Are the United States and Western Europe subject to an “Arab Spring”?

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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 33.7
Canada 14.8   8.0   36.1 35.0 31.4 47.0
Egypt 25.0 11.9   73.8   5.0 10.4
Germany  9.7   7.1   44.4 50.4 41.4 23.9
Greece 38.5 12.5 147.8   7.9 27.5 22.2
Iraq 22.0 15.3 42.4 36.3
Italy 27.9   8.4 109.0 28.8 29.6 12.9
Japan   9.2  5.0 183.5 17.9 17.5 40.5
Jordan 32.0 12.5  63.2 21.2 37.6
Mexico   9.5  5.3  27.5 18.9 20.0 15.4
Portugal 27.2 10.8  88.0 10.6   6.8 13.5
Spain 46.2 20.1  51.7 19.5 29.1 28.5
Sweden 25.2   8.4  33.8 54.0 49.1 30.5
Syria 26.0   8.3  28.6 11.0 14.4
Tunisia 24.0 13.0  50.4 16.7 20.3
Turkey 21.7 11.9  42.9 13.3 20.4 10.4
United Kingdom 19.1   7.8  85.5 21.0 29.1 30.5
United States 18.4   9.1  61.3 9.0 15.1 39.5
Yemen 49* 35.0  36.1 11.9 13.2
* estimated

 

Income inequality may not be a predictor of anarchy, unrest, or revolt. Egypt, Greece, and the United Kingdom each experienced unrest in 2011 and had lower Gini coefficients than the United States, while Tunisia, Syria, Jordan, and Iraq each have more income inequality and have experienced unrest in 2011. Then we have Germany, Australia, Canada, and Mexico with less or more income inequality and no apparent unrest, at least unrest related to economic disparity.

 

The official unemployment rate for all working age people and young people in the United States is lower than in most economically-developed countries and, for most Western countries, is lower than in most economically-developing countries, including countries experiencing unrest and anarchy in 2011. The exception seems to be the United Kingdom. Unemployment rates seem to predict unrest, like the 2011 Arab Spring, but most of the Western world does not seem to be nearing an Arab Spring on the basis of lack of employment.

 

Likewise, national debt as a percentage of GDP, national budget deficit as a percentage of total budget, and exports and imports as a percentage of GDP do not seem to predict national unrest and anarchy.

 

Table 2 shows human rights (for 2010 compiled by FreedomHouse.org), and corruption, democracy, and press freedom (compiled by WorldAudit.org) for these same countries. Table 2 also includes  World Economic Forum rankings of  national competitiveness cited by Schumann and Hauslohner (2011).

Table 2

2010-2011 Relative human rights, corruption, democracy, press freedom, and national competitiveness rankings by country.

Country Human Rights Corruption Democracy Press Freedom National Competitiveness
Australia 1 8 9 22 20
Austria 1 12 13 19 19
Belgium 1 17 12 5 15
Canada 1 6 8 16 12
Denmark 1 1 1 4 8
Egypt 6 79 91 91 94
France 1 20 17 23 18
Germany 1 12 11 12 6
Greece 1 61 35 37 90
Iraq 5 146 123 105 NR
Italy 1 52 35 42 43
Japan 1 14 29 19 9
Jordan 6 36 77 101 71
Mexico 2 79 65 91 58
Netherlands 1 7 6 7 7
Portugal 1 26 18 10 45
Spain 1 24 22 27 36
Sweden 1 4 1 1 3
Switzerland 1 8 6 6 1
Syria 7 101 134 134 98
Tunisia 7 45 113 141 40
Turkey 3 42 59 70 59
United Kingdom 1 15 14 16 10
United States 1 17 15 14 5
Yemen 6 119 134 129 138

The data in Table 2 seems to be a better indicator of anarchy, unrest, or revolt. Three tiers of countries seem to emerge. Most at risk, based on the 2010-2011 data in Table 2, are Egypt, Iraq, Jordan, Syria, Tunisia, and Yemen. Each of these countries has experienced some level of unrest in 2011. At moderate risk, based on this same data, are Greece, Italy, Mexico, Spain, and Turkey with France and Portugal nearby. Likely not at risk for anarchy, unrest, or revolt in the near future are Australia, Austria, Belgium, Canada, Denmark, Germany, Japan, Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

 

So, are the United States and Western Europe at risk for an “Arab Spring”-like event in the near future? The data does not seem to support a prediction of unrest in most of Western Europe, the United States (or the other countries of North America, Mexico and Canada), or in Australia or Japan. The data seems to point to legitimate concern about the potential for unrest in Greece, Italy, Spain, and Turkey with France and Portugal worthy of attention. This analysis should not be interpreted as suggesting that people in countries with an indication of low or moderate risk will not demand change related to the national economy, employment opportunities, and effective leadership, but only may indicate comparative risk.

 

Schumann, M. & Hauslohner, A. (2011, August 22). Seeking growth after the  Arab Spring. Unless it can nurture entrepreneurs and create jobs, the popular  movement that toppled dictates won’t make a difference in real lives. Time, 178(7), B1-B6.

Thornburgh, N., Adams, W., Assinder, N., Cooke, S., Mayer, C., & Grose, T.  (2011, August 22). London’s long burn. An  outbreak of arson, looting and lawlessness caught Britain and it’s leaders by  surprise. Why they should have seen the troubles coming. Time, 178(7), 28-31.

Economic Recovery, August 27, 2011

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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.

Too many MBAs?

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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.

We need to value education and create  a business economic climate that makes education valuable.  Why stay in high school if I cannot get a job or enter post-secondary education afterwards? Why go beyond minimal expectations when exceeding expectations adds no perceived value to my future? If actually learning something during an MBA, or other degree, program gets me no farther than taking the path of least effort and resistance, why bother?

Our humaneness motivates U. S. society to meet certain basic needs of our citizens or residents. We provide an opportunity for basic education and, to an extent and upmto a certain level, that education is not optional. We provide some measure of healthcare and financial support so that the sustenance and shelter needs, but not necessarily the wants, of most have some sense of floor or foundation from which people can live, but not necessarily thrive. The challenge for policymakers, educators, and society is how to avoid disincentives to exceed minimally acceptable while somehow ratcheting up our collective expectations, norms, and values.

Now, can we get to the real problem?

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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