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Deep Breath, Step Forward

The admonitions to pay attention, remain vigilant, and confront reality have never been more relevant as 2012 begins. To retain a reasonable measure of optimism, one almost has to ignore ominous signs and focus on those with less potential of tipping us into the abyss. However, because time is relentless, we must remain just as relentless in our commitment to emerge stronger than ever. It’s not merely the American Way; it is also the best alternative.

As we seek a rationale for believing and committing to an optimistic vision, we must first face reality. There remain major obstacles to global and national economic, physical and social health. Aside from Europe’s enormous interconnected fiscal crisis, resources are dwindling at an increasing rate, promising higher prices and more competition. The global population is now over 7 billion and is driving demand. There are 313 million people in the United States and the number living below the poverty level is approaching 50 million. It was ‘only’ 36 million five years ago. Immunization rates are declining and formerly vanquished childhood diseases are escalating as more people follow fictitious warnings driven by irrational and unsupportable Internet rants. Diabetes is predicted to impact up to 30% of the population and add trillions to heath care costs within twenty years if the national obesity epidemic is not curtailed.

In the U.S. alone, infrastructure has eroded to the point it will take an estimated $2.2 trillion just to return various systems to functional, safe levels. And, though most assume the discussion is about roads and bridges, it entails a much more comprehensive report card involving sea ports, airports, air traffic control, levees, dams, power grids, water systems, waste water systems, and pipelines carrying steam, gas and oil. The American Society of Civil Engineers has given this country a ‘D’ grade for virtually every aspect of infrastructure. It is old, it is failing, it is dangerous and repair costs will be huge.

Climate change is becoming more apparent and the data seems conclusive that major shifts can occur within a single decade. The combination of horrendous drought (Mexico and Texas come to mind) or historic rainfall (Southeast and Eastern U.S.), record-breaking tornados and streams of hurricanes are wreaking havoc with communities, local economies and the insurance industry. The impact on agriculture is growing more severe as crops or livestock either wither or drown. On the bright side, even though the cost of food is escalating, farming and ranching have entered a new era of profitability, which appears to depend as much on new weather patterns as on markets and expertise.

As of this writing the DOW is slightly over 12,000, but seems to fluctuate weekly. The mess in Europe erodes market confidence and makes prediction difficult. Germany has become the EU ‘parent’ economy. In a remarkable turn of events, Polish Foreign Minister Radek Sikorski just last week encouraged Germany to take a greater lead in Europe. To a largely German audience in Berlin he stated, “You know full well that nobody else can do it. I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.” Italian leaders have made similar statements…Germany is the EU’s largest and most potent economy and is probably the best organized, most prudent and insightful. A remarkable shift since the mid-20th Century.

As unemployment dipped to 8.6% about ten days ago, NPR guests David Brooks (NY Times) and E.J. Dionne (The Washington Post) noted that, while this is good news, it is not enough. It helped rally Wall Street, but, with around 320,000 people dropping out of the job market, many question the value of the announced decline. I found their comments somewhat myopic and perhaps disingenuous. Historically, whenever an economy experiences major recessions, the result is re-centering that involves workforce evolution. Losing a portion of the workforce is a natural phenomenon…many just retire and others who are ill-prepared for new realities give up. Economists have predicted this for some time. So, it is silly to say an unemployment decline to 8.6% is irrelevant. It is merely another sign of economic re-centering that will continue for several more years.

Real estate is following a similar course. During this past decade, the U.S. overbuilt residential and commercial real estate, so, at some point, correction had to occur. Financial factors tied to mortgage shenanigans finally ignited an explosive mix of greed, ignorance, regulation and hedonism. It led to the current predicament, but it will correct within another five to eight years (some sectors will take longer).

So, with this dose of reality, what can 2012 possibly bring?

I recently met with a group of 15 business owners and found that every company is now or will be hiring in 2012. All are proceeding with care and deliberation according to their strategic plans, demonstrating cautious optimism. Their main concern? Finding people with a work ethic who can do the job.

GDP growth will be around 2% in 2012 but inflation should remain low – also around 2%. Manufacturing will continue its resurgence, as more firms bring production back from China due to growing labor, transport and storage costs. Interestingly, some foreign companies are relocating to the U.S. to take advantage of an abundant skilled labor force and imbedded technology and to avoid escalating operating costs. This is a remarkable turn of events that bodes well for the U.S. economy. New firms are also emerging, as population growth builds demand in various sectors. While there will be growth, unemployment will hover around 9% due to the long-term specter of economic re-centering. This will just take time and people need to get over it. Folks, there will be jobs.  The question is, can the unemployed qualify for them?  Unfortunately, many cannot without retraining.

Due to the enormous numbers of people in Generations X and Y (born since 1964), there is a huge positive real estate bubble waiting for the right opportunity. With several million young families and individuals seeking homes, when the dam breaks, it will break with a torrent of buying. It appears that 2012 may see some of this occurring, but look for much more to occur in 2013 and 2014. My question is whether anyone has learned the critical lessons from this Great Recession. I encourage careful, moderate growth that follows a sustainable path.

Construction will grow in 2012, as more infrastructure projects are funded and more investors see returning values. Private-public partnerships will contribute to this resurgence. Power plants and grids will get more attention as energy demand escalates, but balancing clean air standards will be challenging.

My greatest concern is the lack of congressional leadership. Problems do not reside with government agencies, but with those making rules and budgets. As noted previously in this Blog, regardless of one’s party preference, the call for strong, decisive and collective leadership is needed if America is to recover its global status as an economic, academic, social, and cultural power. The imbalance between revenues and expenditures is ludicrous and dangerous. Difficult changes must be made immediately. There will be politically inspired movement in 2012. I fear it will be ill-conceived, illusory and driven mostly by political gain.

Final Thoughts

Planning holds the key to 2012. Especially if you are a Baby Boomer or early-stage Generation X, give thought to your personal vision for your life and work. What is your destination and timeline?  How do you define success? What path will take you to your goals with the least amount of turmoil and uncertainty? Take time to consider these and other questions. As always, communities must pay more attention to what is occurring globally and nationally. Transitions will abound in 2012 and beyond, so mayors, councils, commissions, and managers must prepare to take advantage of new options and opportunities. This coming year will be a barn-burner.

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal government long-range thinking and planning. John is the author of Operations Planning: A Guide for Public Officials and Managers in Troubled Times, and The Strategic Planning Guide, both published by the International City/ County Management Association (ICMA). His 2010 book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders, is being hailed as the best book for public managers and community leaders who are committed to building a sustainable future.  An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges (public futures at http://www.futurescorp.com).

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