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Education and the Future

A tectonic shift is occurring in America’s education system. Common core standards have been accepted by 45 states and are now being recognized by many as the country’s best chance for a vibrant economic future. This flies in the face of budgetary limits and the narrow views most legislatures demonstrate regarding funding for education. While the business community and more enlightened legislators seem to understand that the 50 million children now in the nation’s K-12 educational system are the foundation of the future, others seem more comfortable with substandard test scores and achievement far below that of many other countries. This narrow provincial view is eroding America’s options for long-term economic vitality and creating limited opportunities for our young people to compete in a global marketplace.

The fourth annual NBC News Education Nation Summit was held October 6-8 at The New York Public Library. Moderated by Brian Williams, the Teacher Town Hall portion aired live on MSNBC on Sunday, October 6 and was extraordinarily powerful. To say the least, the 2-hour fact-based program was moving but probably left many viewers with feelings of anger, frustration and exasperation. From virtually any perspective, as with many other current challenges, many of the country’s educational troubles lead directly back to the Congress and state legislatures, neither of which seem enlightened enough to triage school funding to achieve the greatest gain.

It is clear that teachers are spending on average from $150 to $400 a year out of their own pockets on classroom materials due to state and local funding shortages. And, when compared to similarly academically prepared and continually educated professionals, they are paid around 30 percent less. Many districts are wholly unprepared to implement common core programs due to insufficient funding for materials and teacher training. Yet, the business community has acknowledged that national standards leading to greater skill acquisition are absolutely essential if this country is to remain competitive.

A dominant question pertains to the nation’s future workforce. With 78 million Baby Boomers either retired or heading in that direction, workforce planning and development has become a Tier I priority. However, it must be considered in concert with K-12 preparation if we are to develop the technical skills required for a globally competitive workforce. U.S. schools are losing over a million students a year before they graduate. This is an enormous number of non-educated individuals entering a workforce that demands rapidly escalating knowledge and intricate new skills. Even though the national on-time graduation rate (74.9%) is the highest in 40 years, there is a long way to go.

From a purely selfish and performance-driven view, it would seem wise to invest in education if, for no other reason, to access the knowledge and skills required to operate in complex, technology-dependent organizations. But investment requires understanding what teaching and educating is all about, which is curious because all of us have experienced the entire educational process. Even with profound personal experience, few seem to grasp that teaching is about relationships and connecting with each unique student. It is not about rote drills and introducing technology. All the new technology will not improve learning if a student is unwilling to invest the time or has been raised by parents who do not support the educational process by reading to their children, helping with homework, and generally reinforcing good study habits. It is even more essential that parents believe that education is important and valued in the family.

It is important to realize that teaching is not a program but a process. Just as important is the understanding that teaching means caring about the ultimate success of our children. Teachers don’t teach math, English, or science…they teach children, and every child is unique, complex and worth individual attention. Unfortunately, our system is becoming driven by the belief that technology is the panacea that will save the educational system by introducing a new learning environment that creates a more modern, hyper-prepared graduate. So far, the exact opposite is proving true. Children still need individual attention, nurturing, counseling, guidance, encouragement and mentoring that only professionally prepared and experienced teachers can deliver in concert with family support.

We must keep in mind that, as one teacher noted during the MSNBC program, ‘We are not going to test our children to greatness. We are going to teach our children to greatness.’ By using emerging tools, such as the Kahn Academy, teachers may be able to provide more individual attention. The conundrum is that integrating technology requires constant training and investment. It requires a broad master plan with a vision of what we are trying to accomplish. In addition to teachers, three tiers of education are required: parents, communities, and students. It must be an integrated system with broad support and financial backing. Even more critical is that legislatures and Congress are the wrong institutions to create policies and regulations. These must come from the educational community, which, until recently was reluctant to embrace performance reviews and higher practice standards. This is rapidly changing and will continue to require patience, innovation and vision.

The future depends on educated people who can compete and prosper in an evolving world. Is the U.S. ready to refine, upgrade and promote its educational system? There are good signs, but financial support is sorely needed. Before this happens, I predict that more integrated private and public sector involvement is essential. It’s time to define the desired educational outcomes needed to meet predicted challenges and build a system to suit. Moreover, we need responsible citizens who understand freedom and know their history, geography, science, English and math. We can build a remarkable future through education but must begin now. The title ‘Education Nation’ is worth adopting. Becoming such a nation will require much more effort and commitment.

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 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). Reprints of his book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders (2010) has sold out three times. 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).

The Wheel Turns

The American culture is weary, its landscape littered with battered campaign signs, bumper stickers and assorted banners. Associated election costs were staggering, as were the depths to which both parties sunk in deceitful ads, elusive debate rhetoric and campaign speeches filled with outright lies and misrepresentations. For most of us, the end could not come fast enough. Thank heaven this event is over and we can get back to work.

I won’t comment on candidates or parties but I am deeply concerned about the election process and its aftermath. For now, let’s just say that the process of electing a president has become onerous, manipulative, and stupidly expensive. I wonder how many citizens even understand what is at stake during these tragicomedies that threaten to obfuscate the challenges before this nation? Regardless of all the folly and expense, the wheel continues to turn and we had better prepare for a bumpy 2013.

The ‘fiscal cliff’ is the nom de jour, generating enormous media attention, as both parties joust for position and desperately try to avoid blame or responsibility…for anything. Taking stock of the best available data and assuming no huge natural disasters (which may be a reckless assumption), 2013 should generate annual GDP growth of around 2% with the possibility of inching toward 2.5% by 1/1/14. Of course, automatic spending cuts dialed into current legislation, if enacted, equal around 5% of GDP, so could deeply wound any recovery. If this calamity is to be avoided Congress must act by mid- December. Even if it does so, and most of the deductions remain in place, several other reductions related to unemployment assistance, government programs and the loss of earmarked projects will dampen GDP growth. Tax reform and spending formulas must be simultaneously addressed if the private sector is to regain even a modicum of trust in the federal government’s ability to manage its affairs. Of course, I didn’t mention entitlements, which are the primary culprits.

Globally, Europe continues to struggle both economically and with cultures that cannot grasp the twin concepts of austerity and bankrupt governments. Riots fomented by those experiencing reduced pensions, longer workdays, and fewer perks are spreading, signaling entrenched societies that ignore decades of decadence, largesse and myopic governance. As noted previously, the plot always turns and, if reasonable, pragmatic people do not emerge to manage Italy, Greece, Spain and France things could quickly turn ugly.

So, with the Middle East in shambles, Europe struggling, China and India slowing, and South American countries sparring, care must be taken to seek strategic positions that will enable the U.S. to reform within a troubled, warming and conflicted global community.

Several indicators point to emerging domestic forces that could encourage steady growth. With around $2 trillion sitting idle in American businesses, there is ample cash to invest in inventories, equipment, facilities and jobs. Reluctance to put those resources in play is tied directly to trust in the federal government. More accurately, it is tied not to government programs, but to Congress, which is earning the lowest marks in American history. Will it do what is necessary to cut spending, retain sensible regulations, and introduce wise tax policies that are forged on a dual platform of practicality and vision? Housing prices are beginning to rise, new construction rose throughout 2012, domestic debt is lower than in decades and savings has increased across the middle class. Consumers are beginning to regain a level of guarded confidence, returning to markets and stores for essentials and more. But will this last? The next 3 to 6 months will tell.

In December, I’ll share predictions for 2013. But know ahead of time that they are neither rosy nor deeply pessimistic. Climate change and violent, high-damage storms seem to be growing to endemic proportions, costing billions without recourse other than thoughtful preparation or relocation. Growing economic inequality will become more of an issue bringing new opportunities for protest and conflict. With proper structure and explanation, taxes can be raised through various mechanisms that allow users to willingly pay a disproportionate share. The Affordable Care Act will be addressed and modifications will begin to forge it into something both palatable and worthwhile. State and local government will become more important and will continue evolving toward service consolidation and centralization, as public administrators accept the role of government as community builder.

The coming year will continue a process of change that will accelerate into 2014 and 2015. America is transforming. Industry is experiencing a resurgence; on-shoring is accelerating; consumers remain active; and people are beginning to find comfort in smaller, more affordable homes, lower debt, and reborn neighborhoods.  Where is your community in this continuum? Is it leading, following or ignoring the signs?

JFL Pic Blue Shirt-Yellow TieWith 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 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). Edition two of his book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders, will be released in spring 2013. 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).

TORTOISE VS. HARE

Similar to a family that has slowly spent itself into deep credit card debt the U.S. is now facing realities associated with reducing debt while maintaining an enduring vision of prosperity, opportunity, security and relevance. As with so many families and businesses that have built untenable debt, this country must retrench, retool and reconsider partisan practices and philosophies that have reaped a multidimensional bounty of a muted economy, eroding infrastructure, marginal schools, constant military deployment, and foolish gridlock.

Since 2008, the world’s brightest and most practical economists have unconditionally stated that full recovery from the Great Recession would take the better part of a decade. Further, that a government-induced fiscal stimulus was prudent and required to avert a global depression, and that a carefully crafted balance among government intervention, private investment, entrepreneurial spirit, and long-term vision is essential. So far, too many people have lost sight of the fact that recovery is a slow, deliberate slog and not a sprint back to the good old days.

There is a transcendent geometry at play here. First, this is a global challenge. Second, unwise, errant politicians in the U.S. and other countries have spent more time jousting than addressing their national problems. Third, astounding levels of global competition continue to counter previous options the U.S. had enjoyed for a century.

As Fareed Zakaria noted in The Post American World,(W.W. Norton & Company, 2008) it is not about the decline of this country so much as it is the rise of the rest of the world and other countries’ desire to ascend to what we have enjoyed for so long. It is difficult to sell our products to China when it wants to develop its own consumer markets for its business community. Fourth, U.S. debt rose enormously from 2000-2008, fueled by a period of lax regulation, reduced taxes, and high levels of unfunded spending. Levels of growth enjoyed during the 1990s may have been unsustainable but, rather than carefully managing finances and saving for a predictable contraction cycle, virtually nothing was done.

Vision requires an understanding of cycles. Whether cultural, social, environmental, or economic, all things tend to move in cyclic patterns. Myopic decisions involving fiscal, regulatory, security, education, environmental, or domestic policy have led to a deep financial hole. Unfortunately, extraction is not dependent on any one factor; it will take vision, balance, patience, commitment, collaboration and the seemingly misplaced ability to set aside petty affiliations and congressional competition.

Perhaps most important will be the recognition that recovery and the re-ordering of national perspectives will take time. There is a major transformation afoot that requires perseverance, trust, cooperation and a step-by-step plan that is deliberately and carefully executed. It is not a crap shoot; it cannot be an ‘every man for himself’ proposition; and it cannot be founded on misplaced expectations that, if the right leader is elected and a few policies are amended, jobs will return, prosperity will bloom and everything will be fine. It won’t happen. It is almost 2013; times have changed; the world has evolved and there are just too many factors that weigh against rapid recovery.

Decline can be arrested through visionary policies that create synergies among competing forces. Spending for national defense must be balanced with investment in America’s infrastructure, educational system, and applied science. Policies must integrate a long-term vision for and acceptance of immigration as a major economic engine – but only if properly conceived. Policies must also balance the need for regulations that guide and protect with those that energize and encourage. And, certainly, citizens must demand accountable decision makers who embrace the long view and discard motives grounded in ideology, affiliation, avarice and petty competition.

Is there hope for these things? I believe so. But citizens must first embrace a long-term perspective and recognize that slow and steady will win this race. With other countries struggling and failing to maintain their GDP trajectories, we will begin to see decline in various aspects of international competition. This will provide a platform for new enterprise opportunities and refresh America’s allure for the world’s best and brightest who remain motivated to choose these shores to invest, build business and contribute to society. The game is beginning to change. Will we be ready?

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 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 new book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders, was released in October 2010. 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).

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).

Coming Home

A new tsunami is heading toward these shores. It has already begun and its impact will be felt in communities across America. To be sure, it remains subtle, but is gaining momentum and power as it races eastward.

For some time, various sources have reported the growing costs associated with doing business in China. Shipping costs are up over 15 percent and wages in Chinese factories have risen 15 to 20 percent annually for the past four years. Harold Sirkin (Boston Consulting Group) has predicted that overall business costs in the U.S. and China will converge around 2015, meaning there is no sensible reason to move manufacturing to China when there is no real cost advantage.

Combining transportation, storage, labor, and general operating costs, the playing field is becoming more level. And, with more delivery and quality issues now being identified, there is a growing case for relocating back to the U.S. Coupled with these justifications are even more reasons to consider a shift.

The U.S. remains the world’s largest economy and, even though it remains in a tenuous recovery, there are signs that the current careful, deliberate approach is beginning to pay dividends. The population continues to grow, consumer confidence is increasing, unemployment is drifting downward, and new jobs are being introduced. These are all good signs and, when combined with expedient business decisions, signal an emerging environment that will support robust manufacturing growth.

Much of our work at The Futures Corporation involves mapping ‘converging variables.’ We are currently watching fuel, container, and labor costs, along with community willingness to share some portion of new plant startup investment and provide long-term incentives. But another variable has emerged that is just as potent: the innovation/ design/ manufacturing/ shipping/ purchasing cycle has accelerated. Due partly to the desire to avoid large inventories and to accelerate product turns, many outlets want just-in-time ordering, which requires fast response times from proximal manufacturers. Cycle times between China and the U.S. have grown too long and require too much transportation and storage to meet growing demand for rapid turnaround AND decent pricing. Retail and wholesale outlets want smaller inventories and rapid resupply, neither of which is possible with plants in China, unless larger inventories are kept on shore. This, of course, is exactly what most managers want to avoid.

Innovation and rapid prototyping has also added to the equation. Many firms are concerned about accelerating development cycles to keep pace with competitors. This translates into a formula that requires proximity, small inventories, fast delivery, and quick response to market fluctuations.

Most observers have recognized that the entire equation has begun to shift and accelerate. Those who wait too long to re-shore manufacturing may miss rapidly evolving markets, causing delays that could cost hundreds of millions of dollars. Delay could also cause a serious loss of market share or a repositioning of market leaders. Consequently, there is a burgeoning interest in finding suitable community locations to build or relocate manufacturing plants. Communities that recognize this phenomenon can reap enormous rewards IF they create suitable value propositions that match industry needs.

This raises a key question: Are communities throughout the U.S. recognizing this major trend and preparing for the next 10-to-20 year cycle? This one trend could very well be the essential event that will boost the U.S. economy out of its post-recession doldrums and launch the next boom cycle. Are communities prepared? Do they recognize what is occurring and are they making plans to attract emerging enterprises seeking optimal locations?

Economic development requires insight, prescience and a dedication to trend analysis. The data are clear: this is a major shift that will have enormous consequences to American business, consumers, and the economy. As the U.S. labor force becomes more realistic about wages and benefits, relocating manufacturing to American communities becomes the fundamental factor in a new economic equation. Proximity, reduced manufacturing costs, rapid response and pride in American goods are potent forces for change.

Unfortunately, the question remains, do community leaders, planners, and economic development professionals recognize the trend and are preparations underway? The communities that recognize this major shift and plan accordingly will prosper. Those that fail to perceive the opportunities or to prepare accordingly may continue to struggle. This would be unnecessary. It would also be a shame for those communities.

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).

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).

The Value of Austerity

During troubled times, it is often wise to seek counsel from history, but more specifically from our forefathers. A common tribute paid to our parents and grandparents is the recognition of their willingness to do without. Those who lived through the 1920s and well into the years since 1945 can often attest to the value of thoughtful saving and prudent spending. Choices were governed by need, value and long-term contribution more than by status. Unfortunately, lessons shared by parents and grandparents with those born during the second half of the previous century seem to have been largely forgotten.

As noted in previous Blogs, when reviewing the past 60 years from a macro perspective, global growth and development have been awesome. Space travel, communications, the Internet, commerce, transportation, and free market expansion have grown to amazing levels. Through this period, there have been those who seemed unmoved by reason, empathy or the common interest as they relentlessly sought power and market share, but they were also the drivers of what now constitutes the global economy. During this time there were also those who shared cautionary tales of past societies that squandered wealth and opportunity. Historians have offered comparisons that revealed remarkably similar circumstances that ended badly for those who lacked the wisdom to heed admonitions to curb the desire for more – especially if gain for some meant loss for those less empowered.

History tells us that periods of rapid growth and expansion are typically followed by periods of contraction and recession. While this cycle over time appears to result in an upward spiral, to those living a diminished middle class dream, it will appear as a Sisyphean cycle of relentless tribulation. We are in an extended recessionary period because of a profligate federal government, the financial sector was (and remains) over-leveraged, and personal debt was at an all-time high. People have enjoyed several decades of government subsidies, personal expansion, hyper-recreation, expanded vocational opportunities, and residential options never before seen in this country.  During the current decade, much of this will change.

Most economists agree that jobs are created by a confident business community, which, in turn, depends on confident consumers. When consumers are hunkered down trying to recover savings or save their homes, they are not in an expansionary mood. And it is just such a mood that must drive the world economy from its current rut.

There is no real evidence that an economy can grow itself out of the type of situation the U.S. is experiencing. Growth can neither be legislated nor dictated. It is a natural social and economic phenomenon that results from balance…reasonable debt, opportunity, markets, and demand. All of these, of course, require confidence.

Europe and the U.S. must embrace realistic expectations. Both sides of the Atlantic have experienced enormous development over the past 50 years, but neither pace nor trajectory is sustainable. Not to say there cannot be a continuation of free market democracy and sensible growth, but it is a new age that requires new expectations. Developed economies will not grow at the rate enjoyed in previous decades. It will be 1% to 2% below those norms. Because unemployment typically increases by around 7% during severe financial crises and often remains high for up to a decade, job recovery expectations must also be more realistic.

Unemployment will remain high as society sorts out and re-centers, and business will continue to cautiously assess options and opportunities. The sooner we embrace the need for even moderate austerity, the sooner the economy will find a new center and begin its recovery. Paying down debt, careful spending, innovative marketing and enhanced education will become new cornerstones for development; and each must be driven by more targeted strategic and operational planning in government and industry.

Austerity is not a negative option for government or business.  The world has changed and we must embrace new realities. Currency and economies are fully interconnected; markets rely on one another; banks operate globally. The U.S. still has huge loan issues that inhibit confidence and undermine otherwise reasonable economic options. The sooner we get serious about austerity, write-down unrecoverable debt, and begin building a new foundation for a sustainable future, the sooner America will recover.

In the meantime, I encourage you and your community to move into the fourth quarter with a recommitment to the future and to careful planning. Stay vigilant, stay current, pay attention, make good plans, and seek new opportunities to serve the common good. Above all, confront reality as never before. Many of us have faced difficult times and prospered through them. We, and America, will do so again.

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).

The Plot Must Turn

In late 2009 Niall Ferguson wrote a piece for Newsweek (An Empire at Risk, December 7, 2009) that outlined a sobering sequence of decline – one the US seems to be following. Among the most prominent contributors to this devolution are runaway debt, restricted growth, high (and foolish) spending, warring political factions, low consumer (i.e. citizen) confidence, armed foreign conflict, and inequality among economic strata. I would add declining infrastructure, unwillingness to focus on the essential, a disregard for common community interests, and a general disregard for predictable outcomes. No one seems willing to reflect on even medium-term impact of these converging variables, which will bring enormous and complex consequences.

At a time when most Americans prefer debt reduction and ending unnecessary foreign conflicts, Congress dabbles in political brinksmanship bordering on criminal neglect. If Congress were a major corporation with competent management and a serious board, it would have taken action long ago. Debt would have been retired, new revenue sources would have been explored and new enterprises launched. There would be retraining, retrenching, re-visioning, and general operational restructuring. It would cut costs, eliminate nonsensical services and focus on ROI. Right the ship, THEN return to more sustainable management. Any fool knows the key is to act…now.

China holds around 13% of US government bonds and other notes. That’s leverage we should avoid. However, China has the cash and we need it…much like those hideous payday loan agencies that prey on those so far behind the 8-Ball they need cash, now. While state and local governments have done an increasingly good job of tamping down debt and balancing revenue with expenses, the trend is leading to greater contraction in services, maintenance, and community development.

As we head toward Labor Day, it seems clear that government must attend to several things. At the federal, state and local level, focus must turn to economic development. The same old tired approaches won’t work. Why? Because every state and community is offering the same things to attract commerce. Let’s get innovative.

Second, we must invest in our people, with training programs that not only build essential core competencies, but also build a public employee system that is much more efficient, effective, ethical and future-oriented.

Third, we are digging a hole from which this country can’t possibly escape without a totally ridiculous amount of economic growth, reduced spending, AND higher taxes. Rapid growth is a fantasy; this will be a slow growth decade – count on it. Spending reductions are possible but must follow a formula that has criteria grounded in a vision of a preferred future…and not a serendipitous approach driven by power and influence. Balance is the key. School districts are now charging for participation in non-academic activities. Not a new concept, but one that reflects loss of revenue for basic services. Unfortunately, many families will be unable to afford the cost of participation. Who will pick up the slack? Value added taxes will become more prominent, allowing those who desire certain services to elect to pay for them. The critical question will become, “What does this community need and what are people willing to pay for?’ Are parks more important than fire protection or police services? Who makes the call?

The question, ‘Are you prepared for challenge?’ is central to future decision making. What are the issues and challenges that are impacting your community? Who define ‘priority’ and who leads triage efforts that ultimately guide budget allocation? As a country, are we in an unrecoverable decline or can we pull out of this descent?

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 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 new book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders, was released in October 2010. 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).

Past the Tipping Point

With the summer more than half over, things have not been going as well as America had hoped. I would imagine that this observation is shared by many readers and has the potential to recast earlier feelings of optimism. To be truthful, these are troubled times. While exacerbated by Washington’s political gridlock, the greater fear is that they portend a future governed by small-minded powerbrokers who fail to grasp the complex needs of a great and growing nation. Decision-making should never be about power, influence and insuring one’s financial future after politics. It must be about serving the common good…the common interest. This has not been the case in Washington.

 At the state level, governors Chris Christie (R-NJ) and Jerry Brown (D-CA) have repeatedly and strongly stated that their states must begin to make very tough decisions. They believe that society must live within its means and that every service to which we’ve become accustomed must no longer be an entitlement. Both have also said that they would do what is right even if unpopular and the citizens could agree to a new level of fiscal restraint or vote them out of office. Leaders at the city and county level are leaning the same way- making the best possible choices to preserve their communities.

 Watching the wags and nincompoops who blather on talk and ‘news’ shows, it is clear to those paying attention that political guests and their advisors spend most allotted air time bashing the other political party. Blaming, deflection and outright lying have reached a level not seen in US history. And, there is no sign of abatement. At the federal, state and local level, common business sense must become the rule. It is always difficult to reel in emotional and fiscal entitlements. The longer they continue, the more vital they become to the recipient; and, the more they will be defended with anger and irrational exuberance.

 For rational people, it is clear that you can’t spend what you don’t have. While credit is available, too much too often leads to a deep, dark hole. The rule is simple: If the American people want a service cornucopia, it comes with a cost; government cannot keep borrowing to maintain programs and services (even those held dear) if revenue can’t support predicted need as the population grows. At some point (now), the country must decide what is important and what it can afford at current revenue levels, then ask society what else it is willing to contribute. It must not be about political control; it must be about a properly envisioned and managed government.

 Intelligent budget decisions need to be made now. Even though Congress has raised the debt ceiling 11 times in the past 10 years with no ill effect, the recent posturing associated with such classic housekeeping was unconscionable. Predictably, it has ignited a serious stock market decline – one that could erode many of the gains made since 2009. In terms of debt reduction, cutting small, targeted programs will not impact the nation’s debt. A broad and prudent plan is required – similar to the Bowles-Simpson Fiscal Responsibility and Reform Commission Report that published thoughtful but tough recommendations in December 2010 (similar recommendations were presented by the Debt Reduction Task Force of the Bipartisan Policy Center, in the Domenici-Rivlin Report, November 2010). Or, if you want a rush from good but frightening data, read Peter Coy’s analysis in the August 1-7 edition of Bloomberg Businessweek. Talk about a well-document dose of reality!

 This is not a time for party politics, nor a time to support officials who are not fully dedicated to the long-term common interest of all citizens. This is a time to determine what this society deems important enough to pay for and what constitutes a practical vision that preserves American ideals and the opportunity to build a sustainable economic future. There are many paths forward; isn’t it time we chose one?

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 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 new book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders, was released in October 2010. 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).

An Ignorant and Slippery Slope

Almost two years ago, Robert Samuelson wrote an essay in Newsweek (Let Them go Bankrupt, Soon, June 1, 2009) suggesting that citizens and politicians would never take Medicare and Social Security issues seriously until the systems failed. Citing extended life and more robust health among the U.S. population, he noted that more seniors (i.e. Boomers) will swamp both systems before mid-century.

While this is not the newest of news, it is interesting to me that Samuelson’s very powerful and carefully documented commentary and many since that time have failed to spark much effort to counter the slide to oblivion. Over the next 75 years, Social Security and Medicare will cost around $103 trillion while revenues will generate approximately $57 trillion. With a gap of almost $46 trillion, one would reasonably calculate this country would be in a precarious fiscal dilemma known to most of us Pilgrims as bankruptcy.

To be sure, our society places a premium on caring for the old, disadvantaged and infirm, but what of all the other obligations? One would think public infrastructure (ports, airports, highways, and bridges), defense, public health, public transportation, housing and education are worth retaining. If Medicare and Social Security trust funds won’t be exhausted until 2017 and 2037 respectively, it would seem we have time for a course correction. Why has there been no action?  Review the facts – every administration and congress merely pushes the crises further into the future, as the current crop of diddlers do little more that nibble around the edges and posture for political gain.

Tax reform is inevitable. As it would be in any private enterprise, growing debt indicates living beyond the means required to support the business. At some point, it is time to 1) cut spending, and 2) do what is possible to grow revenue. Pretty simple.  U.S. tax rates are generally low for the middle class and ridiculously low for high earners. Corporations, on the other hand, could use a tax break, which in turn might bring some of the multinationals (and their tax revenues) back home. Even slightly raising taxes for a period of time would help right the ship, as long as those additional revenues were used in concert with spending reductions.

Even larger looming issues are actually a convergence of several enormous negative variables. Deteriorating infrastructure, declining educational performance, cost of education, incessant and meaningless warfare and a financial system that preys on a nation hooked on credit are all impacting the American culture. And, the slope is beginning to incline to the point that catastrophic impacts are bound to occur…not in decades, but within a few short years.

The climate is shifting, the housing bubble remains problematic for millions of homeowners, oil prices are escalating, and deferred maintenance has become a way of life. We are living on borrowed time and still cannot bring ourselves to quit posturing, reduce spending, focus on the essential, and take sensible corrective action. Keep in mind that, as we debate and dink around, the most serious variables are bearing down on this country. There will be a multi-trillion price to pay for deferred maintenance; there is still not enough oil to support global needs and fuel costs will continue to rise; the climate will continue to evolve, with potentially disastrous effects (monsoons, epic snow or tornados, anyone?); and existing entitlements will continue to push the country toward bankruptcy.

In the meantime, much of the developing world is intent in building a ‘free market democracy,’ meaning that everyone has an opportunity to do business. Whether the world is truly flat is questionable, but one thing is certain – many countries are quite interested in trade, progress, growth, and development.  Kiplinger’s global forecasts put GDP for Brazil, South Korea, Russia, and Mexico at between 4% and 5% for both 2011 and 2012. GDP for China and India will both exceed 9% for the next two years. The U.S. will max out at around 3% and the Euro zone probably won’t break 2%. Commerce drives revenue. However, it can neither energize good decision-making, nor provide the will to make difficult choices.

As stated many times in this Blog, everything must now be triaged. What is in the best common interest of every community and state must drive every decision…not political affiliation or ideology. Very few professionals I contact in Washington D.C. are optimistic about the future. This is due mostly to the lack of foresight and will being reflected in partisan deliberations and empty rhetoric. 2011 is nearly half over, and we are no closer to being prepared for the enormous challenges ahead.

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 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 new book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders, was released in October 2010. 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).