What Keeps Me Up at Night (And What I Can Do About It) Part 2

Issue #3 – The Changing Business Environment

The third issue that keeps me up at night is the changing business environment. A serious study of the current environment should lead one to the conclusion that great “uncertainty” abounds. Yes, we have seen similar business cycles – high unemployment, low interest rates, flat growth, etc. Yes, we have seen similar political cycles – gridlock in Washington, an unpopular President, a pivotal upcoming election, etc. Yes, we have seen similar international cycles – the collapse of European economies, the rise of Islamic radicalism (the Arab Spring), the dangers from rogue regimes (e.g., Iran), the rise of a new military power (China), etc. So, is this really new?

Call me a cynic, a pessimist, or a prophet – but I think we now operate in a business environment that is completely different than anything we have ever faced. The core fundamentals of this new environment are different. The rules by which we are expected to play in this new environment are different. And the challenges we face in this new environment are different.

What makes this new business environment so different? Why do I think that the rules of how to operate have changed? Why has the business landscape changed? Let me offer five reasons that separately, and in combination, fundamentally change the business environment we operate in.

1. Regulatory Matters
The regulatory environment that businesses now operate in has never been more complex or punitive. The Federal Register at the end of 2010 was 81,405 pages long of which 46,758 pages were dedicated to rules or proposed rules. This is nearly double the number of pages dedicated to rules or proposed rules as compared to the 1980’s. This mountain of regulation makes it more difficult and expensive to open a business, operate a business, hire an employee, keep an employee, fire an employee, purchase equipment, maintain equipment, dispose of equipment, etc. As long as businesses are hesitant to invest, grow, and hire – the economy will remain for the near-term in a slough (think a swamp or a swamp-like region). This hostile and uncertain regulatory environment is new and unprecedented in American history.

2. Structural Matters
Continuing a 20-year trend of polarization in the labor market, employment losses in the 2008-2009 recession were more severe in middle-skill white and blue collar jobs than in either high-skill, white-collar jobs or low-skill service occupations. Strong productivity gains driven by labor-saving technological and organizational changes mean that many of the lost middle-skill jobs are gone for good. Many of the displaced workers, especially those unemployed for long periods of time, do not have the training and experience required for new high-skill jobs. Nor will new entrants to the labor force with just a high-school education. (That’s one reason why the unemployment rate of those with just a high-school education is more than twice the unemployment rate of those with a college education or higher.) As the economy attempts to recover, labor-saving and skill-based technological change will continue to drive further polarization of employment opportunities. This will mean even more structural unemployment, reflecting a growing mismatch between the demand for skills and the supply of skills. Whereas industrialization in general and electrification in particular (see Nicholas Carr) created as many new office jobs as they made factories more efficient, computer automation is not creating a broad new class of jobs to take the place of those it destroys. Even the arrival of universal grid computing portends a very different kind of economic realignment. Rather than concentrating wealth in the hands of a small number of companies, it may concentrate wealth in the hands of a small number of individuals, eroding the middle class and widening the divide between haves and have-nots. These fundamental, structural changes are new and unprecedented in American history.

3. Debt Matters
You have heard that the size of the federal debt now exceeds $14 trillion. You have heard that it equates to about $48,000 per person. You have heard that the interest alone to fund that debt exceeds $1 billion a day. While I find those statistics interesting, they are not particularly comprehendible. Enter Dave Ramsey: “If the US Government was a family, they would be making $58,000 a year, they would be spending $75,000 a year, and they would have $327,000 in credit card debt…..These are the actual proportions of the federal budget and debt, reduced to a level that we can understand." I find those statistics outright concerning! While the size of the federal debt has been an issue in the past, there are two differences this time. First, the size of the federal debt has grown to the level that our economy cannot grow fast enough to carry this burden. For the first time, the size of the federal debt is serving as an anchor. Second, the only reason that federal government finances have not fallen apart completely already is because the federal government is still able to borrow huge amounts of money very cheaply. In 2010, the U.S. Government paid out just $413 billion in interest even though the national debt soared to $14 trillion. If interest rates on U.S. government debt return to historically “average” levels (around 5.7%), the U.S. Government would see $4.9 trillion added to the cumulative deficit by 2020. Thus, it is safe to say that a return just to “average” levels is going to be absolutely catastrophic. What happens if rates go above “average”? The state of our federal debt is new and unprecedented in American history.

4. Polarization Matters
Nicholas Carr noted in “The Big Switch” that electrification hastened the expansion of America’s mass culture, giving people a shared set of experiences through popular television shows, radio programs, songs, movies, books, magazines, newspaper stories, and even advertisements. The rapid advent of the internet and social networking is likely to do the very opposite. Psychologists have long recognized that the more people converse or otherwise share information with other people who hold similar views, the more extreme their views become. Given how easy it is to find like-minded people and sympathetic ideas on the internet and given our innate tendency to form homogenous groups, we can see that “ideological amplification” is likely to result. Each extra piece of confirming information heightens their confidence in the rectitude of their opinion and, as their confidence increases, their views tend also to become more extreme. Not only will the Internet tend to divide people with different views, it will also tend to magnify the differences. In the long run this will pose a threat to the spirit of compromise and the practice of consensus-building that are at the heart of democratic government. As Brynjolfsson and Van Alstyne suggest: “The balkanization and the loss of shared experiences and values may be harmful to the structure of democratic societies.” This “balkanization” of our civil society may explain why we see gridlock in Washington, Occupy Wall Street, uncivil discourse, teachers squatting in a state capital, bombastic rhetoric, and class warfare. The advent of such polarization is new and unprecedented in American history.

5. Constitutional Matters
The founding fathers birthed a country was an aberration in history. It was an experiment. They formed a government that intentionally was not a monarchy, not an autocracy, and not a democracy. They saw the sinfulness of man (read the Federalist Papers) and created a constitutional republic with three branches of government (each with checks and balances) that intentionally avoided “mobocracy” (my definition of democracy) and implemented a bi-cameral legislature (the Connecticut Compromise) with equal representation for small states. This governmental structure ensured that government would serve the people (the people would not serve the government). It would ensure that we maintain our liberties (to worship, to assemble, to bear arms, to be free of tyranny, etc.). The Constitution embodied “American Exceptionalism.” Yet, for the first time in our country’s history, we are poised to throw American Exceptionalism away. Whether it is a President who has a disdain for American Exceptionalism, an educational establishment that seeks to undermine its’ historical roots, a Supreme Court who wants to re-write the Constitution by reading into the Constitution that which was never intended by its authors, or a populace that is ambivalent to our greatness and uniqueness – we are entering a new and unprecedented time in American history.

O.K. Mr. Pessimist, if half of what you say is true, “What are we to do?” First, become a student. Read books on history, politics, economics, and philosophy. Base your ideas on knowledge and truth. Second, become engaged in politics. Work to elect politicians who embrace the Constitution, American Exceptionalism, fiscal restraint, and lower regulation. Third, be creative. Recognize that even in this new, uncertain environment that products will be needed and services required. Fourth, never lose hope. God raises up kings/governments and takes kings/governments down (Dan. 2:20). We must bow to His wise, sovereign plan knowing that “God causes all things to work together for good (think Christlikeness) to those who love God, to those who are called according to His purpose.” Finally, embrace the challenge. This new, unprecedented set of matters does keep me up at night – but it does not paralyze me and it does not scare me. It motivates me to prayerfully consider how I can best be of service to God and those who He has given me to serve – my family, my friends, and my neighbors, and my co-workers.