Thursday, August 25, 2011

Slouching Toward Mediocrity

In May, my monthly letter was dedicated to the notion that we need to do something different in the United States.  This is a continuation of that letter.  It is not something I do often, continuing a recently written letter, but this issue is vitally important to me and, I believe this country.
William Butler Yeats wrote a poem, The Second Coming, in which he ends with the following ominous lines:

And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

There may or may not be a rough beast slouching towards America.  But, I do believe as a country, we are slouching.  America is slouching towards mediocrity and this bothers me.   In the past month, I felt this slouching toward mediocrity very profoundly when Congress was in paralysis regarding the debt crisis.
At the end of July, Congress and the President were dealing with a need to raise the debt limit lest the US begin defaulting on our massive debt and trigger a global recession or depression.  The debate was painful to watch... it was incredibly painful to watch and that seemed to be the consensus of the entire country.  
Why was it so painful?
In my opinion, our leaders were trying to solve a new problem in a new world using old thinking and old paradigms.  The economic system has changed in a way that old thinking simply will not work.  The easiest way for me to make my case here is by analogy.  Let us suppose the US economy can be controlled to a degree by a large control room which our government sits on turns the dials to effect change.  Think of an airplane cockpit except that in this control room the dials are taxes, interest rates, and countless other things that most of us cannot comprehend.  Normally, like in every recession since the Great Depression of 1929 until the Great Recession of 2008-2009, the guys in the control pad would simply lower interest rates or taxes.  After having done that banks would respond by making money freely available.  Business would then borrow money and use it to invest in new products, plants, and equipment which increased employment and an improvement in the economy in general.
With The Great Recession, I have argued that things have changed beyond the range of these dials.  Yet, our government still thinks that it is all about interest rates and taxes.  But, my feeling is you can play with these dials in the control room all you want and not have much influence on the economy. 
Here is my theory.  Our blue collar middle class, once a strength, perhaps even the very strength, of this country, has shrunk considerably with the exportation of factory jobs.  Any incentives, in the old fashioned tax and interest rate turning of the dials, will not bring back this socio-economic class and their buying power.   Our major corporations have become so large and so multinational that while they might be based here, they will take their incentives and continue globalization rather than increase meaningful production facilities and jobs here.
August 21:  Today, I was driving to music practice and listening to NPR.  I caught a news talk show already in progress, so I did not know what the name of the program was or who the people talking were.  They were discussing the state of the economy and the feeling of malaise that has swept over everyone in the past few weeks.   The main discussion points were as follows:

  • Stocks, except for the past few weeks, seem to have rebounded since The Great Recession.
  • On a similar note, major companies and corporations have rebounded and doing well.

  • While businesses are doing better, people are not consuming to the levels necessary to support a full and robust recovery
  • A vast majority of the people believe that the recession has not ended for them.

The dichotomy of these positives and negatives confused the participants on this program.  They were very well spoken and I thus concluded that they were knowledgeable reporters, business analysts, or economists.  I felt they were naive and were trapped by the same thinking that seemed to have paralyzed our Congress during the debt ceiling debate of late last month.
There was a lady on the program that summarized it best though I am not sure that she knew that she had.  She expertly discussed how the middle class has been eroded and while businesses have recovered and the average Joe or Jane is feeling unrecovered and uncovered.  Gas and food cost more.  If Joe or Jane are not unemployed, they have a neighbor that probably is.  Their home is worth less than it was in 2007.  The prospect for retirement is dim.  Basically, they feel The Great Recession never ended for them.  Without missing a breath the lady then said, in almost an exasperated tone, "How can we get people to start consuming more?"
Really?  This is the answer?  Consume our way out of this?  Buy our way out of this?
People need jobs to consume.  We have exported the jobs that used to support the blue collar middle class, the backbone of this country.  This is exactly the middle class we have eroded and put into, well, the lower class.  Furthermore, the idea of buy buy buy is passé.  It has to be passé.  We cannot afford it.  Plus, most of homes are already glutted with more stuff than we need. 
We eroded the middle class by exporting factories and jobs (and we made fun of Ross Perot for his "giant sucking sound” comment).  We then suckered people who couldn't afford it to buy homes they couldn't afford and got them into hock up to their eyeballs.  This is what folks in my parents’ generation would call a "double whammy."  It certainly was.
The bright articulate lady on the radio show recommending that all we have to do is figure out how to get people to consume more supports my case very well.  She is trying to fix this problem using an old paradigm, not realizing that the underlying model has changed so much that, tweaking the economy in the old tried and true ways just will not work.
We are operating like the management of Ford and GM post 1970.  They never really understood that the Japanese had changed the playing field.  They had changed the operational system.  They had changed the way the business was run and managed.  They changed the relationship with and the expectations of the consumers.  The executives at Ford and GM were still under the belief that they just needed a hit car or two to get back.  They believed it was about styling and marketing.  Sure, style was still an important factor, but they were getting crushed on quality and reliability.  Ford eventually learned.  GM had to go bankrupt in The Great Recession and hopefully have learned.
We are operating like Sears Roebuck and Company refusing to believe and accept that the upstart Wal-Mart had changed the rules of the game.  They thought their department store model was still solid and that they knew what consumers wanted and needed better than Sam Walton and his cronies.  The management of Sears was wrong and has stayed wrong for decades.   Earlier this year it was predicted this storied enterprise might close its doors before year’s end.
Is our government behaving the same way?  Our ship, our Titanic, has hit an iceberg.  The actions we are taking are tantamount to rearranging the deck chairs.  We are arguing about pure economic levers.  Should we increase spending on incentives?  Should we raise taxes?  Should we lower taxes?  Hey let's keep interest rates real low for another couple of years.
None of these actions will significantly impact the hole we are in.
This past few weeks shows our leaders do not believe that we are in the “new normal.”  So, we try what always worked before and are as befuddled as the lady on the radio show as to why the lot of the average Joe and Jane has not improved.  We have been re-arranging the deck chairs on the Titanic.  Most everyone can see it, yet we do not know what to do differently.  Our leaders all got where they are in the old model; the model where we were the economic power of the world and if we got a little cold we knew what to do to get better.
Things have changed and we had better change to operate more effectively in the new reality.
Sidebar:  I have specifically used the pronoun we here.  I could have used they.  I didn't because using they puts the blame on someone else.  They or them is what we used to refer to as "the man" or the establishment or that cabal of cigar smoking fat cats pulling the strings and making us mannequins dance to their music.  That would be too easy.  It would sound like a conspiracy.  Maybe we are just victims of some intricate conspiracy and I am simply incredibly naive.  No, I think not.  We are all to blame here.  We have to elect people that truly have new thinking.
August 23:  How do we get people tied to one system, one way of thinking to change their paradigms?  This has been a question that has baffled those of us working in Quality Management.  We know that focusing on having quality products and services will lead to greater market share, yet it was unbelievably hard to convince senior management to adopt the philosophy and change the way they run their business.  They got to the top by succeeding in the company culture of cost cutting, short term profit focus, and fire fighting.  Their personalities are embedded in a management style that often is counter to
Another side of this problem is self-serving power and greed.  We also see leaders of every ilk professing a true and reverent dedication to this religion or that only to learn that they have transgressed the basic tenets of that religion on a regular basis without blinking an eye.  They profess one thing and act in a different way.
This is one of the dilemmas of the situation we are in.  Deep down we know we have to change.  Deep down we know we have to do something fundamentally different.  Yet, we are paralyzed and do what we always have done hoping against hope that the results will turn out just like they did before.  
I keep going back to the lady on the NPR program.  I do not mean to pick on her.  As I have mentioned above, she struck me as intelligent, well spoken, and genuinely concerned.  I keep going back to her statement, "How can we get people to start consuming more?"  She said more out of exasperation than anything.
Let's look at consumption.  It is a cornerstone of capitalism and free markets.  People choose with their pocketbooks buying goods and service that appeal to them more. Competition thus forces producers to improve their product and service offerings to appeal to consumers, stay in business, and make some money.   This is in general a good thing.  Look at all the wonderful conveniences we have today that save us labor, provide exceptional entertainment (OK... maybe not reality TV), and access to the more information instantly than our ancestors ever dreamed of.  In this sense, we live in an amazing time.
How much can each person, each family, consume?  There has to be some limit... doesn't there?  Without limits, we would become a country where obesity is epidemic while people in other parts of the world starve.  Without limits, we would have more clothes, cars, TVs, computers, telephones, and other gizmos than we possibly need while people in other parts of world, the same starving people, look at us with a combination of envy and hate. 
There are limits.  We may have reached them.  They are now being imposed on us the hard way.  We have run into a wall and, as a nation, we are stunned.
We are most likely experiencing the global economy adjusting to a new equilibrium.  The blue collar middle class in this country is being crushed while there is an emerging middle class in China, Korea, and India.   Corporations get their labor where they can and where they have to.  If that cripples a customer base in this country, it will open markets in others.  This is why our major companies are doing well.  They have trimmed their domestic operations to operating efficiently in this new normal and looking to grow globally.  So, companies are doing well, our citizens, what used to be the blue collar middle class, not so well.
We cannot consume our way out of this.  We need to re-invent ourselves and re-dedicate ourselves as a matter of national policy.  I wrote about this May suggesting we need something akin to the Space Race to forge our policies and align our actions so that we can be a strong economic power in the world moving forward.
What do we envision ourselves, this country, being known for in ten or twenty years?  How will our people be viewed?   We need to answer these questions and develop a strategic plan and put our efforts to it like it was the Space Race or, maybe even more apropos, World War II.
I know I am sounding very preachy here.  But, we need passion around this.  We need to not like where we are and get very excited about blazing a trail to a better future.  We need to think about more collectively and not just about maximizing our own pocket books.
OK… now you are thinking that I am advocating a shrouded brand of communism.  Nothing is further from the truth.  I am advocating strategic national capitalism.  By making the country better, we make everyone’s lives better.  Cutting taxes or interests rates will not work.  The union model is passé as well.  We need everyone working together.
We need to make things. We need to be innovative.  Sure, we need good competent financial people.  We need excellent marketing people.  But, we need scientists, mathematicians, and engineers even more.
Thanks for listening to me rant, rave, and ramble on about this once more.  As, I do not think there is a quick fix coming, I am almost certain I will be compelled to write about it again.  I will not, however, unless I have something new and meaningful to present.

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