Today’s post-recessionary economic realities combined with dynamic global trends are impacting virtually every aspect of our lives—and certainly the profitability of our businesses. Unless organizations understand the following five realities and adapt, succeeding in the years ahead will be extremely difficult.
As I write this commentary, the Dow Jones Industrial Average is down. But this isn’t really about the stock market; it’s about three recent news items.
First, a special session that prevented our nation’s leaders from their August recess added another $26 billion to government spending. Second, the Federal Reserve formally announced its decision to downgrade its forecasts of coming U.S. economic growth and agreed to a small amount of further monetary stimulus (called QE or quantitative easing), and implied that more might be needed. Third, Laurence Kotlikoff, Boston University professor of Economics and a former member of the President’s Council of Economic Advisors, said the U.S. is financially bankrupt and clearly argued against further fiscal stimulus spending.
What had been a recurring story line buried in the business section has now burst onto the front page: “Economic growth slowed by trade gap,” the Washington Post reports. This headline sets the stage for a story long on generalizations: “A widening U.S. trade deficit has become a substantial drag on economic growth as the country’s exports struggle to keep pace with the swelling sums that Americans are again spending on imported goods.”
China’s unexpectedly strong economic rebound may appear miraculous. In reality, it’s derived from a combination of that government’s huge economic stimulus package and increasingly strong domestic consumer demand. Our firm, InterChina Consulting, views Chinese consumer spending as an increasingly important contributor to the Middle Kingdom’s long-term economic growth. It also is offsetting continued weakness in global demand for China’s exports and will be the foundation for sustainable growth in the future.
The Margaret Thatcher-Ronald Reagan economic model of free market capitalism is under attack. The system, which was responsible for jumpstarting this era of globalization, created the greatest economic growth the world has ever seen. It empowered people to achieve their dreams and unleashed their innovative and creative abilities that paved the way for tremendous gains in efficiency and productivity, not only in the U.S., but around the world.
Unfortunately, this lesson has not always been well understood. In turn, many policymakers now see free market capitalism as suspect and wish to “fix” it.
Small business is the backbone of the U.S. economy. It’s also key to our economic recovery. Unfortunately, we don’t hear much about the large role small business plays in this country’s exporting efforts.
On June 30th, Senator Mary Landrieu of Louisiana, Chair of the U.S. Senate Committee on Small Business and Entrepreneurship, held a hearing in New Orleans at the Port Authority’s headquarters. The committee hearing was entitled Keeping America Competitive: Federal Programs that Promote Small Business Exporting.
As the global financial crisis negatively impacts growth worldwide, new opportunities are emerging for companies that position themselves to seize the long-term potential upside of the Chinese market. And there is reason for optimism since the current Chinese government has the financial ability and political means to manage a soft economic landing.
The Chinese government is clearly concerned about slower economic growth and the ability to attract sought after investment. On the other hand, early signs are positive that the $582 billion Chinese domestic stimulus package will start to have an effect beginning in the second or third quarter of 2009. Nevertheless, the uncertain future is impacting Chinese economic realities, policies and negotiating positions.
Speculation is growing that the U.S. economy may have already slipped into recession. If the past is any guide, politicians on the campaign trail will be tempted to blame trade and globalization for the passing pain of the business cycle.
Rising unemployment and falling output can provide fertile ground for attacks on imports and foreign investment by U.S. multinational companies. But an analysis of previous recessions and expansions shows that international trade and investment are not to blame for downturns in the economy, and may, in fact be moderating the business cycle.
The United States attracted $180 billion in foreign direct investment in 2006. This is extremely important since inbound investment creates millions of high-wage, high-skilled American jobs that support our growing standard of living. But protectionist trends could disrupt this.
In 2006, 20 bills were introduced in Congress that, if implemented, would have restricted foreign investment in the United States. What’s more, they could have prevented the Abu Dhabi Investment Authority’s $7.5 billion investment in Citigroup or the China Investment Corporation’s $5 billion injection in Morgan Stanley at the end of last year.
World commodities prices remain high, even as they recover from a recent sell-off due to interest rate concerns. Despite the volatility that goes hand-in-hand with commodities, prices have benefited from sky-high energy markets this year and growth in China that has resulted in an almost insatiable appetite for industrial raw materials.
The Dow Jones AIG Commodity Index has trended upward since January 2002, more than doubling as of mid-May this year. Continuing instability in the Middle East and the onset of the summer travel season pushed oil over $70 a barrel earlier this year, while copper prices hit historic highs, surpassing $6,000 a ton during the first quarter.
Page 9 of 12
» Advanced Search
Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!
Understand dynamic global markets.
Understand what’s occurred and more accurately assess what’s ahead. Improve your corporate strategic plan, seize the right opportunities, and boost competitiveness and profits.
Informative, analytical and policy-oriented perspectives.
Comprehend the impact of past events and fully grasp and prepare for the challenges ahead.