It was his only one-liner. In January 1925 President Calvin Coolidge—nicknamed “Silent Cal” for his taciturnity—declared, “The chief business of the American people is business.” Is that still true? When I moved from the United Kingdom to the United States, I certainly assumed so.

Yet evidence to the contrary is accumulating. In 2012 Michael Porter and Jan Rivkin showed that graduates of Harvard Business School overwhelmingly favor foreign over U.S. locations for new investment. They asked HBS alumni about 607 decisions in which they’d been involved on whether or not to offshore operations. The U.S. retained the business in only 16% of those cases. Asked why they favored foreign locations, the respondents listed the areas in which they saw America falling behind the rest of the world. The top 10 included effectiveness of the political system, simplicity of the tax code, regulation, efficiency of the legal framework, and flexibility in hiring and firing.

Such survey data would be less disturbing if they weren’t corroborated elsewhere. In the World Economic Forum’s most recent Global Competitiveness Report, the U.S. doesn’t make the top 20 on 21 out of 22 measures of institutional quality. On eight it doesn’t make even the top 50. Example: It ranks 59th on the basis of executives’ answers to the question “To what extent do government officials in your country show favoritism to well-connected firms and individuals when deciding upon policies and contracts?” Crony capitalism used to be what Americans complained about in Asia. No longer. At least seven Asian countries now score above the U.S. on this measure.

Many development economists argue that poor countries can get richer if they improve their institutions, particularly the rule of law. The converse also applies: Rich countries can get poorer if their institutions deteriorate, particularly the rule of law. Today only lawyers think the United States has the world’s best legal system. Everyone else knows it has become a nightmare of impossibly complicated statutes (example: Dodd-Frank), open-ended liability (tort costs are the highest in the industrialized world relative to GDP), and eye-watering billable hours.

Today only lawyers think the United States has the world’s best legal system.

The evidence is all around. According to the Fraser Institute, the U.S. has seen a sharp decline in the quality of its legal system and property rights since 2000. World Bank data on governance tell the same story. The World Justice Project’s Rule of Law Index for 2012–2013 ranks the U.S. 26th out of 97 countries on effectiveness of the criminal justice system, 25th on fundamental rights, and 22nd on access to civil justice.

Nor is all this based only on subjective surveys. For the past decade, the International Finance Corporation has compiled data annually on various burdens of conducting business in different countries, such as the number of days and procedures it takes to get a construction permit or register property and the time consumed by paying taxes. Since 2006 most countries have significantly reduced these hurdles. In only 21 countries has the ease of doing business declined. The sixth-worst decline—not as bad as Zimbabwe’s but worse than Burundi’s, Congo-Brazzaville’s, and Yemen’s—is that of the United States.

The political debate in America today is all about symptoms, from slow growth to large deficits, when it should be about the underlying malaise. Face it: The country that used to have the best institutions in the world is suffering a great degeneration. The chief business of the American people is no longer business. I fear it may be bureaucracy.

A version of this article appeared in the June 2013 issue of Harvard Business Review.