Economic Turmoil

I spent much of yesterday at the New America Foundation forum on Confronting Economic Meltdown – a timely meeting and one that was one hearing room over from the Paulson/Bernanke show in the Dirksen building.

The general mood of the meeting I was in was probably more optimistic than next door. That may sound a little odd, given that almost every one of the forum participants agreed that the cost of the plan would be greater than the $700 billion price tag and that there was genuine skepticism that it would even work. As Leo Hindrey pointed out, there are a lot of other credit problems out there beyond bad mortgages.

The collateral damage is also expected to be high: higher Federal debt; higher interest rates; less funds for other important government spending; higher inflation; lower dollar; and greater reliance on foreign sources of capital.

The optimism in the room came from the shared sense that the age of de-regulation and anti-government was over. So while there was a feeling that the country is in grave trouble, there was also the feeling that something could be done about the situation. Most agreed that the Paulson plan was not enough. Sherle Schwenninger called for a more robust recovery program (see also his paper An Economic Recovery Program for the Post-Bubble Economy). Tom Gallagher noted the need for “non-traditional policy responses”. Others, including Ralph Gomery, called for a realignment of corporate interests with the national interest and for a reconnection of the linkage between productivity gains and wages. There were also calls for a strategy to re-vitalize manufacturing. Bruce Stokes called for a new trade strategy based on reciprocity rather than MFN (most-favored-nation) status – meaning that you cut deals with specific countries based on how they treat your companies and products.

Two comments especially caught my attention with respect to the I-Cubed Economy. Harold Meyerson mentioned the role of unions in building social capital. The example was Las Vegas versus Reno. The Vegas workforce is highly unionized – and much better paid and more productive – compared to those working in the same industry in Reno. One of the reasons is that the unions work at skill upgrading. When I talked to him afterwards, he referred me to his piece in The American Prospect - "Las Vegas as a Workers' Paradise", which explains:

When workers apply for employment at the Vegas hotels under contract with Local 226, they go to the union hall for a skill assessment. If they have no experience, or wish to improve their skills, they are referred to the local's Culinary Training Academy. There, they are offered free courses in every nonmanagerial aspect of hotel work. The academy is funded entirely by employers, who in the latest contract with the union agreed to pay 3.5 cents per worker per hour to fund the training, with a curriculum developed jointly by management and labor.

Here is a perfect example of the type of action we need in the I-Cubed Economy: one that invests in intangible assets!

The other comments were from my friend Pat Choate on the importance of intangible assets (although he referred specifically only to intellectual property). Over twenty years ago, Pat wrote a prescient book on the future potential of the US economy, The High-Flex Society. Unfortunately, over the past two decades we have failed to implement Pat’s recommendations and consequently have failed to create the workplace and workforce we need for the 21st Century.

He also talked about the need for reforming and strengthening the patent office. While I disagree with him on some of the specifics of patent reform, Pat clearly understands how the economy has changed and the importance of intangible assets.

The final part of the meeting was a talk by former Senator Ernest “Fritz” Hollings, highlighting his new book, Making Government Work

While I don’t agree with all of the Senator’s policy positions, I always enjoy listening to him. His work on technology and economics was groundbreaking, including the creation of the Manufacturing Extension Partnerships (MEP). These are rightfully called the “Hollings” centers. I am looking forward to reading the memoir. It should give an insightful look at the workings of Washington and more than few tidbits of wisdom on how we should confront the I-Cubed Economy.

Almost hidden away in the meeting was announcement of another way to prepared for the I-Cubed Economy. New America Foundation is launching a new program to under take a SWOT analysis of the United States. SWOT stands for Strengths, Weaknesses, Threats, Opportunities - and is a basic first step in preparing a strategic plan. It was noted throughout the meeting that other countries act strategically in their own interests with respect to their economic policies. Yet, the US steadfastly refuses to do so.

The need to think strategically about the US economy and to understand the economic changes is a core belief here at Athena Alliance. Four years ago, proposed the creation of a Commission on the Future of the US Economy. Based on our analysis of the new competitiveness challenges, the mandate of the Commission would be

to analyze the current economic environment and competitive challenges facing the U.S. workers and companies; review the strategies of other nations for responding to the competitive challenges of the new economic environment, and analyze the impact of those strategies on the future of the U.S. economy; and formulate specific recommendations on a broad range of issues related to the development of the nations’ skill-base and innovative capacity within the private and public sectors of the U.S. economy.

We hope this new initiative by the New America Foundation will set us on the path to accomplish the same goals.