Boost the Economy, Elect a New Congress: Peter Orszag

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March 14 (Bloomberg) -- Last week, Harvard Business School hosted a conference in New York to talk about how the U.S. could continue to support “high and rising living standards for Americans” in the face of global competition. It was a lively discussion, leading to many good, if familiar, economic-policy ideas for increasing productivity in the U.S.

Unfortunately, this conversation largely ignored the key constraint to many of the policy recommendations: the rise of hyperpolarization in Congress. If business leaders want better economic policy, they need to first help elect more moderates to Congress.

The conference was centered on a survey of 10,000 Harvard Business School graduates, conducted in October 2011 by Michael Porter and Jan Rivkin, professors at the school. A quarter of the respondents had achieved the rank of chief executive, president or chairman of a corporation, or the equivalent.

Some of the survey’s most interesting questions had to do with decisions about location. More than 40 percent of people who participated said their firms had faced decisions about siting new businesses or relocating existing ones within the past year, and almost 20 percent of them had been personally involved in making the decision.

Return to U.S.

The good news: Three-quarters of the 93 decisions about whether to relocate existing business to the U.S. were positive. Hence some of the recent press about a wave of “on-shoring.” Similarly, more than half the decisions made about siting new businesses resulted in a decision to put them in the U.S. The bad news: The majority of location decisions (607 out of the 1,007 total) involved whether to move existing business out of the U.S., and almost all of those resulted in such a move. All told, almost 70 percent of the decisions resulted in business being located abroad rather than in the U.S.

The Harvard Business School alumni provided a set of recommendations for policy makers. They are familiar ones to those who follow policy debates -- including simplifying the tax code, reforming immigration policies, investing in infrastructure, and strengthening the use of cost-benefit analysis in the regulatory system.

Depending on how they were carried out, such changes could help attenuate (even if they wouldn’t eliminate) the effects on wages for many Americans from an increasingly globalized workforce, which under some estimates has quadrupled over the past three decades.

The main challenge, however, is not to come up with such a list of productivity-enhancing policy suggestions. It is, instead, to figure out how they could be enacted.

Corporate leaders who are interested in this agenda should therefore walk across the Charles River from the business school to the Kennedy School of Government and ask how they can help to elect more moderates to Congress who could carry out the laundry list of policy recommendations they support.

In particular, the decline in moderates in Congress -- exemplified most recently by the announcement from Senator Olympia Snowe that she will retire -- and the associated rise of hyperpolarization impedes policy making.

Nolan McCarty, a political scientist at Princeton University, has recently examined the issue and concluded that polarization substantially impairs legislative productivity. McCarty writes that, under one way of analyzing the question, “the least polarized congressional term produces a whopping 166 percent more legislation than the most polarized.”

Perhaps even more disturbingly, McCarty argues that in a polarized Congress any legislation that is passed is of poorer quality, thanks in part to the power of extreme factions.

Increasing Political Polarization

So while it is commendable that business leaders take the time and effort to recommend specific policies, their work will be ineffective as long as they ignore the problem of increasing political polarization.

What specifically could business leaders do to reduce the problem? The evidence suggests that although the public has become more polarized in recent decades, it remains more centrist than the Congress itself. That difference creates an opportunity for efforts to reduce the polarization in Congress to the level we see in the population.

The most realistic approach is to work to elect moderate representatives in House districts that do not swing hard one way or the other and moderate senators in states that are relatively evenly divided politically.

This strategy is more auspicious than betting on a third-party candidate to win the presidential election. (If someone from a third party did reach the White House, what would he or she do with a bimodal Congress anyway?)

Business leaders interested in American productivity already have plenty of good ideas for increasing it. But the first thing they should do is get involved in good old-fashioned electoral politics to boost the number of moderates in Congress.

(Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. The opinions expressed are his own.)

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