This Industry Week article provides examples of some of the innovations I had in mind when I speak on innovation and leadership as engines of economic recovery. http://www.industryweek.com/PrintArticle.aspx?ArticleID=26015&cid=NLIWIT
One 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.
While the political debate in the U.S. capital seems to focus on taxes and entitlements, too little attention shifts to releasing some of the cash on corporate balance sheets. One reason for this may be the dearth of business understanding among elected representatives in both chambers of the U.S. Capitol. The cost of participating in three significant conflict zones sometimes enters the discussion and then seems to dissipate with the somewhat cynical recognition that all this military spending, on personnel and equipment, keeps at least that part of the economy moving.
Debate rages in some circles about what the stimulus actually stimulated. Pouring a ton of cash into the economy logically had to stimulate something, but it seemingly didn’t stimulate as advertised. A review of the projects funded by stimulus money seems to suggest that, at best, the stimulus kept economic indicators from getting much, much worse than they got. On the other hand, very little money seems to have stimulated new spending; the stimulus may have simply enabled companies and universities to pursue projects already underway, and not cut them and their corresponding jobs.
If, as Foroohar suggested, companies will not spend their cash in the United States even with more certainty, then perhaps policy gurus need to provide incentives for that cash to flow into domestic jobs and facilities. Foroohar, citing Nobel laureate Michael Spence, noted that evidence of companies outside of government, healthcare, retailing, and hospitality contributing to domestic job growth suggests the need for the paradigm to shift, yet public discussion of doing something new is lacking. Policymakers seem content to continue trying what they have always tried and somehow hoping for a different result; yes, that is what some define as insanity.
Part of the new paradigm may need to include creation of jobs that allow people to work where they currently live. Such a policy would help people continue to make payments on homes until the housing market recovers. One of the challenges to developing this policy is that, as Foroohar suggested, alignment is poor between the skill sets of the recently and the chronically unemployed and the skills needed to fill 3 million current job openings and unknown yet-to-be-stimulated jobs from the new policies.
Foroohar (2011), citing a Kaufman Foundation study, noted a decline in entrepreneurship in the United States since the 1980s, corresponding to the rise in the financial sector. Why? What will reverse this trend?
Oddly, a Time article from the May 30, 2011 issue (Zakaria, 2011), apparently citing the same study, noted that small business yielded close to 100% of net job creation in the United States between 1980 and 2005. In the May article, the author recommended stimulating small business growth by facilitating basic research, re-engineering the patent, and presumably other intellectual property, processes, rationalizing regulation, and stimulating funding of new ventures. The May article recommended retaining more of the highly skilled immigrants trained in United Staes universities; a variation on this theme, consistent with a seemingly unrelated recommendation from the same author, is to provide the training needed to turn unemployed and underemployed residents of the United States into comparably highly-skilled workers. This does not need to be an either-or scenario; both are feasible as the approaches are not mutually exclusive.
The May article (Zakaria, 2011) identified repatriation of manufacturing jobs and stimulus of production of “high-end, complex products,” retraining, growth industries, small business, and putting people back to work in interim positions to address near-term, dare I say “shovel-ready,” needs in the country as a long-term and near-term approach to the challenged economy. Good ideas, each of them essential to building the economy sustainably. Not only are they not mutually exclusive but they are also not operating in a zero-sum economic environment. Success of one does not detract from the success of other approaches and, if done right, they can be sustainably additive.
Foroohar (2011) suggested the need for a national economic policy. Concerns by Republicans and Democrats about the concept may derive more from implementation and control issues than about the merits of such a policy. Perhaps out-of-the-box thinking is another area for which the backgrounds and education of our elected representatives has them prepared sub-optimally. Attorneys and politicians, the dominant backgrounds, prepares them for writing policies and laws, but not for being creative in determining the content or focus of those policies and laws.
Sadly, as Scherer (2011) indicated, we are more likely to see political gamesmanship and handwringing than new policy before the 2012 election victors, whoever they may be, take office. While our elected officials in Washington, DC resume the pursuit of their primary obsession, re-election, after the seeming distraction of governing, the U. S. economy and electorate wait for somebody to lead. Voters in the United States, and especially business executives, seem to be watching elected representatives in Washington, DC to see if anybody steps up to lead before November 2012.
Bruder, R. (2011, August 8). Jobs first, then peace. Why we shouldn’t give up on the Arab Spring. Time, 178(5), 22.
Foroohar, R. (2011, June 20). What U.S. Economic Recovery? Five Destructive Myths. Time, 177(25), 22-26
Hough, J. (2011, August 27). Those safe havens you’ve been flocking to aren’t so safe. Wall Street Journal, 258(49), B7.
Scherer, M. (2011, June 20). Grin and bear it. With the economy sputtering again, Washington has no plans to ride to the rescue. Time, 177(25), 28-29.
Zakaria, F. (2011, May 30). A Flight Plan for the American Economy. Time, 177(22), 36-38.
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.
A full 25% of elected members of the U.S. House of Representatives and Senate have no work experience outside of elected office. They get elected and re-elected because that is what they know how to do. Another 25% are attorneys, but most of them know nothing about job creation and getting the economy moving, other than the potential knowledge and experience of legal matters related to employment and business expansion.
Creating jobs and growing the economy requires one element missing from the U.S economy today; that missing link is the willingness to risk. The uncertainty created by the Washington bureaucratic machine is a consequence of a leadership void and the absence of a rudder and a keel for the ship of state and the barge of business. Until people in positions of leadership take the risk associated with actually leading, investors and business executives will continue to hoard cash and pursue hard assets rather than doing the dance they have all learned called entrepreneurship, innovation, and business and economic growth. Attempts at economic recovery may continue to prove comparatively fruitless in an environment lacking leadership and brimming over with uncertainty.
Written August 3, 2011 on the road to Halong Bay from Hanoi, Vietnam