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Bi-Sectoralism V: Beyond Short-Termism

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We acknowledged when we began our Bi-Sectoralists column that it would be naïve to suggest that politicians and investors should never think short-term. But it's even more unrealistic to accept pervasive short-termism as a given when it is so antithetical to being strategic.

We feel strongly that our problems are structural and therefore require more strategic thinking and bi-sectoral partnership and less tactics. Many of the issues confronting the US and the world are not quickly solved; if they were then we would not be in the tough economic spot we are in three years after the Wall Street crash. Unfortunately, the history of debt deleveragings suggests we are only half way through the time line.

One of us had the chance to engage in some 2012 scenario planning recently. What was striking was the high level of uncertainty, or to put it another way, the lack of conviction about the future. This has led many in the money management business to shorten the duration of their investments and to adopt a more trading driven strategy. That's one option; another is to build a global framework supple enough to deal with the ups and downs and recognize that it is not the day-to-day price movements that matter but rather how one performs over longer-term cycles.

This lack of conviction or clarity as to what the future might hold hobbles business and government alike. Business sits on record amounts of cash, some $2 trillion for the companies making up the S&P 500. Will that money be put to work in research and development? Building factories? Probably not. In Washington, the federal tax take is at a 50-60 year low as a percentage of GDP, yet raising taxes is a political non-starter.

How do we as a nation build the framework that will inform our long range planning and decision-making? How do we get beyond what Tom Friedman called "day-thinking politicians trying to regulate day-trading bankers, all covered by people tweeting on Twitter"? Could it be in the very areas where long-term solutions are most needed?

Well, we have a jobs crisis, an infrastructure crisis, a health care cost crisis, a pensions crisis, an education crisis and a climate crisis. That's a good half dozen areas of focus that by their nature demand long term approaches.

Most of these are national; some are global in scope such as climate issues and to a large extent, growth issues. They cut across industry, state and party lines. Yet there is another line that has yet to be crossed and that is the red line that inhibits bipartisan solutions and public - private cooperation. The prospects for successful strategies to be adopted without first crossing that red line seem dim.

Of course an election year makes crossing that red line all the more unlikely. But even within that political context we're struck by how our own American version of "people power," the Occupy movements yes but also broader rumblings from everyday folks, has shifted the dialogue from a one sided focus on fiscal rectitude to a dual focus on jobs and fiscal responsibility. Score one for the public debate and a shout out to the citizens who generated that shift in dialogue. It is up to us, especially in an election year, to make our voices heard, as people have been doing the world over.

Making our voices heard, though, is not enough; success requires channeling our voices into a coherent set of strategies. One strategy that resonates is to focus on prevention. While preventive war has not proven successful, prevention in social areas such as childcare can yield huge benefits. For example, the Citizens Committee for Children, a NYC child advocacy group, estimates that every dollar spent on youth prevention programs generates $140 in savings on later juvenile justice and law enforcement costs. A dollar spent on pre-school programs is estimated to yield $17 in increased earnings, lower crime and reduced welfare expenses. Sounds great but what programs are being cut as we seek to reduce government spending - you guessed it, these very same programs! That's not strategy, that's tactics and poor ones to boot.

Research on preventive health care suggests significant long-term savings are possible in an area that threatens our economic well-being like few others. Infrastructure spending, spending now to build our competiveness and put people to work, suffers under the current short-term myopia of debt cutting first and foremost.

At the same time, with issues like the Keystone pipeline, as important as short-term job creation is, we can't let it just trump longer-term environmental consequences. There are plenty of ways to create jobs and strengthen energy security without so many negatives on the balance sheet.

Policy makers and investors, business owners and consumers, we all have to balance between immediate needs and long-term objectives. Flash trading doesn't develop technologies of the future. Daily talking points don't add up to coherent policy. A bi-partisan, bi-sectoral approach that gets beyond short-termism is critical to reestablishing our internal well being as a society and our external position as a nation.