our overall economy. Continuing political gridlock can only stand in the way of such progress.

Alexander R. M. Boyle is the retired vice chairman of the board of Chevy Chase Bank, a position in which he served for over 35 years. His email is armboyle@aol.com.

Advertisement
Advertisement
Advertisement