Since we launched our "Bi-Sectoralism" series late last summer, the economy has remained a main focus. No surprise there. Our approach in making it the fourth of our five guiding principles has been to stress how all too often the public and private sectors fail to agree, indeed actively work against one another, to the detriment of both the jobs creation and debt reduction goals. We believe bi-sectoral cooperation is imperative if we are to improve our internal economic development as well as our place in the global economy.
To understand where we might go, we must first recognize where we are and where we have been. The long road of excess credit extension, lax regulation, speculation and rising inequality has been well documented. Today's environment of debt pay downs and write-offs, insufficient demand and its corollaries of underemployment, falling labor participation rates and low capacity utilization, is not susceptible to short term fixes.
Let's make this reality a strength - the fact that the American and to a larger extent, the global economy, is stuck in a long-term work out is an opportunity. An opportunity to get beyond the incremental thinking that permeates our political system. An opportunity for the corporate sector to move beyond carping about excess regulation and for investors to move beyond the focus on monetary policy. An opportunity to create the 21 century American economy.
This steady state macro environment should allow all parties to focus on the main task at hand - how to create sustainable jobs that offer living wages and support the dignity of all American workers. Government policy can and should be measured against this simple yet elusive objective. Education, job training and the retraining of the long-term unemployed should be the focus - it is our human capital that needs tending to, not just our financial capital. Business leaders need to think deeply on how to reverse the widening bifurcation between corporate profit margins and worker incomes.
Green shoots do exist. We note three examples and encourage others to note their own. First is the powerful virtuous circle being developed in Middle America, where like a phoenix rising from the ashes American manufacturing, powered by cheap domestic energy, is spreading its wings. Contrary to conventional wisdom, American manufacturing never died, it just went up market, making more value added goods that folks don't see on their shopping shelves every day and doing so with many fewer workers. Shop floor productivity here at home, wage hikes in the emerging economies, increased transport costs and a desire to be close to the end customer support the idea that if fostered by appropriate policies we are only at the beginning of this trend.
Second, evolving from the Wall Street center of the financial crisis is private capital's growing interest to lend to the true job creators, America's small and medium sized businesses. Wall Street is bifurcating between the super giants who will be in effect financial utilities with returns on equity (ROEs) and stock prices to match and the more nimble boutique businesses, able to rise or fall on their own merits and without the safety net of taxpayer support. It is the latter who are likely to finance the job creators.
Third is the rise of social media and the tremendous wealth creation being engendered by businesses like Facebook and its ilk. The innovation around technology is one of America's biggest strengths. As in the past technological innovation needs to come both from big projects and start-ups, the likes of Steve Jobs and Steve Wozniak in a garage as well as the likes of Bell Labs. Mess-ups like Solyndra aside, solid strides have been made in green technology. We're also seeing them in the biotech world. Government engagement here, in terms of immigration and education policy, is a prime spot for bi-sectoral success.
Put these three green shoots together and one can start to visualize America's 21 Century economy. An economy of value added manufacturing, small and medium business expansion and technological innovation that creates sustainable jobs and stimulates consumption.
Ok, so much for the private sector, what about the public sector, what role does it have to play? First, develop an unrelenting focus on our human capital. Second, cross the red line of partisanship and develop a medium term deficit reduction strategy. Third, execute the deficit reduction process in a way that doesn't kill the green shoots listed above. Fourth, help the green shoots grow by clearing the fiscal headwinds that threaten what limited economic momentum we have today.
Job creation policies that attack both structural and cyclical unemployment with sustainable jobs that pay a living wage are the holy grail of economic policy today. No society can maintain cohesion and stability without it. Such job creation will drive economic growth, help bring the deficit under control and put our economy and society back on track. The world is becoming a smaller place; a quick review of Greece, Portugal or Spain suggests that open-ended austerity is not where most people want to go, and is NOT a sustainable social order.
The US can benefit from the rise of the rest. Global growth and economic development is not a zero sum game. For example, rising wage rates in China and other emerging economies are critical if those economies are to shift from export dependence to domestic demand driven growth. US companies are well positioned to compete for what those rising wages imply, namely the growing middle classes of Asia, Latin America and Africa. These middle classes will want to communicate, will want to be part of the social network and will increasingly want and be able to pay for goods made in America.
We need to be sure our own citizens can pay for those goods as well. It is going to take years to work through the ills that have accumulated over the past several decades. Leadership, never in large supply, is needed like few times before. For all the silly rhetoric and distractions swirling about in this political season, solid chunks of the American public really do have a prudence and common sense that rewards sound policy leadership at the polls. There also are signs coming from at least some boardrooms of stronger incentives for sustainably sound business strategies . Perhaps more than any time in our history, our economy presents great challenges but also tremendous opportunities that require contributions from, and will bring benefits to, both sides of the bi-sectoral divide.