Posted by: dstieglitz | January 18, 2010

WAKE-UP CALL FOR BUSINESS

     It’s time for businesses to wake up and lead the economy to full recovery. American executives seem shell-shocked by presidential bashings, intimidating congressional interviews, and embarrassing corporate scandals. Based on the Labor Department’s report that jobs fell by 85,000 in December, businesses are still protecting themselves. From what? That protectionist attitude is slowing the recovery and stifling growth.

    30 years ago Ronald Reagan was eloquent in convincing Americans that business executives were heroes. It is no surprise that today’s business leaders don’t feel like heroes. The financial industry plunged the country into recession with imprudent risk-taking. Enron, WorldCom, and Tyco executives went to jail because of their greed. And some executives are giving themselves princely bonuses even as thousands of workers are being laid off. The reckless few are discrediting the dedicated many.

    The soiled reputation of business is regrettable because it has enabled critics to insinuate that all companies are greedy and don’t care about their employees or customers. Business needs to step up and make three decisive points in its defense. First, businesses are amazingly creative in conceiving products that solve society’s problems, and then building supply chains to manufacture and distribute those products around the globe. Second, businesses promote win-win relationships among workers, customers, suppliers, and investors. And third, business is self-policing as long as there is adequate competition. For example, less than 200 companies on the 1980 Fortune-500 list still exist today. The bottom-line is that businesses create millions of jobs when the government provides a positive environment.

    As a business leader, I’m grateful that the government rescued the economy with the bailout bill and the stimulus act – but it must now create a positive environment for recovery. It is curious that when the economy was booming, Congress couldn’t find money to maintain our bridges and highways. But in a crisis, it allocated more money to bridges and highways (and other pork projects) than there were useful projects to spend it on. In my opinion, Congress threw billions at the wrong things!

    In past decades, the federal government invested in grand projects that lubricated commerce, built new industries, and helped businesses create millions of jobs. Rural electrification, the Homestead Act which distributed western lands, building the transcontinental railroad and interstate highway system, and sending a man to the moon are examples. In today’s dollars, rural electrification cost about $1.5 billion. Surely, if Congress can spend $700 billion for bailouts and $787 billion for stimulus, it can make several country-changing investments that enable American businesses to create jobs that restore the flow of money on Main Street.

    Money flows easily in a vibrant economy. When money flows, jobs are created. Anything that impedes the flow causes jobs to be lost. Money stopped flowing when the housing bubble burst. Owners struggled to pay mortgages, construction firms stopped building houses, and millions of jobs were gone. Government policies, taxes and regulations also impede the flow. For example, when Obama criticized “executive boondoggles” in Las Vegas, conventions worth hundreds of millions of dollars were cancelled. For every million dollars in lost convention revenue, roughly 20 bell boys, waiters, maids, and dealers lost their jobs. As a result Las Vegas is among the cities with the highest unemployment and most severe housing crisis. When big-ticket transactions like buying a home, selling a business, or launching an initial public offering (IPO) don’t happen, the flow of money is reduced in huge chunks.

   Thank goodness the Bubble Decade is behind us. Since the Depression ended, every decade has produced higher incomes for Americans and more jobs for a growing population and immigrants. But the Bubble Decade (2000-2009) ended the steady growth in Main Street’s wealth: the stock market essentially broke even, total employment remained the same, and inflation-adjusted income fell. To be fair, the Bubble Decade’s miserable economic record is, in part, a timing coincidence. The decade began near the top of the dot-com bubble. But shortly after we survived Y2K, the stock market plunged and a recession followed. The decade ended near the bottom of the unusually severe recession that cost many Americans their jobs when the housing bubble burst. Hopefully, the tens will be a better decade.

    Some economists say it will take five years or more to replace the 8 million jobs lost in this recession. Washington’s panic over high unemployment was palpable during the “Jobs Summit” President Obama convened at the White House in early December. The hope was that leaders from industry, unions, non-profits, and academia would collaborate to find new ways to put the unemployed back to work. Unfortunately, each segment blamed the others for causing the recession and few new ideas were generated. The White House is swimming against an ominous economic trend: after each recent recession the U.S. economy has taken longer and longer to replace the jobs that were lost. That’s because businesses need highly trained men and women, not the industrial workers whose jobs have been replaced by computers or off-shored to countries with low labor costs. The government must make long-term, job-generating investments that upgrade the workforce and stimulate breakthroughs in industries like green technologies, bio-medicine, or nano-technologies (preferably all three and others). Otherwise, it is unlikely that the economy will grow fast enough to produce more than the roughly 150,000 new jobs required each month just to keep pace with population increases. Businesses need to wake up and start investing in themselves – and Congress needs to wake up too and invest in a positve business environment!

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