Avoiding an American ‘Lost decade’
“What we are experiencing is not a recession, neither great nor small, but rather a global transference of wealth, power and prestige on an unprecedented level, carried out, in von Clausewitz’s words ‘by other means’.”
Note: This is the second in a series; you can see the first article directly below this one.
November 30. Where do we go from here? We’ve already established that this is not a typical business cycle and this recession falls out of scope of previous recessions. Even the Great Depression was typical in the sense that it set off a worldwide fall in demand and productivity. It is now widely understood that while government intervention did stop the catastrophic collapse of the global economy, this intervention did little to revitalize global economic growth which did not resume until the onset of World War II.
This post first appeared on TheHill.com
Now, fast forward to September 2008 and months following shortly thereafter. There is wide agreement that the direct and dramatic Bush/Obama interventions did, indeed, prevent a global economic collapse. However, for many nations, including the U.S., the revitalization has yet to occur. While the stimulus spending saved many jobs in the public sector, few jobs were created in the private or wealth-creating sector. In retrospect it now appears that the stimulus was the equivalent to eating empty calories when hungry; a temporary rise in blood sugar without sustained nutrition.
This lack of wealth-building focus has led to a weak economic performance of 2.4 percent projected growth in GDP, hardly what one expects after such spending. (This growth rate has already been revised downward to 1.6 percent in the last quarter.) If this scenario does play out as expected, the eight million lost jobs will be replaced with new ones — by the 2020 time frame. By way of comparison, the “Reagan Recovery” created over 11,000,000 new jobs with four years.
While President Obama’s economic policies and overall execution of leadership is the current focus of many commentators, it remains a fact that this situation didn’t sneak up on us. The United States manufacturing sector has declined as a percentage of non-farm employment from about 30 percent in 1950 to just 9.27 percent in 2010, according to the October estimate of the Bureau of Labor Statistics. Also, an underlying statistic is that the U.S. has been losing not just manufacturing jobs, but entire factories, over 40,000 of them since 2000. The ramifications here go far beyond the manufacturing sector itself. Indeed, by some estimates, there is a 15-1 multiplier between other jobs (including manufacturing and service) and each manufacturing position. Therefore, this unprecedented loss of an industrial base and its concomitant plethora of supporting positions leave a greatly reduced platform upon which to launch a successful and timely recovery.
And so the question remains: Where do we go from here?
First, take a deep breath, look in the mirror and repeat; the world is different from what it was in 1982 and wishing and acting like it was the same will not bring those lost manufacturing jobs back. No matter what we do, trying to recapture global leadership in industries where the average U.S. salary (excluding benefits) is over $20/hr where the similar cost in China or Mexico is between $2-$6/hr is a losing proposition. This is not to say that the U.S. should not continue to innovate and look to manufacture world-class products, only that we will have to pick our battles in places where we have a strategic competence and a willingness to compete. Specifically, management must be willing to continually analyze each process for best in class behaviors and continually work to improve in order to maintain a leadership position.
Second, focus strategic investment in industries where the U.S. has a substantial lead or could develop one in future. Good examples here are in the area of information technology, where private investment continues to create new enterprises and wealth and “green technology” whose future is yet to unfold. We need to remind ourselves of the effectiveness of the U.S. Space Program, not only in accomplishing its primary mission, but creating entire industries and market that are still returning value to this day.
Third, fully accept that the old manufacturing jobs will not be repatriated and implement a program that will both create true value for the economy while putting people back to work. In past recessions, workers were typically called back to their jobs as the economy improved. This time however, with the loss of so many factories, the jobs platform is significantly smaller and is unable to support the type of recovery we have seen in the past. Now, we must both create jobs in new markets and industries as well as find employment for those whose skill base will not readily transfer to the new jobs platform(s).
A good example of this is the proposal by the Center for American Progress that outlines a plan to develop an energy efficiency industry to retrofit approximately 40 percent of the country’s buildings (approximately 50 million structures) within the next decade. This would require more than $500 billion in public and private investment and create over 600,000 “sustainable” jobs. Under the plan, energy use in those buildings would be reduced up to 40 percent and generate between $32 billion and $64 billion in annual consumer savings. Those savings would be used to re-pay the construction loans that would support the program.
This type of program would both create private sector jobs and help re-build U.S. infrastructure for the next five decades, all the while creating a buffer between the current economic environment and the one that will emerge.
One word of caution: we need a dozen or more initiatives of this kind to even come close to replacing the 8,000,000 lost jobs.
Paul JJ Payack is president of Austin-based Global Language Monitor. Edward ML Peters is CEO of Dallas-based OpenConnect Systems. Their most recent book is “The Paid-for Option”, which describes how healthcare reform can actually pay for itself through the application of process intelligence and its attendant gains in productivity.