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The Great Contraction

Perhaps a more appropriate title for this commentary would be “The Great Contradiction.” Expectations and comparisons to historic norms continue to generate demands that cannot possibly be met. Blaming government, Wall Street, the EU, China and global warming has become underpinning for virtually every talk show and faux news report.  Fanned by political rhetoric, various factions point to elected and business leaders as primary causative factors of economic and social discord, when neither seems to have the vision nor power to implement remedies. Not to say there are no remedies; they are abundant, driven by reality and some are even plausible. The problem? There is a larger game afoot.

Noted often in this Blog, the U.S. and all European countries are in a major systemic correction. After years of growth, over-extension, competition, graft, and greed, a natural re-alignment is underway. In some ways, why it is occurring matters little. Certainly, academics and politicians want to know, either for intellectual enlightenment or as ammunition for political gain, but, as with global warming, all that truly matters is the short- and long-term impact. The Romney/ Obama road show is just getting underway and will accentuate the polarity between expectations and reality. Along the way, I guarantee that the message of ‘confronting reality’ will be obfuscated by finger pointing, senseless data, and visions founded on quixotic views of what should be.

While I remain optimistic about the long-term future, this decade will be characterized by precarious economics, slow re-engagement, timid investors and lagging job growth. Especially in America, where there is a consistently weird demand for low unemployment and rapid return to economic vitality, this will take time.

The Economic Recovery Act provided over $830 billion in funds meant to incite growth. The federal government assisted the banking and elements of the automotive communities, and spread money around willy-nilly to other sectors through grants, contracts and loans. Even as recently as this morning on Meet the Press, Diane Swonk, Chief Economist for Mesirow Financial, noted that TARP funds did indeed save the economy and remarked that most economists agree that it was a prudent strategy.  Los Angeles Times reporter Jim Puzzanghera wrote a fine article (May 3) in which he cited a Fitch Ratings study that concluded that, without the stimulus the U.S. would have been mired in depression and the severity of decline would have been much worse. The article also cited studies by the Congressional Budget Office and economists Mark Zandi and Alan Blinder, both of which concluded that the stimulus had positive economic impact.  What is left unsaid in every study is that there are inherent issues in the U.S. workforce and the overall economy that will continue to hamper recovery.

In a world of rapid prototyping, global competition, and technological advancement, U.S. workforce readiness is seriously inadequate. As markets and products have evolved, driven by product and delivery technology, workers seem more interested in the European model of ‘retire early and just hang out with a great pension.’ Far too many people are either not interested in or incapable of keeping pace with escalating knowledge and skill requirements. Instead, they demand to be treated ‘fairly’ based on historic contributions and expectations that may be no longer viable. While many Baby Boomers have worked diligently for decades and have contributed to this country’s economic progress, that alone cannot be a platform for future policy.

In addition, too few young people have the work ethic, technical skills and initiative to provide positive gain for employers. As Baby Boomers begin to retire, regardless of their enormous contributions or demand for fair treatment in retirement, they have limited options when considering succession. Therefore, a stalemate exists: Boomers want to check out, private and public employers need bright, capable replacements and the public wants growth, vitality, opportunity, efficiency, low taxes, security, great infrastructure, and abundant jobs. Talk about a ‘can’t get there from here’ scenario!

Another corollary is that economic stimulus and Federal Reserve policies drove down interest rates, which kept the economy alive but reduced investor gains, which in turn created a less optimistic investment climate as people and institutions holding money adopted a wait and see mentality. Within two years, this compounded into a bunker mentality, which endures today. So, these converging variables have created an environment that cannot possibly generate desired levels of growth until bad debt is slowly flushed from financial institutions, Boomers adapt to new, contracted expectations about their retirement, the educational system produces more capable replacements for those who are retiring, young people adapt to reasonable income and spending levels, organizations (private and public) focus more on professional development, and the overall culture calibrates to reality.

My questions pertain to the role of public leaders in this enormous conundrum. Who will speak the truth to our communities? Who will take time to understand the complexities of a recalibrating economy and have the skill to express it to citizens? The U.S. has encountered difficulties many times in the past 200 years. However, they were typically more straightforward. People could grasp causation, significance, and the path forward. While previous challenges were no more personal, this time they are more subtle, more complex and deeply systemic. As always, it is a question of leadership. But it is also about the ability to rally our communities to common interests that are founded on purpose, vision and sensible expectations. This is a critical role of government, its employees and its leaders. Time will tell if they are prepared for the challenge.

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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