US Economy Risks and Strategies 2007-2017 (V1.2)
Policy White Paper
(V1.2)
By Med Yones
International Institute of Management (IIM)
http://iim-edu.org/u.s.economyrisks/
(NOTE: This version of this paper supersedes the (Draft V1.1) version.)
Executive
Summary
On Jan 31st, 2007, the President of the
United States gave his speech on the “State of the
Economy” citing strong economic growth, record Dow Jones
performance and low unemployment rate. This report depicts a
different picture than the one announced. A deeper look into
the economy reveals that the painted rosy picture is based
on selective facts instead of a neutral assessment of all
the relevant numbers and economic trends. According to the
author of the white paper, "It is true that the U.S. Economy
grew at 3.5 percent rate in 4th quarter of 2006, but that
growth is unhealthy. The real economic growth is much less
than advertised. Since 2001, the U.S. economic growth has
been largely fueled by rapid increases in asset prices
(housing bubble) and expanding consumer debt, rather than
development projects, which result in non-sustainable
debt-driven growth. In order to address the emerging
socioeconomic risks, policy makers must acknowledge the
economy's strengths, weaknesses, opportunities and threats.
The U.S. Government must be candid in communicating with the
American public and the approach must be direct."
This IIM white paper provides the following: 1). A neutral assessment of the current U.S. economic health, 2). An analysis of long-term consequences of current policy decisions 3). Emerging economic, social and geopolitical threats to U.S. financial prosperity 4). Risk mitigation strategies
The paper addresses the key challenges facing the U.S. Government's policies and attempts to answer the following critical questions:
1. The United States economy has been
resilient, but for how much longer? Can the U.S. economy
sustain unlimited economic growth?
2. Will the United
States face another economic crisis and if so, when? How
strong and how long will the negative cycle be?
3. How
can the United States manage the financial costs of the
aging baby-boom generation?
4. How can the United States
compete with low-cost China, India, Mexico and other
economies?
5. How can the United States fight and win
the antiterrorism war and at the same time not lose
international allies and economic partners?
6. How can
the U.S. Government mitigate social, economic and
geopolitical risks and reverse the negative trend?
7. What will be the price of recovery be from past and
current policy mistakes?
The white paper summarizes the study in ten sections: 1). Historical perspective, 2). Economic risks, 3). Social risks 4). Geopolitical risks, 5). Root cause analysis 6). Government policy options and their price, 7). Recommended strategies 8). Best practices 9) Notes and 10). Resources.
1) U.S. Historical Perspective
No economy can sustain unlimited growth. The economy behaves in cycles; for every up cycle there is a down cycle, it is only a question of how long and how steep the curve is. The next decade is probably the most critical for U.S. socioeconomic prosperity. Let's start with a historical perspective:
• 1920 - 21 U.S. stock market
crash
• 1929 U.S. stock market crash, followed
by the Great Depression
• 1987 U.S. stock
market crash
• 1997 - 98 U.S. financial crisis
• 2000 U.S. Dot Com bubble burst
• 2001- 06
September 11 + Iraq war + Globalization + Offshoring + Real
estate bubble + Highest budget and trade deficits in U.S.
history
• 2007-17 What are the prospects for the U.S.
economy?
2) U.S. Economic Risks
This section provides a quick assessment of the U.S. economic health status. The basic commonsense formula to assess the health of an economy is as follows:
• If revenues are more
than expenditures, then the economic health is good, because
the Government can afford to invest in socioeconomic
development projects such as research, education,
transportation and infrastructure
• If revenues are
less than the expenditures, then the economic health is not
so good. If you add an increasing debt and higher interest
rates, then the economic health is bad. But how bad is bad?
To properly assess the health of an economy, it is important to take note of the revenues, expenditure and debt numbers in relation to each other. Here is the big picture using bullet-point format:
• The size of the U.S. economy = $13 trillion. Commonly known as the Gross Domestic Product (GDP)
Economic Growth
• The actual U.S.
economic growth is much less than advertised. Since 2001,
economic growth has been largely fueled by rapid increases
in asset prices (housing bubble) and expanding consumer debt
rather than spending on business investments and
infrastructure projects, which result in non-sustainable and
unhealthy growth.
• But how come the stock market is
doing well? The short-term impact of the slowdown in real
estate prices is to drive investors to move their money into
the stock market for better returns. But as the dollar value
drops and the interest rates increase, investors will move
their money from stocks to bonds or even to other
international markets to avoid the depreciating dollar
National Debt
• In 2000, the U.S. Government had a
surplus (profit) of about $237 billion (the largest in U.S.
history). In 2006, the budget deficit was about $390 billion
(loss). For information on Whitehouse budget details please
visit
http://www.whitehouse.gov/omb/budget/fy2006/tables.html
• Although the 2006 budget deficit (loss) was only
about 3% of GDP, the problem is the accumulation of losses
over multiple years, hence the need for debt to finance the
deficit. By the end of 2006 (over a period of 6 years), the
accumulated national debt was about $8.3 trillion (the
largest in U.S. history!). The U.S. Government has borrowed
that money to pay for tax breaks, new Medicare drug
benefits, the war in Iraq and other policies.
• A
large national debt is bad. Why? The Government has to pay
interest on the debt. As the debt and the interest payment
grow, eventually all the Government can afford to do is pay
the interest payments, with no money left over for other
critical expenditures. If uncontrolled, this could leads to
national bankruptcy and major socioeconomic crises.
• Suring the 2006 fiscal year, the U. S. Government
spent $406 Billion of its budget on interest payments to the
holders of the national debt. Compare that to Education at
$61 Billion, and Department of Transportation at $56
Billion. When interest payments become larger than other
critical socioeconomic budgets, this calls for major
concern.
Consumer Debt
• Consumers are the main
engine of any economy, the less money the consumer has to
spend or invest, the less is economic growth. By the end of
2006, the U.S. consumer debt was about $11 trillion
• According to the Commerce Department, the personal
savings rate for 2006 was a negative 1 percent; the worst in
73 years!. This is the lowest level since the Great
Depression, which could be a problem for the millions of
retiring baby boomers and for the job market.
• U.S.
home mortgages debt = $8.2 trillion. Due to the housing
bubble in recent years, U.S. homebuyers took on more debt to
buy overpriced homes, thus reducing share of disposable
income. Many Americans refinanced their homes during the
real-estate boom to pay for living expenses. With the
expected housing bubble bust, Americans could lose a
significant part of their savings.
• The slowing
economy will lead many small businesses and consumers to go
bankrupt. Foreseeing this, U.S. lenders have lobbied the
Government to make changes to the bankruptcy laws, to make
it more difficult to get rid of debt.
Interest Rates
• To prevent a major decline in the dollar value
the U.S. must raise interest rates.
• The higher the
debt and the interest rate, the more costly financing will
be and the less money is available for investing in
socioeconomic development.
• Last year, the average
return on equity investment (stocks) was 8% while the bonds
interest rate was 5%. Higher interest rates result in lower
investment activities, because investors will buy more
secure bonds than risky stocks, thus hurting the stock
market and impeding economic recovery.
Foreign Debt & Investment
• In early 2006, overseas investors held
$13.6 trillion in U.S. stocks, bonds, real estate,
businesses and other assets.
• About 45% of the U.S.
public debt is owed to foreign holdings (up from 40% in
2005). China, Japan, the EU, Saudi Arabia and Oil Exporters
are the largest creditors. They financed the U.S. economy
expenditures by buying U.S. Government and corporate bonds
and mortgage-backed securities. They are the United States'
biggest bankers, any of which could cause the United States
serious financial problems, if they so desired.
• According to the Commerce Department, the United
States paid more to its foreign creditors than it took in
from its overseas investments. The gap was about $2.5
billion for the last quarter - the first time that has
happened in more than 90 years! (Are you noticing the
negative trends in numbers?)
Balance of Trade & Global Competitiveness
• The U.S. 2005 balance of trade deficit was $723 billion. The number for 2006 is expected to be higher. In other words, foreign companies are better at competing than domestic U.S. companies. With the improvement of IT & Telecom technologies, offshoring will increase and knowledge networks will expand. In other words, the U.S. will decline in international competitiveness. The United States is not the only economic superpower any more. In a global economy, the name of the game is global competition: Boeing vs. Airbus, Intel vs. AMD, GM vs. Toyota, and so on. The U.S. cannot compete with China’s low-cost manufacturing or India’s low-cost services. Several of U.S.’s largest companies such as Intel, Boeing, GM and Ford are closing local factories and laying off workers due to slowing demands and increased global competition. In 2005, the U.S. lost more than 500,000 jobs. Similar numbers are expected for 2006.
Oil Prices
• The rapid growth
of China, India and other developing countries will create
major demands for oil, thus depleting the energy supply.
This will result in an inevitable increase in oil prices,
thus negatively impacting transportation and energy costs,
raising the cost of local products and services and reducing
company profits and household disposable income. Soaring
energy costs, combined with negative personal savings rates
create strong negative forces that impede U.S. economic
growth.
• Some analysts claim that this the main
driver behind the U.S. policy towards Iraq, Sudan and Iran -
that is to to control as many oil supply sources as
possible.
Dollar Exchange Rate
• In the past few years, the U.S. dollar has slipped about 40% against the Euro and other major currencies. In other words, U.S. citizen's buying power is reduced significantly. The weaker dollar causes the price of imports to rise (Wal-Mart buys about $20 billion in goods from China alone). The low-income sector has not felt the price increase because of the intervention of the Chinese Central Bank to prevent the floating of its Yuan currency. If China allows the Yuan to float freely, then the prices can increase 50% or more. Not only would the price of imports increase, but local goods will increase as well, due to the following; (1) the increased cost of imported raw material and components (2) the increased price of foreign products, will provide coverage for local producers to increase their prices, in order to make more profit.
Economic Confidence
• What
is the U.S. economic outlook? If you compare the global
economy to the stock market and the U.S. economy to a
company listed on that market, then the real question is:
Would you invest in a company that is losing money and
increasing its debt for several years in a row? Or would you
invest in one of its competitors which shows increasing
market share and profit (surplus)? Granted that USA Inc. is
the largest company in the global market, but the global
investors put more weight on profitable growth and
performance trends than the size.
• The worst thing
that could happen would be the loss of confidence in the
U.S. economy. If the U.S. Government does not commit to
reducing federal budget deficits, at some point in time
foreign banks could panic and rush to dump their dollars to
be the first out of a sinking currency, thus making the
economic crisis far worse and recovery more difficult. China
has already signaled its intention to decouple the
currencies, which will lead to the loss of trillions of
dollars in U.S. Treasury value. In order to minimize that
loss, the Chinese will have to sell off some of their U.S.
holdings. The real danger is how much and how fast China
will do so. If they decide to do it quickly, they will
prompt huge panic by other lending countries. Investors will
have to copy China’s moves, resulting in a disaster to the
dollar value, interest rate, stock market, homeowners and
the U.S. economy as a whole.
3) U.S. Social Risks
• Social Security payments go in the Social
Security Trust Fund. The purpose of any surplus payments to
Social Security is to pay future benefits. But the U.S.
Government has spent all of the money in the Social Security
Fund. That's part of the national debt.
• By 2025,
nearly a quarter of Americans will be over 60, a shift with
huge implications for the U.S. social services budget and
economy. Those baby boomers will be a major voting force and
will influence Government decisions to raise taxes to
support Social Security and Medicare, which will reduce
individual salaries, companies' profits, investments and
domestic competitiveness.
• With lower Social Security
payout and higher healthcare and living costs, many seniors
will have to go back to employment to support themselves,
thus competing with the younger generation for the already
declining number of jobs. The higher labor supply and lower
demand for employees will create intense competition and
increase work stress on the individual and the society.
Think of the younger generations resenting the baby boomers,
blaming them for a falling standard of living.
• I
would not be surprised if many senior and richer U.S.
citizens start emigrating to other more affordable
countries, taking their savings and wealth with them so they
can live there for the rest of their lives, or simply to
invest in stronger economies with stronger currencies.
Because of the extremely high healthcare costs, some are
already traveling overseas to get treated.
• Higher
cost of education will lead to less access to equal
opportunities and will increase the economic gap.
• Think of the impact of thinning middle-class layer
and the increase in an economic distribution gap. That can
result in a major social and political crisis, further
complicating recovery.
• The deteriorating economic
conditions can stress the social fabric of the nation.
Extreme socioeconomic situations are more likely to produce
racial, religious and political extremism. Blaming others is
a classic response to times of hardship, especially when
others practice a different religion or belong to another
race or economic class.
4) U.S. Geopolitical Risks
• No one disputes the right of the United States to
defend itself against terrorism, however the way it is
conducting the war on terrorism is a highly controversial
issue inside and outside the country. Regardless of one's
positive or negative opinion of the current U.S. foreign
policy, the launch of the U.S. war on Iraq with "a
fabricated WMD threat report" or "mis-intelligence”,
without the support of the international community, the 600
thousand Iraqi civilian casualties, the extensive
infrastructure destruction in Iraq, the Abu Ghuraib torture
scandal, the Haditha's civilian massacre scandal, the civil
war, the Guantanamo concentration camp, the disregard of the
Geneva Convention's agreement on torture and the treatment
of prisoners of war and the ignoring of the Middle East
peace process have all hurt the U.S. fight against terrorism
and destroyed the American international goodwill and trust.
The common international perception is that the Iraq war is
driven primarily by the U.S. interest to control Iraqi oil
resources and that the current U.S. Government foreign
policy is driven by an ideology of domination and
exploitation rather than peace and collaboration. Both trust
and goodwill are critical elements of productive diplomatic
and business relationships. Without those elements, it is
much more difficult to promote the U.S. global socioeconomic
agenda.
• In addition to the Iraq war, the U.S.
financial, political and weapon support of Israeli war on
the Palestinian territories and Lebanon in 2006 have
increased anti-American sentiments and fueled terrorism,
providing more risk to the U.S. economy and increasing
expenditures on security and defense. War policies take away
from Government's time, effort and budget and are almost
always at the expenses of socioeconomic development.
• The U.S. media and foreign policies are erecting
major psychological and political barriers to socioeconomic
exchange between the U.S. and about 1.5 billion Muslim in
more than 30 countries, further fueling extremists' agenda
for driving the situation into the clash of civilization,
another future World War or "Armageddon".
• The
onslaught of post 9/11 negative media toward Arab and
Islamic countries is having a major impact on U.S. foreign
policies and economic relations. An example is the rejection
of Dubai's winning bid to manage the U.S. ports. It is worth
noting that Dubai (UAE) is a moderate Arab country and a
U.S. ally. As a reaction to those policies, many of the rich
Arab and oil investors are considering investing elsewhere
(rather than traditional U.S. markets). Arab countries are
awarding lucrative national development projects to
competing European and Chinese companies. For example, the
development of Sudan's oil industry is now dominated by the
Chinese oil companies instead of the traditional American
companies. Many of the elite and rich Arab families,
tourists and businesses are going to competing European
schools and economies to spend their money and build
stronger partnerships.
• While the U.S. politics, army
and media were busy with the Middle East hostilities, China,
Russia and the EU were busy building stronger socioeconomic
relations with Middle Eastern countries though joint
economic development initiatives and open cultural
dialogues. It is a known fact, people do business with
people they like. Why else do you think Dubai lost the U.S.
port deal after they won it? Why else do you think Sudan
choose China instead of the U.S. as its primary oil investor
and partner? Who do you think has a better global competing
strategy the U.S. or the EU, Japan & China?
• The
Palestinian- Israeli conflict and the U.S. animosity with
Iran has led the Iranian Government to plan Euro-Perto
Bourse in an effort to weaken U.S. dollar domination on oil
trade. The new Bourse will compete with New York's
Mercantile Exchange (NYMEX) and London’s International
Petroleum Exchange (IPE) for international oil trades. It
should be noted that both the IPE and NYMEX are owned by
U.S. corporations. The IPE was bought in 2001 by a
consortium that includes BP, Goldman Sachs and Morgan
Stanley. In fact if there was peace in the Middle East, the
Iranian nuclear energy project would actually help the U.S.
economy, because it allows Iran to export more oil, thus
reducing the price of oil.
• In 2005, U.S. dependency
(in dollar amounts) on imported oil was half of imported
manufactured goods. If the U.S. launches another war or an
attack on Iran, that would most definitely lead to a sharp
increase in oil prices and further risk for the U.S.
economic recovery. Not to mention the ability of Iran to
finance and support attacks on the U.S. anywhere in the
world.
• Tensions with Iran, North Korea, Syria,
Venezuela and other Latin American countries can lead to an
escalation that may unify these smaller countries to build a
major force against the U.S. causing further damages.
• Except in a few isolated cases, history shows that
the fight against terrorism cannot be won by military force
alone. Only political solutions can result in a lasting
peace. By watching how people and organizations adapt to
conflicts and improve their fighting weapons and tactics,
one can see that it is only a matter of time before the
opponents of the United States will acquire or develop more
terrorizing weapons, such as dirty bombs (biological,
chemical or nuclear). Another 9/11- scale attack or several
other smaller attacks could result in major havoc on the
U.S. economy and cause investors to flee to more stable
business environments.
• The continuation in the
current foreign policy direction may risk some creditors
getting back at the United States through economic measures.
That could cause major economic damage.
5) Root Cause Analysis
So what led to the current situation?
Possible causes:
• A series of short-term-gain
policies by incompetent or corrupt politicians? Although no
one can know the intentions of any world politician, the
competency is easily judged by the results.
• Ideologically driven policies, rather than
pragmatically driven policies? This can be judged by the
politician's own statements, and again, by the results.
• Bought-and-paid-for analysts and lobbyists promoting
foreign or private interests over national or public
interests? Analysis of foreign and local media watchdog
reports will always reveal the hidden agendas.
• Misinformation promoted by media analysts and
commentators have led the country in the wrong direction?
Again, the best way to judge the competency of the media and
its commentators is by the review of media archives and the
final results.
• Ivory-tower economists not in touch
with real business challenges? To be fair, that may not be
the case here; the U.S. Federal Reserve has done a good job
so far in controlling and pacing interest rates increases,
but there is not much that they can do beyond that. A better
policy is to educate the public and address the threats
openly and directly.
• Tax policies? Not increasing
taxes was a wise measure that helped businesses and
investors, however, the Government has no other choice but
to raise taxes in order to balance the budget and pay for
national debt.
• Uncontrollable external events? While
9/11 was a major negative event, it is the reaction to that
event that counts. The U.S. Government cannot blame
everything on 9/11, especially the failed U.S.
foreign-relations and economic policies.
• The
pitfalls of the powerful? If the American public does not
stop the war for ethical and humanitarian reasons, there are
few politicians who have the incentives to do so. Many U.S.
politicians consider Iraq to be a military success. Their
unstated logic is that they lost about 3000 Americans since
the start of the Iraq war in 2003. In their the minds they
are thinking, "So what, about 40,000 Americans die every
year on the highways from auto accidents". When politicians
have such superior power, they are tempted to use it every
time things don't go their way. Especially, if there is no
other major constraining force.
• Last but not least,
could it be that the U.S. consumer culture has resulted in a
huge consumer debt, thus weakening the economic engine? That
seems to be the general consensus.
6) Government Policy Options & Their Price
A scientific economic fact: any economy that is built on uncontrolled debt will eventually crash. An increasing debt is a vicious cycle that can only be broken through a strategy shift and operations restructuring. In IIM's opinion, the conditions for a crash are far from being met, however, attention must be paid early to avoid coming closer to the tipping point. The more the current Administration waits to make a change, the stronger the force of inertia will be to reverse the direction and the more the socioeconomic and political pains that will result from the necessary reforms.
So what policy options are available to the U.S. Government to help it overcome the above listed challenges?
To pay the bill for the annual economic expenses, Social Security deficit (care for baby boomers), debt financing, and economic growth, the U.S. Government will have to resort to a combination of one or more of the following options:
• Allow the dollar value to fall so that it can pay
debts more cheaply. That may increase inflation and will
lower the real purchasing power of U.S. citizens and
businesses, but at the same time, this may improve price
competitiveness with other countries. With the new currency
exchange rate, salaries of the American worker become more
competitive with their European counterpart. That will
reduce the salary gap with China and India, thus slowing
offshoring).
• Increase interest rates to attract
enough money back to the United States. That is a poor
choice, as it will make it tougher and more costly to raise
capital. Also, increasing interest rates will result in
savers investing less in the stock market, thus slowing
economic growth. Increased interest rates will result in
lower demand on the housing market and thereby a loss in
home values.
• Increase taxes. That is another weak
option, which will reduce business profits and U.S. ability
to attract foreign investment
• The U.S. has to sell
more assets (telecom, utility infrastructure, and other
assets) to overseas investors. Buyers look for a bargain and
this will result in foreign control of major national assets
-- A high price to pay.
• Reduce the U.S. Government
budget across all major sectors, including defense,
education, health and other social programs. That option
will cause major layoffs in public and private sectors and
will face major challenges from the strongest lobbies and
the public.
• Relax immigration policies, Which will
provide U.S. with more competitive labor (competing with
China and India) and at the same time it will create a
larger consumer base (helping in economic growth). Most
likely that option will be opposed by the white majority,
fearing cultural and political change. Not forgetting that
the U.S. itself is a nation of immigrants and its economic
prosperity is credited to the hard work of these emigrants,
the U.S. Government can manage immigration policies in such
a way as to attract productive immigrants and minimize
negative impact on the culture.
• Recharge the U.S.
innovation engine and generate new unique products and
services to make enough profits to pay off debt and attract
foreign investments. That is the best possible solution and
would offer the U.S. the most competitive advantage. The
U.S. has given the world the most valuable modern
innovations including atomic energy, computers and the
Internet. Future bets are on nanotechnology, alternative
energy, bioengineering and medical innovations.
The U.S. will resort to the use of more than one option. All options except the last one will have a heavy price tag.
7 ) Recommended Strategies and Solutions
The U.S. Government must formulate a new economic strategy to address the two most critical challenges: debt and competitiveness.
Problem 1: Debt
• Before formulating a new
strategy and launching reform initiatives, U.S. policy
makers and the American public must acknowledge and accept
that the solution must be long-term and cannot be pain-free.
Leaders must make tough decisions rather than push them on
to the next presidency. The Government must be honest in
communicating with the public and the approach must be
direct.
• The U.S. Government must commit to reducing
the federal deficit, i.e. the U.S. Government must tighten
its belt to reduce expenditures and operational costs.
• The U.S. Government should not increase interest
rates or taxes, however, this a highly debatable issue. Yes,
that may lead to inflation, but the policy priority should
be economic growth over any other issue. Economic growth
avoids many other social and economic crises.
• Institute new energy policies to promote better
energy performance standards and to provide energy-saving
tax incentives to reduce energy waste. Promote the
development of alternative energy sources and technologies
to help reduce the demand for oil.
• Both Government
and business leaders need to exit and divest losing economic
sectors (where U.S. cannot compete).
• Encourage major
reductions in pharmaceutical, healthcare and insurance
costs. Reform liability laws and open the market for
international competition to reduce prices and become more
competitive.
• Encourage the development of the
quality of education and lower its costs by reducing
accreditation bureaucracy and competitive barriers for
private institutes.
• Reduce foreign and military aid
to other countries and re-invest the money in the local
economy. When necessary, invest in foreign joint-development
projects sharing the risks and the rewards rather than just
giving the money away.
• Re-prioritize expenditure
from space exploration and defense to other national budget
items
• The U.S. Administration must consider the
historical lessons of falling empires. One of the main
reasons for the decline of early empires was the wasting of
their national resources on wars and conflicts. The problem
with conflicts is that they are made of vicious and
expanding cycles. They are high-risk ventures that take a
lot of time, effort and money to win. One need not go far to
see the evidence. Just consider the U.S. cost of the
Israeli-Palestinian conflict in terms of the financial aid,
military aid, cost of combating terrorism, U.S. foreign
relations and the Administration time and effort. What would
have happened if the U.S. had spent half the amount of time,
money and effort to reach a peace agreement?
Problem 2: Competitiveness
The U.S. Government must formulate short-term and long-term policies and build institutions to strengthen the nation's competitive advantage through better education, innovation, technology and entrepreneurship development. The U.S. can compete with other economies using one or more of the following strategies:
• Education
and research budgets: Budgets should be redesigned to help
investments in revenue-generating economic sectors and to
provide incentives for new globally competitive products and
services. Reform the U.S. education system to increase
competitiveness and provide education and retraining
resources for displaced U.S. workers
• Competitive tax
policies: Tax policies should be redesigned to encourage
innovation and industry. One simple, but highly effective
measure, would be to shorten the depreciation schedules on
capital investment and research spending, and increase
short-term capital gains taxes to discourage short-term
thinking.
• Make it simple: Simplify business
management for entrepreneurs by simplifying the tax code and
Government transactions. Simplify, automate and eliminate
bureaucracy.
• Reduce insurance and legal costs by
reviewing the legal system to minimize frivolous lawsuits.
Consider the model of the Japanese legal system
• Promote positive culture re-engineering: Promote
transformation from consumerism to investment-oriented
culture, from leisure society to education and
entrepreneurship. This can be done through education and
media programs.
• Manage Globalization: The U.S. can
slow globalization and offshoring through protection.
However, The U.S. Government cannot stop globalization and
will lose to competitors in the long-run. The only way is to
manage the process by enforcing fair trade and investment
agreements.
• Low cost Labor: If you can't beat them,
buy them. The U.S. can partner with neighbor countries, such
as Canada and Latin American countries as low-cost labor
sources.
• Immigration Policy: Bring more investors
and competitive labor through more attractive immigration
policies to attract foreign investors, intellectual capital
and low cost labor.
• Hostile takeover (War): That is
an unethical option and has been proven to be high risk,
high cost and unprofitable foreign policy option.
• Friendly Merger: Acquire new labor, natural
resources and markets. Learn from the European Union
expansion model and consider mergers with other North
American countries such as Canada and Mexico.
• Build
stronger global socioeconomic networks: That will help favor
American products and services. In order to build strong
international relationships, the U.S. must refrain from
acting as the world police and stop attacking other
countries and cultures. Instead, the U.S. can promote
American values by encouraging cultural exchange, open
dialogues and economic partnerships. Transformation through
education and positive exchange takes more time, yet is far
more effective and lasting.
• Build stronger
partnerships with other nations: That can be done through
shared investments which will improve U.S. favoritism and
trade relations over competitors (through shared interest in
profit and loss).
• Build Peace: Shift the focus of
foreign policy from combating threats with military force to
building peace in Africa, Asia, Latin America and the Middle
East. It does not help to take sides and create more
enemies. Empower the United Nations and World Court to
handle international conflicts, thus treating the root
causes of terrorism and the U.S. hatred. That will eliminate
most of the U.S. security threats and related socioeconomic
liabilities. U.S. can gain much more through peace, and
partnership activities than hostilities.
• When
solving problems, U.S. Leadership needs to adopt the
attitude of being smart vs. being right. Religious,
ideological or egotistical policies create more problems
than they solve. A pragmatic approach is far more productive
domestically and internationally. The challenge with this
recommendation is the personal and subjective elements of
the leadership.
8 ) Management Best Practices
Probably the best way the U.S. Government can implement the change effectively and efficiently is to adopt the private-sector management best practices. The simplest way to understand IIM proposed solution is to compare the country to a company:
• The President as its CEO
• The Congress as its board of directors
• Multiparty subcommittees as the independent audit
committee
• The Citizens as the shareholders
• Industry experts and the media as the company
performance/investment analysts
USA Inc. is competing with other countries in a global economy. The CEO's mandate is the socioeconomic prosperity of her/his country. If the leadership team cannot meet their stated-objectives in their 4-years term, then they should be replaced. To help manage U.S. Government policies better, it is worth to considering the following:
• A group of nationally respected
academic researchers, socioeconomic experts, and
representatives from all political parties could establish a
comprehensive set of socioeconomic metrics as the main
election agenda and set the performance goals for elected or
appointed officials. This allows better informed-decisions
by the public when electing the executive team
• Provide financial/political performance incentives
and penalties tied to the complete set of socioeconomic
performance measures. This will ensure tying of the interest
of the elected officials to public interest as opposed to
the interest of private lobbies.
• Establish better
technical qualifications for the candidacy nominations
• Establish better governing standards for the
separation of duties to eliminate the conflict of interest
• Institute a new format of an annual status report to
the American public with far more details showing the
performance of the Government using various socioeconomic
measures
Although it maybe too much and too early for the implementation of the above mentioned reforms, they are worth stating for future intellectuals and leaders. In my opinion, such reforms would better inform and educate the public and would promote more responsibility and efficiency in addressing national challenges and opportunities.
9) Paper Notes and Corrections:
A) This paper
is not intended to be an academic research paper. To make
the paper accessible to a wider audience, the format and the
language of the paper were simplified to read like an
article. For example: statistical numbers are rounded for
simplicity, citations were minimized and key concepts are
mostly stated in bullet-point format. Readers can verify the
stated facts from the Internet and listed data sources in
section ten.
B) When writing this paper, some of the
quoted numbers were actual reported number and some were
forecasted numbers for FY 2006.
C) The goal of this white
paper is not to provide a complete solution; the goal is to
draw attention to the true picture of the economic health
and to shed light on the emerging risks and available
mitigation strategies.
D) Some of the above mentioned
recommendations are drastic, socially expensive and cannot
be implemented at this time. However, the purpose of a
neutral study is to explore as many options as possible.
From my knowledge of the political behavior, some of the
best and most effective strategies will be discarded for
ideological rather than pragmatic reasons. It’s a human
and political tendency to reason what we love rather than
love what we reason.
10) Statistical and economic data sources
U.S. Department of Commerce (DoC), European Commission (EC), United Nations (UN), Organization for Economic Cooperation and Development (OECD), International Monetary Fund (IMF), World Trade Organization WTO, Central Intelligence Agency (CIA) World Book, World Economic Forum (WEF), MSN Encarta, The Economist, Business Week, Financial Times, FederalBudget.Com , The White House, and International Institute of Management (IIM)
About the Author
Med Yones is the president of International Institute of Management (IIM). IIM is a management best practices research and education institute. IIM has 41 universities and research partners in 16 countries. Mr. Yones is an international expert specializing in the global economy, business strategy, and leadership development. For more information about IIM, please visit http://www.iim-edu.org
What are IIM White Papers?
IIM white papers provide businesses and Government leaders with a list of questions, terminologies and discussion-points that can be used to address emerging challenges and opportunities. IIM white papers are not academic research papers, they are succinct work documents designed for communication and problem-solving by the leadership team. The structure of the white paper includes three main sections: 1). A statement of the problem or opportunity 2). Analysis of root causes and driving forces 3). Proposed solution and implementation best practices.
Copyright License
Royalty-free license is granted for using or publishing for educational purposes provided that the user/publisher include a clear reference to the author(s) and International Institute of Management www.iim-edu.org (Please include the active hyperlink for electronic publishing)