The credit crunch persists for small firms, and that could drag on job growth, Fed Chairman Ben Bernanke told the Economic Club of New York in a speech Monday. Small businesses' continued trouble borrowing from banks contrasts with big companies that borrow in the capital markets, which Bernanke said have returned to normal.

The Fed chairman's wide-ranging talk described an economy that had averted disaster but still faced two big challenges: tight credit for small and mid-size firms and households, and high unemployment.

Here are some excerpts of Bernanke on small business:

In particular, borrowers with access to public equity and bond markets, including most large firms, now generally are able to obtain credit without great difficulty. Other borrowers, such as state and local governments, have experienced improvement in their credit access as well.

However, access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses. Bank lending has contracted sharply this year, and the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices shows that banks continue to tighten the terms on which they extend credit for most kinds of loans--although recently the pace of tightening has slowed somewhat. ... For their part, many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms. The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

That constriction of bank lending could translate to weak job growth in the recovery, Bernanke said.

In addition, difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses. Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth.

[...]

Banks' reluctance to lend will limit the ability of some businesses to expand and hire. I expect this situation to normalize gradually, as improving economic conditions strengthen bank balance sheets and reduce uncertainty; the fallout for banks from commercial real estate could slow that progress, however. Jobs are likely to remain scarce for some time, keeping households cautious about spending. As the recovery becomes established, however, payrolls should begin to grow again, at a pace that increases over time. Nevertheless, as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect.

In terms of access to credit, small businesses and big businesses are again facing two different recoveries. (Hat tip to WSJ's Real Time Economics blog.)

Last Wednesday's Wall Street Journal brought the news that Russell Ackoff had passed away at the age of 90, after a long life of influencing management thinking and practice. At the time he was having the most profound impact on my life — when I entered The Wharton School's PhD. program, and the Center named for him — Russ didn't even know me. When we met years later, I think he appreciated that he had left a legacy of many students, myself included.

I was the last Ph.D. student ever to graduate from Ackoff's Social Systems Sciences program (founded in 1980) at The Wharton School. His program was a bit of an anomaly, even at the time. Wildly popular with Wharton's MBA students, it had an uneasy relationship with the more conventional academic activities of the school. In the Center's heyday, "Triple S" students did action research with companies, while their peers did statistical analysis of large data sets. His students were interested in ideas that cut across intellectual boundaries. They were pragmatic; some observers thought this left them without sufficient academic rigor. Eventually, because of this uneasy fit, Russ decided to leave the university. He retired in 1986 to found INTERACT, a consulting company. Ironically, his program in the 1980s was pursuing the kind of management training and problem solving that advocates are now urgently calling on business schools to provide.

Ackoff's ideas had a profound impact on business schools and on several generations of managers. At a time when business schools were becoming increasingly discipline-based and quantitative, he was an ardent advocate for viewing problems systematically, across intellectual boundaries, and with qualitative insight. In the program he designed, we learned to think the way architects do — to construct a whole solution out of constituent parts that work together, rather than to optimize any given piece of the solution. He was involved in businesses as diverse as selling beer, developing the first touch-tone phone, and sorting out incentive problems with public bus drivers. He had learned that all kinds of complex problems could be tackled by first understanding what kind of problem one was facing, then by working to "dissolve" the problem.

Russ never took himself, or the problems people were facing, too seriously. Iconoclastic and humorous in person, his books Management in Small Doses and Ackoff's Fables encouraged readers to find the humor in business situations. His wonderful writing was accessible to people who wouldn't exactly have been enthralled to read On Purposeful Systems: An Interdisciplinary Analysis of Individual and Social Behavior as a System of Purposeful Events.

What Russ spent his life developing — a systems view of complex problems — has now been so widely adopted that we have forgotten that he was one of a relatively small band of scholars and teachers who pioneered this way of thinking.

Eventually Ackoff resumed his affiliation with Penn. In September 2000, he was honored by the establishment of the Ackoff Center for Advancement of Systems Approaches in the School of Engineering and Applied Science. In 2003, at age 87, he returned to Penn as Distinguished Affiliated Faculty to teach a graduate course in "Systems Thinking Applied to Management" and to advise graduate students.

If you have ever solved a problem not by breaking it down into constituent parts, but by looking at the whole thing systemically, or by re-framing the problem to begin with, you have probably been influenced by Russ Ackoff. He will be missed, but his ideas live on.

Google can't make any guarantees; it's possible that, if you spend several weeks and a fair amount of money planning and shooting an ad, you'll get no more than five or ten views after uploading it to YouTube.  However, the company would like everyone to know that one advertiser's clip has been watched over 45 million times.

read more

As this HBR online debate draws to a close, we want to thank all of you who participated. We certainly expected to learn quite a bit through the conversation, but what we've gleaned has far surpassed our expectations. There were so many thoughtful comments on all sides of the issue. We hope you found it as stimulating as we did.

In closing, we would like to offer a few reflections:

High tech manufacturing is knowledge work. If you doubt that, take a tour of a semiconductor fab or biotechnology plant or a factory producing flat-panel displays. There is a lot more brain than brawn at work. The view that the U.S. should focus on R&D and services completely misses the incredibly knowledge-intensive nature of many manufacturing activities.

Manufacturing is part of the innovation process. Where product designs are complex, process innovation and manufacturing competence are as critical to innovation as R&D. The view that the U.S. can specialize in R&D and let others do the manufacturing ignores the complex nature of innovation. The U.S. is not enhancing its capability to innovate by letting manufacturing capabilities atrophy.

Ceding manufacturing can have hard-to-foresee consequences. While such capabilities might not be a control point for the industry in question, losing them can have devastating consequences for other industries that draw upon the same capability base. In addition, their loss often means relinquishing the opportunity to bear the progeny of the original innovation.

The human toll in lost jobs cannot be neglected. Businesses are a part of society, and their employees and the communities that they operate in are important constituencies. Of course, remaining competitive has to be business leaders' top priority. But we don't see remaining competitive and maintaining jobs as a tradeoff. That's because we believe that being competitive over the long term — not maximizing short-term profits and short-term shareholder value — is what matters. And to be competitive over the long term, companies innovating in the U.S. must retain and build the capabilities in manufacturing and R&D in the U.S. that are critical to innovation and value creation, which, in turn, provides jobs. To do so, however, means that we have to be constantly upgrading the capabilities of our workforce.

What can be done to improve U.S. competitiveness? More specifically, who should be doing something about this? This is a complex issue that resists a simple formula. From our view, addressing the problem requires a combination of change in strategy, policy, and behavior. It's a problem for both management and government:

Management. U.S. managers face a tough challenge. Many are torn between doing what is right for their enterprises and local economies over the long term and performing their fiduciary duties to their shareholders and bending to the more short-term pressures from financial markets. One brand of thinking, tracing its roots to the 1970s, is that managers are solely accountable to their shareholders. Under this view, the above problem is no dilemma at all. If outsourcing improves shareholder returns, do it. If cutting back on R&D increases the stock price, do it.

Another view is that managers are stewards of the enterprise. Yes, they have obligations to today's shareholders, but they also have responsibilities for future shareholders as well. And, part of the enterprise value is embedded in things like reputation, technological capabilities, employee knowledge, and relationships with suppliers and customers. These all take time to build up (and very little time to destroy). As several of our blog commentators noted (and we agree with them), managing for the long term requires the right kind of board and governance structures. It also takes managers who think differently about their role.

Government. We had a lot of debate on the appropriate role of government, and some very different views. As we stressed in our Harvard Business Review article "Restoring American Competitiveness" and in our own blog posts ("The U.S. Is Outsourcing Away Its Competitive Edge" and "The U.S. Can't Manufacture the Kindle and That's a Problem"), good innovation policy is not the same as industrial policy and picking winners. Good innovation policy creates the right conditions. The failure of the U.S. to engage in serious reform of public education is perhaps the greatest political failure of our generation. And it may well be one of the biggest drags on economic growth in the future.

We need to do a better job of educating and training people in the U.S. for high skilled (and high wage) jobs. But we also need to continue to attract the best and brightest from around the world. Today, 47% of the Ph.D. level workforce in the U.S. is foreign born. Erecting barriers to attracting and keeping highly educated workers in the U.S. does not make sense. Government (through agencies like the NIH and DARPA) has played a critical role in advancing innovation through its support of basic and applied scientific research. The scale of the U.S. government, which allows it to make these kinds of investments, is a huge advantage, and we should be exploiting it. This is not about picking winners. It is about creating a foundation that entrepreneurs and private enterprises engaged in competition can build upon.

Government, through taxation and regulation, also contributes heavily to the attractiveness of locating and growing R&D and manufacturing facilities within our borders. Importantly, U.S. trade policies need to emphasize free trade. Competition is good. Foreign direct investment is a critical conduit for bringing to the U.S. new capabilities and new management thinking. We buy ourselves nothing through protectionism. At the same time, we also need to make sure our trading partners are playing by the same rules.

As this online debate has highlighted, the current state of American competitiveness has been a long time in the making. The problems are complex, multi-faceted, and interlinked with many contentious policy issues. Problems that are a long time in the making are not solved overnight. We need continued focus on root causes as we contemplate elements of a long-term solution.

Gary P. Pisano is the Harry E. Figgie, Jr. Professor of Business Administration and Willy C. Shih is a professor of management practice at Harvard Business School.