In our first column, we Bi-Sectoralists laid out five principles for the public and private sectors to improve internally & work better together for the public good. Better dialogue and better results are crucial if America is to be successful in its economic and political revitalization both at home and abroad. In today's column, we flesh these principles out and suggest ways to reset public-private interaction.
What does this mean in practice? There is both a recognition and a need growing in the land. The recognition is that the old ways don't work in a globalized world and that new thinking is in order. The need is for leadership; a need that rings out across both public and private sectors. Politicians of all stripes face record low approval ratings; CEO turnover is at a 13-year high; financial markets swoon and soar, confronted by that they fear most -- uncertainty.
For both sectors there exists opportunity. Those of the political class who grasp the mettle of leadership could claim the political high ground for years to come. Private sector companies able to show the way forward will be rewarded with increased appetite for their stocks and bonds. Investors who allocate capital with a solid understanding of long term risk and reward will prosper.
- Strength from Within: National success in the 21st century is less about muscle-flexing abroad than strength from within. This begins with a shared narrative about where we have been and where we want to go. Policy, not politics, is what matters most. Many of our vulnerabilities -- financial stability, energy security, others -- are less about what other states seek to do to us than what we do or don't do for ourselves. For much of our history the US either sat apart or atop the world. Today, amidst globalization we no longer stand apart and with dominance chipped away by the diffusion of power and shifts in economic dynamism we don't sit atop. We have to step up to these challenges without resorting to neo- isolationism; strength from within is about internally generating benefits not externally imposing costs.
- Policy & Markets: Are joined at the hip. Part of our shared narrative is the recognition that it took years to get here and that the debt-deleveraging path ahead will be long. This path will include financial repression, negative real interest rates, a lack of consumer demand and a need for bold policy action to counter such. All but the last are already in place. Political gridlock is something America can no longer afford; a point being made by financial markets and corporate leaders alike. Bridges, rather than gridlock, are what is needed: bridges over the risks of subpar growth & debt defaults in the quarters ahead and bridges to the years ahead when emerging economies provide the demand boost the world needs. Policy makers & investors need to talk to, not past one another, in order to build these bridges on both sides of the Atlantic.
- Less Short Termism: There is strategy and there are tactics. Fighting the war on unemployment requires a long-term strategy of job training, education & placement -- a job is not just a paycheck but an anchor of identity. History suggests unemployment will take a decade to recover and requires a policy focus on investment rather than consumption. Over that time frame we need a strategy for deficit reduction as well. Strategy and the sequencing of tactics will be critical: excessive focus on deficits impedes growth and ensures a longer and more painful economic adjustment. There is much to be done: currently, the US is underperforming the average of the world's 15 worst financial crises.
- It's the Economy Stupid II: The good news from recent financial market volatility is that investors have priced in a more likely future. On the policy side, the single-minded focus on austerity has given way to recognition that demand needs to be sustained. Past debt crises suggest almost an even chance of a US double dip recession in the next year or so. Absent good policy, investors salivate for QE3; unelected officials lead the way. Investors need to stop monetary dependence; policy makers need to move beyond incremental thinking. America and the developed economies suffer from a shortage of demand. Domestically, our infrastructure creaks and cracks, from water mains to flood levees, from bridges to ports. Infrastructure spending and small and medium sized business credit creation are job stimulating strategies that private capital can invest in to help meet its search for yield.
- Recalibrate America's Global Role: During the Cold War, the US position in the world was a lot like the ancient philosopher-astronomer Ptolemy's theory of the universe. For Ptolemy, the earth was at the center with the other planets, indeed all the other celestial bodies, revolving around it. Similarly, the United States was at the center of the Cold War world -- the wielder of power, economic engine, bastion of free world ideology. Not anymore. The 21st century world is a Copernican one. The Earth/US is not at the center. It/we have our own orbit. Other planets/countries do as well. This is evident geopolitically, economically, ideologically, and culturally. We need a fundamental strategic rethink of our foreign policy. The private sector, corporate and investor alike, is far ahead in this process.
The summer is over, the storm (Irene) has passed; however we are left worse off with a slumping economy (joined by Europe), a frustrated electorate, a seemingly dysfunctional political structure and scarred investors. Its time to reset: leadership opportunities abound as the US presidential campaign gets fully underway, the Joint Select Deficit Comm takes up its work, a new ECB head takes over, China prepares for its leadership transition and business plans for 2012. But so do risks: of a negative feedback loop developing, of cross border bank contagion, of sovereign debt infection & default. Who will seize the mantle of leadership? Can public and private alike work together?