Posted by: dstieglitz | January 2, 2010

BUSINESS OUTLOOK FOR 2010

     New Year’s Day 2010 brings good news and bad news. Most executives were happy to see 2009 end – it was the first year since 1945 that the global economy shrank. The good news is the recovery is gaining steam and prospects for 2010 are brightening. The bad news is that a jobless recovery isn’t what most people want. The U.S. economy, carrying extraordinarily high unemployment and runaway federal deficits on its back, faces an arduous uphill climb. The President and Congress will do well to be careful in 2010 – a jobless V-recovery is better than a W-recovery profile. For business executives, it is a relief to begin 2010 implementing strategies for growth instead of desperate tactics for survival.

    So far, actions by Congress and the Obama administration have addressed only symptoms of the problem. They spent hundreds of billions to extend unemployment benefits, preserve existing jobs, and fund pork projects – but little to build industries that can produce millions of new jobs. Their actions have created some green jobs, but in the wind-power industry (for example) the largest beneficiaries have been high-wage German and low wage Chinese companies that profitably export their products to the U.S. In 2010, Congress and the President must walk a tightrope to:

  • Stimulate the general economy – but control inflation
  • Govern bankers – but provide cash for businesses and mortgages
  • Encourage investments in R&D – but preserve the tax base
  • Meet promises for social change – but keep a lid on the national debt.

If they do all four well, the recovery will continue. But if they get one or more wrong, the economy could easily deteriorate into a W-profile.

     2010 presents ominous risks for President Obama. When the health-care reform bill  passes Congress, he will own health care. Every insurance premium increase, expensive prescription, and denied treatment will be his fault. Now that he has committed 30,000 more troops, Afghanistan is his war. Despite winning the Nobel Peace Price for good intentions, he will be held responsible for all of the war’s miseries and costs. Voters are likely to vent their frustration with decimated 401Ks and high unemployment in the 2010 mid-term election, and that frustration might persist until the 2012 election.

     We need smart government in 2010 more than ever. The bank bailout, stimulus act, and Obama’s social agenda have expanded the size and reach of the federal government enormously – and swelled the national debt as well. That begs the question: Is it possible for the government to do more with less? Can it work smarter? The most limiting constraint on smart government is getting smart people into the public sector. With industry jettisoning employees in the last 18 months, the government had a once in a lifetime opportunity to hire top-notch talent. Alas, that window may be closing now as the private sector begins to selectively re-hire the best-and-brightest.

    The “awful aughts” were no cake-walk for Wall Street either. The decade began when the financial industry’s epicenter, the World Trade Center, collapsed under terrorist attack, and ended with an economic collapse widely blamed on Wall Street’s greed. In between, there was Bernie Ebbers’ fiasco at WorldCom and Bernie Madoff’s ponzi scheme. The primal fear today is more fundamental than just losing jobs. It is a nagging fear that the country has no realistic path back to mass prosperity. Industry cannot depend on Congress to implement policies that move the country toward real production instead of smoke-and-mirrors financial transactions. Even without government encouragement, industry must make the R&D and training investments required to prepare Americans for the high-tech jobs that will be created in the decade of the “terrific tens.”

     2010 brings new challenges for business executives. Surviving the economic slump required one set of leadership skills, while setting a course for growth in the recovery requires entirely different skills. Slashing costs was essential for survival when consumers went into hiding, credit evaporated, and global competition intensified. At the same time, technology has sharply increased productivity and enabled companies to get the required output from fewer workers and managers. Companies that were careful to cut fat rather than muscle emerge from the recession with a huge competitive advantage. Still, to prosper in the global economy that follows the “great recession,” they must:

  • Produce cheaper goods and services to attract today’s frugal consumers
  • Be innovative in meeting consumer needs in China and other emerging economies
  • Partner with firms in developing countries to better understand those markets
  • Demonstrate that they are not just making money, but also making a better world.

It will be difficult for any U.S. business, large or small, to prosper in 2010 and beyond without considering competition from or partnerships with companies in emerging economies.

     If any of this sounds like a return to business as usual, you’ve missed the message. There is a danger that executives will fall back on comfortable strategies that worked in the past – that they will ignore the need for fundamental long term change. One lesson should be clear from the “awful aughts:” unless businesses, governments, and families follow an economically sustainable strategy, it will only be a short time until the next crisis is upon us.  Reset your expectations and your strategies in 2010 because the economic crisis has rewritten the rules.

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