Why I Don't Want the Recession to End Yet

Everyone is asking the same questions: Have we hit bottom yet? When will the recession end? When will things go back to the way they were?

As a chief executive, I'm as eager as anyone to put the recession into the past. A growing economy benefits everyone. More importantly, there has been a lot of loss: not just economic loss, but human loss, hardship, pain and adversity, affecting all of our lives and all around us. This pain should be acknowledged, and whatever can be done to alleviate it should be done. At the same time, how could we not take this opportunity to ask some fundamental and existential questions?

But now that there are signs of recovery, there's a part of me -- and I'm reluctant to admit this -- that doesn't want things to get too good too fast. I think we could use some more time to understand what went wrong with our economy.

That's because I'm not sure we've fully absorbed the lessons from this difficult, painful, and troubling time.

Saving for the Future
To be sure, we've learned some things. We've begun to save for the future instead of spending money we don't have. We're more wary, as we should be, of people selling us investment products that sound too good to be true. And we've learned that no company is too big to fail. Size alone does not guarantee long-term survival. To the contrary, the aggressive pursuit of scale -- whether it's more revenues, profits, customers, or stores, or a bigger market capitalization -- tempts companies to lose sight of the values and principles that lead to true sustainability.

If we return to business as usual too quickly, we will miss the opportunity to create the new habits of thought and behavior that we need to build sustainable economic growth.

One place to start is by restoring Wall Street to its proper role in society, which is to serve investors, entrepreneurs, and companies. For the past couple of decades, America's best and brightest college graduates and MBAs flocked to Wall Street. And they did so for a simple reason: They could get rich quickly.

As Simon Johnson, a professor at Massachusetts Institute of Technology's Sloan School of Management, reported in The Atlantic, between 1948 and 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. On average, Wall Street bankers made just a little more than executives elsewhere. Compensation in financial services began to climb in the mid-1980s, and in 2007, it topped out at 181 percent of pay elsewhere.

Financial Balloon
Wall Street's profits grew rapidly, too. During the market slump of the 1970s and early '80s, the financial sector never accounted for more than 16 percent of domestic corporate profits. By the 1990s, banks and insurance companies were capturing between 21 percent and 30 percent of U.S. corporate profits. During the 2000s, the figure topped 40 percent.

By then, the investment banks were focused on "innovation" and "financial products," including the structured finance products, collateralized debt obligations, and credit default swaps we've heard so much about. While some of these creations were well intentioned -- mortgage debt was pooled, in theory, to reduce risk and enable more people to buy their own homes -- much of it was overly complicated and intended to enrich the bankers at the expense of their clients.

In the rush to create new financial "products," banks lost sight of their core mission. In truth, their role is to safeguard the financial resources of their customers and to help allocate capital to productive uses in society. In the future, bankers should worry less about their own "innovation" and more about supporting the real innovations of entrepreneurs and others who create tangible value. Wall Street is supposed to be in the financial services business — that is, the business of serving others.

A society that has too much of its energy, smarts, and capital flowing to Wall Street is, by definition, underinvesting in the rest of the economy.

In the future, let's focus on the traditional strengths of the American economy. Here are three things we do well:

1. We produce trust better than other societies.

The U.S. economy has prospered because we respect the rule of law, contracts, intellectual property, and transparency. That's why it's so painful when trust is betrayed. By rebuilding trust, America will attract the capital and the people we need to thrive. Banks will again lend, investors will embrace risks and entrepreneurs will dream big — but only after trust is restored.

2. We solve problems by deploying the forces of capitalism.

While government policy is important, businesses built the railroads, created the automobile industry, enabled global communications, and generated the growth in personal wealth that, even now, after the housing bust, allows about 67 percent of Americans to own their homes. We need our best and brightest today to devote themselves to our big problems: the environment, health care, and education. Business can help lead the way. Many companies already are — look at Wal-Mart's commitment to sustainability or GE's new effort to help deal with the cost and availability of health care.

3. We create real value from values.

We do our best when, instead of pursuing short-term success, we are inspired by values. Most great businesses are driven by values. By that, I mean that they are other-directed; they focus on the needs and wants of their customers, workers, and communities. Just as important, they go about their business in a principled, consistent and transparent way. Examples abound: Google with its drive to organize all of the world's information, Walt Disney with its desire to entertain families, UPS with its goal of enabling global commerce to thrive.

These are among the big ideas that we can take away from the global economic meltdown. They're about more than spending, saving, borrowing, regulating, or reading the fine print in an investment prospectus. Business leaders need to have a thoughtful conversation about these ideas — and that will take time. Let's get started now.

Dov Seidman is the founder, chairman and chief executive officer of LRN, a company that helps businesses develop ethical corporate cultures and inspire principled performance, and the author of "HOW: Why HOW We Do Anything Means Everything...in Business (and in Life)." LRN recently announced the acquisition of leading green strategy firm, GreenOrder.

Comments

[timmyturner]

Dont worry its not going to end any time soon.

[SamKnause]

I am not an accountant or financial wizard, but I will take a shot at what went wrong, and is still wrong with the economy:
1. Government on the take, accepting bribes from lobbyist
2. Mortgage companies using questionable tactics to lure uneducated people into contracts that they couldn't afford
3. Wall Street running rampant with no regulations
4. NAFTA being instituted causing loss of entire manufacturing base, causing unemployment to rise in alarming numbers
5. Banks and credit card companies being allowed to charge interest rates that would make the mafia blush
6. Government abandoning their principles for greed and playing a game of politics, instead of doing their elected jobs.
7. SEC asleep at the wheel
8. Insurance and pharmaceutical companies raising premiums, denying claims, and bankrupting people who had insurance
9. Cost of living rising and wages lowered or stagnated
10. Insider trading and manipulation of the market
11. Oil speculation
12. Fighting two never ending wars

I am sure that I have left a few things out. The point, if your government is on the take and corrupt, everything will be corrupt. We need a government that works for we the people, not corporations, banks, or Wall Street.

[leduck]

you forgot the elephant in the room -- PEAK OIL

[SamKnause]

Thank you for your reply.

[research]

nothing to do with it.

[kmsbt]

So Wal-mart, GE and Disney are the heroes of this "new" economy. Oh good. I'll run right out, buy some cheap goods then come home and flip between NBC and ABC.

[Navision]

I suppose the COST of the Iraq War has nothing to do with it. We suck out trillions of $$ for the War Effort,
the very first Oil Contract Goes to CHINA at the American Taxpapers Expense...­.....

We have given China and India the majority of our jobs...

They buy our debt with our money.....­....... You gotta love America But hey somepeople got RICH

[leduck]

if the recession ends, then people will start driving more and the price of gas will skyrocket again pulling us back into a recession.­In order to solve this problem, we must treat the cause not the symptoms. The main reason we're in this mess is because world oil production has been on a plateau since 2005. Or, in other words, it's flat.
Deal with our energy/entropy crisis not the symptoms.

[hearmeout]

The main reason we're in this crisis is because we've been borrowing endlessly to maximize consumption while the rocket scientists on Wall Street have devised evermore clever ways to securitize that mountain of debt. It has almost nothing to do with oil - but you're right, we need to deal with the fact that the oil supply is finite and alternatives have to be developed. You have to understand though, as shaky as the U.S. economy is, Japan (government debt) and Europe (banking leverage) are even worse; the developed world is in a mighty pickle and growth will be far lower than prior periods for many, many years to come. Hopefully this downturn will provide the opportunity to develop the aforementioned alternatives so that when healthier growth does eventually return - a decade perhaps? - we will be sufficiently prepared. In the interim however the demand for oil will contract with the global economy, which will alleviate the situation your post refers to.

[leduck]

the situation i was trying to refer to is called PEAK OIL
and i think it's the trigger for this mess.
and i still believe unless Peak Oil is not dealt with, then
we will not solve our problems

[hearmeout]

Not to worry Dov, the "recession" isn't going anywhere and we're going to have lots and lots of time for all those lessons to eventually sink in. That the economy is not falling as swiftly as it was six months ago is to be expected; after all, if it kept plummeting at that rate there would be almost nothing left within a decade, which is not possible. It's like the pace of lay offs slowing - well they sorta have to because there's fewer people working to lay off! But the consumers are driving this train and the consumers - having reached debt levels that were clearly unsustainable, watching their stock market portfolios, pensions and homes lose significant (albeit previously exaggerated) value, losing their jobs in droves - aren't going to leave the station any time soon. Personal consumption expenditures, after having climbed steadily throughout every recession since the second world war, have suffered a setback of truly epic proportion. And the plain and simple truth is that there is no recovery until the engine that drives your economy stops contracting. Sure, the stock market might climb back up some, Goldman Sachs and the other thieves will make some dough, there may even be a positive quarter of GDP growth here and there, who knows? - but this thing is a long, long way from being over. Lotsa time to learn yet.

[Veri]

"That's because I'm not sure we've fully absorbed the lessons from this difficult, painful, and troubling time."

And we will not. Given that Wall Street, Banks, and The Financial Sector have brought America to almost complete destruction, there has been no accountability. Instead, The Treasury and The Federal Reserve have gone out of their way to appear to be a wholly owned subsidiary of Wall Street. Congress itself, has issued sound-bite Congressional inquiries with little substance. Makes for great television. Propaganda.

As much as we may disagree with Ron Paul, he appears to be the only independent Congressional leader not owned by special interests, financial interests. Whether you elect a Democrat or a Republican, we see the results of our collective stupidity. Look at the economy, health care, education, and our national infrastructure. To put it frankly, the results suck.

To the author, have you lost your home? Have you lost your job? Are you without health insurance? I suggest you experience these if you have not already. And then ask yourself the question, "Do I really want this to continue?" We should all ask ourselves, is this why we elected the fools in Congress? The President? And who elected our financial leaders that have almost all but destroyed American economic power?

President Obama has shown a distinct lack of courage in confronting special interests. For all of his posturing, special interests rule the day. This makes for a weak leader.

[KillTheMessenger]

Don't worry... the fat lady hasn't sung, yet.

[drkazmd65]

No arguement from me KTM,

Personally I would prefer it if the 'recession' lingered a bit longer so that I can continue paying down old debt without having to worry about interest rates being raised to combat inflation.

Selfish of me I realize,..­. but sometimes looking out for yourself and your own well being does come first.

[KillTheMessenger]

Millions of people are getting better economically by this bubble deflating. You are not the only one. There is simply no point in tying up money in overpriced homes and markets. Unless the goal is to feed real estate agents, brokers etc..

[isolow]

I don't think you have to worry too much. The worst is still yet to come...

[drkazmd65]

Yep,.. I'm personally guessing some variation of the 1970s Stagflation rather than outright Depression.

But it ain't over yet folks.