The next chapter of American economic competitiveness: A CEO and board agenda

The United States is approaching its 250th anniversary, having established itself as a global economic powerhouse, generating over a quarter of global GDP with only 4% of the world's population and hosting more than half of the top 100 companies. Americans have driven transformative inventions from the steamboat to AI. However, the fundamental question is whether this success can be sustained given the rapid pace of change in AI, the reshaping of supply chains by geopolitics, China's emergence as a leader in areas like EVs and robotics, and US debt levels not seen since World War II. This discussion, featuring McKinsey's Eric Kutcher and Olivia White, explores how the US can maintain its competitive edge, drawing insights from their new McKinsey Global Institute report, "At 250: Sustaining America's Competitive Edge." Olivia White highlighted that while the US's current economic standing is impressive—26% of global GDP with 4% of the population and 59 of the top 100 firms—a closer look reveals areas for concern. For instance, US R&D expenditure, at 51% of global spending, is significant but proportionally less than its share of top firms, prompting questions about the sustainability of its competitive position. The success of US companies is a dual story: a consistent presence of market-leading firms, with over half of the top 10 firms being American for over a century, coupled with deep-seated dynamism across all firm sizes. US firms exhibit faster growth when productive and faster disappearance when not, alongside a high rate of new firm creation linked to innovation. Eric Kutcher expressed optimism, attributing the US's sustained leadership to its underlying values, entrepreneurial spirit, and problem-solving culture. He believes that new companies, yet to go public, will emerge from the US to dominate future top 10 lists. However, this future is not guaranteed. CEOs today face immense change, with AI and geopolitics being top concerns. Geopolitics introduces unprecedented uncertainty, forcing leaders to navigate multiple shocks annually. CEOs are focused on labor, capital, and investment, but Kutcher emphasizes that this is a "reimagined moment" for businesses to fundamentally rethink their operations. He encourages an "attacker's mindset" for incumbents, leveraging technology to profoundly redefine their businesses, despite the competitive landscape shifting and historical moats eroding. While optimistic, Kutcher acknowledges significant obstacles. Infrastructure, once a strength, is now a liability. For example, the US has $1.5 trillion in projects awaiting permits, and its energy infrastructure needs substantial investment. The education system, once world-leading, now lags, particularly in engineering graduates, where the US produces only about 10% of China's annual output. This poses a serious challenge for competing in an engineering-oriented future. Rising debt levels also present a concern, especially as the US has not demonstrated a capacity for significant cost reduction or budget balancing. The hope is that AI-driven productivity growth can generate the necessary economic expansion to manage this debt. Furthermore, the collaboration between government and business in research funding has diminished, with reduced federal funding and increased reliance on business investment, raising questions about its long-term sustainability for large-scale innovation. Olivia White reinforced the idea that the US has a history of reinvention, shifting its competitive base from agriculture to industry, then to scientific strength post-WWII, and eventually leading the digital era. These reinventions often occurred during geopolitical struggles and technological inflection points. She believes these historical constants—ingenuity, invention, natural resources, and enabling institutions—can help tackle current challenges. Regarding AI, Olivia highlighted the imperative of "AI fluency." This involves the US leading as an AI innovator and implementer in both software and physical AI, requiring funding, infrastructure, energy, and skilled engineers. It also means ensuring broad participation in the changing economy, necessitating education that fosters fluency in this new technological landscape and a societal understanding of its implications. Eric added that the erosion of high-end manufacturing capabilities, a historical strength, is now a liability. The choice to outsource manufacturing, while potentially curbing inflation and expanding access to goods, eroded the middle class and led to a loss of know-how, particularly in critical areas like chip manufacturing, which has national security implications. He stressed the need for retraining and rebuilding this expertise, though he cautioned against attempting to manufacture everything in the US given the declining labor base due to less immigration and more retirements. On investment, Olivia noted the significant domestic and foreign direct investment flowing into AI and R&D in the US, with major tech companies dramatically increasing their capital expenditure. However, sustaining this requires continued faith in the US economy and government's trustworthiness, particularly regarding debt management. The fact that defense spending is now less than annual debt repayment underscores the need to substantially reduce debt to ensure the US remains an attractive place for capital investment. Eric added that major tech providers are now moving beyond operating cash flow to fund these investments, taking on more debt, and the long-term economic equation of this investment phase needs careful monitoring. Kutcher reiterated that the aging infrastructure, particularly in energy, is a major deficit. Despite some public-private partnerships, the scale of investment needed for bridges, highways, and energy infrastructure is massive. He believes these challenges can be overcome, but it will require significant investment, which ties back to the underlying growth equation for the US economy. Olivia pointed out that none of the global top 50 ports are in the US and emphasized the need for a long-term perspective on infrastructure investment, as it clearly repays. She also highlighted a broader theme around physical infrastructure and manufacturing know-how, noting China graduates ten times more mechanical engineers than the US. When asked what questions he would pose as a board member, Eric emphasized understanding the business as an "AI-first business" in 5-7 years, with reimagined end-to-end workflows that leverage AI's ability to transcend organizational silos. He would inquire about CEO tech fluency, decision-making processes, and the use of AI for "red team/blue team" strategic analysis. He also stressed the importance of recognizing and driving organizational change while addressing employee fears about job displacement by orienting AI towards business improvement, customer service, and growth. Olivia added the importance of considering long-term trends and looking beyond short-term volatility, even while preparing for it, when making decisions.