In the August 22, 2011 issue of Time, Thornburgh, Adams, Assinder, Cooke, Mayer, and Grose (2011) noted some similarities between the economic situation in the United Kingdom, Egypt, Tunisia, and the United States. While Thornburgh et al. focused on the violence and unrest in the United Kingdom, he observed that the United States has more income distribution inequality than the United Kingdom although more people in the United States seem more optimistic about their economic prospects than their U. K. counterparts.
The Organisation for Economic Co-operation and Development reported that income distribution inequality, as measured by the Gini coefficient, was 0.26 in Sweden; 0.30 in Germany and Australia; 0.32 in Greece, in Canada, in Japan, and in Spain; 0.34 in the U.K.; 0.35 in Italy; and 0.36 in Portugal. By comparison, the Gini was 0.38 for the United States and Yemen, 0.43 in Turkey; 0.47 in Mexico; 0.34 for Egypt, 0.40 for Tunisia, 0.42 for Syria and for Iraq, and 0.4 for Jordan.
Another apparent measure of potential unrest seems to be unemployment in various demographic groups. Table 1 shows the unemployment rate for 16-24 year-olds and overall and measures of national debt, % GDP of exports, and % college graduates.
Table 1
Unemployment, national debt, export, import, and college graduation levels by country.
Country Unemployment15-24 UnemploymentTotal National Debt % GDP Export % GDP Import % GDP % College Graduates Australia 11.5 5.2 11.0 22.5 23.1 33.7One of the sources of uncertainty about the global economy is the unsettled debate among leaders in Western Europe’s Eurozone about the use of monetary policy to solve economic problems. That debate rages in the United States despite rarely seeming to be framed in those terms.
The downturn in 2008 was led by a liquidity crisis, a shortage of cash, that resulted from mythical wealth and cash from over-valued real estate. The real estate bubble resembled a grand Ponzi scheme without a Madoff-like figurehead to blame. The feared second dip is not a result of a crisis of liquidity but of confidence and uncertainty. Bruder (2011), writing about Egypt following their Arab Spring episode, observed that investors do not and will not pour capital into economic environments when the direction of the country is uncertain. In that regard, the current climate in the United States is similar to that of Egypt.
Hough (2011) observed that publicly-traded U.S. companies, excluding financial companies, currently hold 12% of reported assets in cash, the highest reported level since 1954. Business executives are unwilling to release the estimated $1.2-2 trillion in cash on their balance sheets (Foroohar, 2011), and unknown amounts hidden offshore and elsewhere, until people in positions of leadership lead and re-establish certainty and a sense of confidence about fiscal policy, tax policy, spending policy, the deficit and whether to continue deficit-driven budgets, and what to do about companies and countries allegedly to big to fail. Compounding the uncertainty are conflicts and political turmoil seemingly around the globe and the limited recognition that the issue of debt extends beyond nations to states, businesses, and individuals.
A recent Time article tried to make a case for companies essentially firing all their MBAs because MBA graduates in the workforce had taken the collective eyes of business in the West off risk, innovation, operations, and creativity. That may be a valid point. The bigger concern for and threat to a thriving and sustainable economy may be the apparent willingness of U.S. society to accept second place, or lower, and to condone degrees and certificates and diplomas that may increasingly be irrelevant, if not meaningless.
Over the past few generations, people in the United States have grown lazy and self centered. We look for the easy path. We check the box and see if we can stretch the lower bounds of the minimal require,nets and expectations in our academic and non-academic pursuits. As a consequence, degrees and diplomas are more uncertain in their meaning. Prospective employers and academic admissions officers find themselves in positions where they must either do a more thorough job of vetting candidates or risk accepting lower quality, less qualified, perhaps minimally prepared candidates.
It is not the MBAs who are the problem with American business and it not strictly our elected leaders. Rather, it is the lazy attitude of barely acceptable that is so endemic that drags us down. The educational system in the United States simply reflects what society and culture establishes as norms and values. If we want something different for ourselves as a destiny, or a future, we need to adjust our current norms and values so that our path is also different.
For most of 2011, national lawmakers in Washington, DC have invested what seems to have been the vast majority of their time, and our attention, on the need to get the debt ceiling raised and the nation’s revenues and expenses aligned. Meanwhile, the economy flounders because business executives in the United States, and increasingly globally, have little or no confidence in the direction or stability of the legal and economic arena. Uncertainty like that makes strategic investing in jobs and in job-creating expansion risky and seemingly unwise. The debt ceiling crisis is a symptom of a much more difficult problem, the mismatch between overspending and too little revenue.
Political rhetoric out of Washington, DC is simply lip service meant to placate the itching ears of the electorate. Politicians have devolved into re-election machines focused on the next election cycle as soon as the last one is over. Most members of the U.S. House and Senate simply have no experience or education that would allow them to create effective policy for most of the topics they must address. So, with no basis for for developing, debating, and implementing effective solutions to the problems the nation needs them to address, elected and appointed decision makers in Washington seem inclined to simply parrot back the words the electorate and self-serving advisors and lobbyists beg them to say.
In the July 18, 2011 issue of Time, Joel Stein reflected on air travel with children and other sometimes-awkward realities. Mr. Stein suggested that airlines offer a section at the rear of coach for passengers traveling with young children. On a flight to Tokyo today, a passenger reminded me of the article; Mr. Stein recognized the realities of air travel for those of us who do not travel with children of our own, but frequently travel with passengers who travel with their children, and the realities of those parents who travel with their children. Sometimes, passengers who travel without their children simply act like children. Sometimes, a reality check is healthy, but we do not always see consensus on what reality is.
Somehow, the debate on whether to raise the debt ceiling in the U.S. and, if so, by how much has devolved into politics. It is no longer about differences between political parties because, and the reality is, consensus within the two dominant parties in Washington, DC is, at best, poorly defined and, more likely, hard to find at all. Pundits want to make the debate a Republican versus Democrat battle, but strong disagreement on a way forward seems just as present with each party as across party lines.
In the June 27, 2011 print U. S. edition of Time, Joe Klein, in the context of suggesting that Republicans are against regulating Wall Street, made the statement in quotes in the title. Did it really?
Wall Street is not a club of innocents. On the other hand, the strongest case that Wall Street caused the current economic downturn is that analysts in Wall Street exercised their contractual right, and their obligation to investors and, probably, the SEC to return mortgages to originating lenders that appeared under-collatealized. That action did squeeze lenders into liquidity crises and cause the houses of cards to collapse. Why is nobody willing to probe beyond Wall Street. Do reporters like Mr. Klein simply stop at the first and easiest answer?
Mr. Klein cites presidential candidate Mitt Romney as suggesting that President Obama caused home values to collapse. Really? What caused home values, or prices, to rise to, unrealistically high levels in some markets, in the first place?
Some time ago, home ownership became part of the so-called American dream. Fulfilling that part of the dream seems to have always been dependent on where one lives in the country. Home prices naturally vary based on supply and demand.
From my previous postings, it may be clear that I have an interest, even a fascination, with the ongoing discussions of job creation by people in positions of leadership about job creation. I posted a question on LinkedIn last week asking how many of our senators and representatives in Washington, DC have a background suggesting experience in creating jobs. I raised the question because evidence indicating such experience seems thin after more than two years of conversation about economic recovery and the need to reduce unemployment through job creation.
Since several people responded that I raised a good question and nobody seemed able to answer the question, I spent part of my 4th of July weekend reviewing the biographies of each member of the U.S. House of Representatives and Senate, as found at house.gov and senate.gov. The chart below shows the combined number from both chambers.
In these charts, I use the term “politician” to mean anybody whose indicated background includes only positions involved in negotiating and defining public policy or having no experience other than in those positions since 1980. I use the term “entrepreneur” to mean experience owning, building, or starting a small business.
The May 23, 2011 issue of Time magazine presented data on the national debt of 10 major economies. The presentation by Josh Sanburn includes an assessment of the risk of each country defaulting on its national debt, based on Moody’s credit ratings, which seem to be based first on the portion of debt held outside the country and second on the size of the debt compared to the country’s Gross Domestic Product (GDP). Japan and the United States are the only two of the ten countries not in Europe.
The level of debt combined with the significant foreign ownership, except in Japan, of that debt may indicate a tendency for these Westernized economies and cultures to live beyond our means. As individual nations, we have increasingly chosen to spend more than we earn or produce. At some point, this becomes unsustainable. When the United States may reach that point has been a subject of debate in recent weeks as the U.S. Congress considered, and has now chosen, to raise the debt ceiling.
Reports that the debate has simply been political grandstanding are disturbing. The issue is serious and significant. Resolution is feasible.
The United States and other nations can reduce current spending levels, a decision which is politically challenging in an era of near-perpetual campaigning for national and local elected office. The alternative most discussed is raising taxes to bring budgets more in balance, another politically dicey proposition. A third alternative, which receives little attention, is to raise GDP. The lack of attention may result from the difficulty in achieving this.
An article by Omar Waraich, Mark Benjamin, Massimo Calabresi, and Mark Thompson in the May 23, 2011 issue of Time, on the topic of U.S.-Pakistan relations included a provocative quote. The authors quoted Pakistani Prime Minister Yousuf Raza Gilani, a person elected to a position of leadership in Pakistan, as follows: “If public opinion is against [the U.S.], then I cannot resist it to stand with [the U.S.]. I have to go with public opinion.”
In the above quote, the leader seems to be following. When the leader becomes follower, the follower becomes leader. The Prime Minister, admittedly out of context, seems to be saying that his opinion makes no difference. While I believe that leaders in many contexts forego their self interests for the good of the people they serve, disregarding one’s personal opinion to align with public opinion gives the appearance of concern with re-election rather than direction.
Leaders should be mindful of public opinion and not simply or necessarily give into public opinion. Leaders should take people where they need to go and not simply or necessarily where they want to go. Leaders need to make hard decisions about necessary change, changes which may require people to think about the past, the present, and the future in new ways with new consequences. Leaders need to help people embrace a vision for a future different from the present and the past. Leaders who fail to do these basic elements of leadership may be seen as poor leaders.
In the May 30, 2011 issue of Time, Fareed Zakaria presented a compelling analysis of the causes of and solutions to the sorry state of the United States economy. Mr. Zakaria referee to a global recession and, almost simultaneously, made a case for the economic downturn being less than global. Data from an on-going study of leadership with participants from more than fifty countries supports statements by Mr. Zakaria that some countries and economic sectors have suffered less, if at all, during the so-called global recession than others. Leaders hoping to change the current course of the United States economy can learn from these other leaders.
Mr. Zakaria identified five areas for leaders’ attention: manufacturing, retraining, growth industries, small businesses, and immediate needs. Each of these areas is more discussed than acted upon by leaders in the United States. Leaders wring their hands over lost manufacturing jobs and take few effective steps to stimulate the technical, skilled manufacturing jobs that the United States can sustain and that are difficult to send offshore. Leaders have talked about retraining as essential to economic recovery for several decades, but the talk receives inadequate translation into policy and funding to prepare people who lost jobs for new positions in potentially new industries.
