The U.S. economy has undergone a structural transformation in recent decades. Large firms have shifted from doing many activities in-house to buying goods and services from a complex web of other companies. These outside suppliers make components and provide services in areas such as logistics, cleaning, and information technology. Deregulation, market failures, and corporate policies have led to the rise of supply chains comprised of small, weak firms that innovate less and pay less. These problems in supply chains threaten U.S. competitiveness by undermining innovation, and also contribute to the erosion of U.S. workers’ standard of living. A different kind of outsourcing is possible. Instead of suppliers and contingent workers engaged in a race to the bottom, supply chains could be comprised of skilled specialists who collaborate with each other on innovative products and services. This paper suggests policies to promote supply chain structures that stimulate equitable growth—that is, policies that both promote innovation and also ensure that the gains from innovation are broadly shared.
We discuss ways that supply chain public policies and private business practices can be improved. Key recommendations to improve job quality and boost innovation include:
- Encourage collaborative relationships between lead firms and suppliers
- Nurture productive eco-systems of firms, universities, communities, and unions
- Promote the formation of supply chains in industries that advance national goals
- Promote good jobs and high-road strategies
- Discourage low-road production strategies
- More fairly share the benefits and risks of contingent work
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