Europe and The United States, Financial Futility!

This morning I read two very interesting articles, one dealing with Europe and the other discussing our failed super committee. In the Economist the article asked the question if the end was near for the Euro? “Even as the euro zone hurtles towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency.” The articles recognizes the devastating consequences to the world economy if the euro collapses.

The name of the second article, from Business Week, is “Superbad.” It describes how Washington has failed again, but it may turn out ok. In fact, Tyler Cowen, a professor of Economics at George Mason University stated, “If congress would do nothing now, we would be O.K. What we need is some gridlock.” His reasoning involves mandatory cuts that will automatically engage. However, with the current level of spending our government is projected to spend about $44 trillion over the next decade. Let’s compare that to possible revenue levels over the next 10 years by hypothesizing on the level of taxes. Let’s say for argument sake that the federal government takes in $3 Trillion tax revenue each year for ten years. This is an income of $30 trillion. With total spending of $44 trillion, it doesn’t take a rocket scientist to see this is bad management. There is no indication that we can pay off the $14 trillion worth debt any time soon, and then we will add another $14 trillion of additional debt. Not too smart.

When will be learn? When will we stop living beyond our means and balance our budget? We can use the airline industry as an example of what to do, and what not to do. Currently, large airlines are hemorrhaging cash. Domestic airlines have lost $54 billion from 2000 to 2009. However, there is one airline that continually makes money, Southwest Airlines (SWA). SWA has enjoyed 38 years of profitability.

What makes SWA great? According to Jim Collins, “Southwest Airlines, for example, demanded of itself a profit every year. . .” They expected to run their business well. “Southwest had the discipline to hold back in the good times. . .” SWA had the business acumen to realize good years are followed by lean ones, one must prepare. And SWA ran their business well. It’s model included on time arrival and departure, controlling of costs, and incredible customer service.

Maybe our government could learn from the airline industry. It must get spending under control. If not we will continue our decline. However, there are more reasons for SWA greatness than just cost control.
Some would say that we are past our glory days. Symbolically we are now old men sitting at a bar in Philadelphia reflecting on what once was. Some feel we have lost what we once had, that edge and swagger. “As we’ve become more powerful, its not a stretch to say that it has changed how we operate,” according to Gregory Rodriguez. I agree with his point that we need to reclaim the innovative spirit we once had. We need to get back to work, and renew our drive.

SWA has the drive and swagger to compete. Our country needs to return to swagger so we can compete. We need leaders who can help us regroup, and get that swagger back.

And that is my thought for today!

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Why We Do What We Do!

I am reading a book entitled “The Cultural Contradictions of Capitalism.”  It is the 1996 edition, but the original was written in 1973. It is amazing how relevant Bell’s words are for today. “Any assessment of the future of the United States would have to deal with these three dimensions: the immediate political and social upheavals, the structural changes, and the fundamental questions of value and cultural choices.” Tea parties, occupy events, abortion rights versus pro-life, and multiculturalism are critical elements in our civic discussion.

As I said, this is nothing new. My daughter gave me a book for my birthday. I started reading it yesterday. It is entitled “Twelve Years A Slave,” by Solomon Northrup. He ends the first chapter by saying, “Thus far the history of my life presents nothing whatever unusual – nothing but the common hopes, and loves, and labors of an obscure colored man, making his humble progress in the world.” That is until he was kidnapped and sold into slavery. He was a freeman living in New York State, and was kidnapped in 1841 spending the next twelve years on a plantation working as a slave. It is one of those books, like Uncle Tom’s cabin, that accurately paints a picture of what that “peculiar institution” was really like.

Slavery has been around for thousands of years, but that does not make it right. It was an economic institution that took advantage of people and was horrific. Because of its economic entrenchment it was hard to eliminate, but eventually after a civil war the institution of slavery was eliminated, but the relational elements are still in existence today. How we relate to one another is still flavored by our past.

My point in this blog involves why we do what we do. Specifically I want to look at business. Slavery was an economic system that exploited poor souls who were captured by slave traders, or given up by their own people. Those poor business practices continue in the form of exploitation of employees and the market for profit (please note I am in no way saying that exploitation of workers today is on the same level as slavery). Don’t get me wrong I am all for profit, but the more I think about our market system, the more I recognize that I am a deontologist. This means that I believe the end does not justify the means. How we do business is just as importance as the result of profit.

My motto is a variation of what Collins calls level five leadership. He discusses the importance of humility and professional will for the modern leader. I have added to these, service. Humility, Service, and Professional Will, is my motto. I want to make a profit, but I want to do it in a manner that is ethical and can make a difference in this world.

The latest example of this involves Reebok. “Reebock International is considering offering a shoe that fits the budget of the country’s rural poor [India], with a price tag of $1 a pair.” I am not too sure how many rupees that is, but Reebock has recognized there is a market at the bottom of the pyramid. Daniel Sarro, a spokesman for Reebock stated, “The project is based on a social business model, tackling social issues through entrepreneurial actions and not maximizing profit.”

Why are they doing this? Is it only for altruistic reasons? I doubt it. They are doing this to make a difference, but also to create a positive brand image. The consumer wants to purchase product from companies that are good citizens. The consumer is driving businesses to change. We are voting with our dollar. However, “people” are in charge of these companies, and I think these people in leadership positions are beginning to see “to whom much is given much is required.”

And that is my thought for the day!

Rage Against the Machine

The occupy movement is a Rage Against the Machine. The top 1% is grabbing 58% of the small economic growth that is occurring. We all complain and blame this event, or that group of people, but there are many reasons for our current predicament. Tyler Cowen is his e-book “The Great Stagnation” discusses the wonderful new time saving devices that have streamlined our lives. The only problem is these streamlines have made us more productive in the workplace. More productivity means less of a requirement for labor. Thus we have a higher natural rate of unemployment. We may just have to live with 7 – 9% unemployment.

What some are calling the golden age of manufacturing is gone. We cannot look to manufacturing to provide opportunities for a strong middle class, therefore we need to look in different directions, which will probably mean harder work and higher prices for the food and basic goods we purchase.
Business Week alludes to this in an article entitled “Do you want this job.” It discusses how many jobs that used to be filled by immigrants are now sitting vacant because Americans won’t do the work for the level of pay associated with the job. In September Alabama passed a law requiring police to question people they suspect of being in the US illegally. This also includes a punishment for any company that hires illegal aliens. HB56 has not only scared off illegals, but also legal immigrants who fear being harassed. My wife and I had quite a debate  this morning about basic human rights, but that is another blog entry.

The fact is Hispanic workers who come to the US do the work we don’t want to do. Alabama has 211,000 people who are out of work. Rural Alabama has an 18.2% unemployment rate, so there are plenty of people who could fill these jobs. These jobs have been vacated by the “thousands of immigrant field hands, hotel housekeepers, dishwashers, chicken plant employees, and construction workers who have fled Alabama for other states.” These jobs are going unfilled because the 211,000 Americans that are out of work don’t want the type of jobs that are available. One business owner said, “I have 158 jobs, and I need to give them to somebody.”

Why won’t native Alabamians do these jobs that require manual labor? Is it because they are lazy? I don’t think so, I think it is because of the level of pay. One businessman stated, “Don’t tell me an Alabamian can’t work out in a field picking produce because it’s hot and labor intensive. Go into a steel mill. Go into a foundry. Go into numerous other occupations and tell them Alabamians don’t like this work because it’s hot and it requires manual labor.” The difference between a mill job and a field job is the level of pay and benefits. The hot and dirty mill job pays a livable salary and provides benefits. The field job does not.

I remember a few years back when I was in the union. In 1977 we went out on strike, and things were tight. Another Boeing employee and I decided to pick grapes in LaCenter. We both had delusions of grandeur about the amount of money we would make. I made $5 for eight hours of labor. It was hard back breaking work. I never went back. In Alabama tomato pickers will make $2 per basket and $600 for clearing the field after all tomatoes had been picked. Tough work for little pay.

Why do these type of jobs pay so little? There are many reasons, but we have to take blame for part of it. Why do corporations fail to question contractors in other countries about using underage labor in sweatshop conditions? Why won’t farmers and hotels pay higher wages for employees? It is the consumer who wants to pay low prices for everything they purchase. Therefore the competition for our dollar is intense. To be able to compete the cost of labor must be held down.

Saturday is a special day. It is a day that we can support small businesses. We may have to pay a little more that normal, but this is where we can make a statement. For the good of our country, and helping the little guy, we need to pay a little more for goods. If we really want to put Americans back to work that is what we need to do. If we want Americans to do these dirty jobs then we need to pay higher prices for our goods so the farmers can pay higher wages. If we want the unemployed to clean hotel rooms then we’ll need to pay higher fees. The question is, are we willing to do this? There is a huge cost to low prices.

And that is my thought for the day!

Stop Talking and Start Doing!

This weekend I have spent a lot of time thinking about how we can build the business program at Warner Pacific College. Over the last few years we have improved the program and made it stronger. It has resulted in stronger students, and a better effort all around. However, we cannot declare victory too soon, exclaiming we have arrived. We are nowhere near where we need to be.

My fear is we will lose focus. Therefore I propose we learn a huge lesson from Steven Jobs. In Jobs’ biography there is a moment where he discusses his philosophy of business. His mission, according to this book, was to “build an enduring company where people were motivated to make great products.” This is the one common denominator of all successful companies, a great product. Companies decline when the passion for creation is replaced with the greed for gain.

Jobs describes this as a process where revenue generation becomes more important than quality. To get the revenue the company is taken over by sales personnel. These individuals have no idea what the product is all about, and don’t even care. They just want to make a sale and get their bonus. The product people feel neglected and the passion to produce dies.

It seems to me that this makes sense. We can also apply this to cost control and maintaining a particular level of profit margin. We create a great product, we sell it, and gain profit. We want to make more money so we place accountants in charge who only look at numbers and not product or people.

Don’t get me wrong, I see the importance of sales, and I see the importance of cost control, but if we forget why we are in business to begin with, we will lose focus. I am more convinced than ever that this is key to our recovery.

We need to regain our focus and passion. It isn’t greed that will create recovery, nor is it value management. It is creating new products, with fantastic innovations, that will pull us out of our numbness. Oh and by the way, this entrepreneurial spirit may just reverse the income disparity in this nation and postpone the 2012 recession.

According to Business Week, “since 1980 about 5 percent of annual national income has shifted from the middle class to the nation’s richest households. This means the wealthiest 5,934 households last year enjoyed an additional $650 billion beyond what they would have had if the economic pie had been divided as it was in 1980.”  Economists used to say that income equality and growth cannot be emphasized at the same time. They are now changing their minds. The greater gulf between the haves and have nots is now being recognized as having serious consequences on our nation’s future. The National Bureau of Economic Research states that the average postwar economic boom lasted 4.8 years. Our current boom/expansion, if you want to call it that, is about 27 months long. Therefore, argues Business Week, that this current economic expansion will end during the first quarter of 2012, leading to another recession. A little scary.

They end the article with a poignant statement:
“Expansions fizzle sooner in less equal societies because they     are more vulnerable to both financial crises and political     instability. When such countries are hit by external shocks, they often stumble into gridlock rather than agree to tough policies needed to keep growth alive.”

It is time to stop taking and start doing. Let’s get back to work.

And that is my thought for the day!

Thanksgiving!

Next week we celebrate Thanksgiving. This holiday is one that can be traced back to colonial times, and is more than just watching the Detroit Lions play football. Although the game may be more interesting this year because Detroit has a better football team.

What are we thankful for? Typically we are thankful for family. Those of us who are Christians are thankful for the redemption that comes through faith in Jesus Christ. Most of the time we are thankful for more tangible things like health, food, and a job.

Personally I am thankful for a career that has given me the ability to do what I love to do, teach. A 30 year career at the Boeing Company gave me a resume that translated well into the academic environment. I am also thankful for Boeing’s continued success.

Recently Boeing has won two huge orders. Emirates Airline ordered 50 wide-body aircraft from Boeing. The 777’s are worth about $18 Billion. The second order came from Indonesia’s Lion Air. The order is for 230 aircraft. The airline the new 737MAX, and an extended range version of the 737, 737-900ER. The list price for these is about $21.7 Billion. If I were still working for Boeing I would be very happy, but as a retiree I am pleased that my pension will continue to arrive every month.

Thanksgiving is more than just personal feelings about one’s own prosperity. It is also a time to give back. As we continue to suffer from the disease of  Affluenza, I hope we don’t forget the importance of caring. I recently read an example of giving back that was inspiring.

Several churches in Southern California have banded together to provide “Boxes of Love” to needy families. This will allow the families to bypass food lines and enjoy the holiday at home. Last year they were able to hand out about 1,000 boxes, while this year they will hand out about 1,500. With all of the need out there it seems like a futile effort, but how do you eat an elephant? One bite at a time.

Our culture likes to take shots at religion, specifically Christianity. But here you have benevolence at its best. Maybe Christians aren’t always the best example of what Christianity is all about, but it is not because we are not taught the importance of giving. Even John Calvin recognized the importance of giving.

“What makes us more close handed than we ought to be is when we look to carefully, and too far forward, in contemplating the dangers that may occur – when we are excessively cautious and careful – when we calculate to narrowly what we require during our whole life, or, in fine, how much we lose when the smallest portion is taken away. The man that depends upon the blessings of the Lord has his mind set free from these trammels and has, at the same time, his hands opened for beneficence.” This comes from Calvin’s commentary on II Corinthians chapter 8.

This reminds me of a verse in Ephesians. “By grace you have been saved, through faith – and that is not of ourselves – it is a gift of God.” As a result of this we are “His workmanship created in Christ Jesus unto good works.” The Greek word that is translated workmanship is Poema. Poem is our English equivalent. Therefore, God is expressing Himself through us artistically for the purpose of good works. Now that is something to be thankful about.

This Thanksgiving lets do something nice for someone else.

And that is my thought for the day!

What Do We Need To Do?

The super committee has seven days to come up with solutions to our national budget problems. Seven days to reduce the deficit by $1.4 Trillion. If I were a betting man I would bet against the committee’s success, they just can’t agree on anything. I think they are going to fail. To some the solutions are simple. In fact, John Mackey, of the WSJ, spelled out a pragmatic plan that could meet the needs of all of us.

He started his article by describing our success as a country. Two hundred years ago the United States accounted for less the 1% of the world’s GDP, currently our Gross Domestic Product is 23% of the world’s total. We are the largest economy in the world. Mackey stated that we became the largest economy in the world because of the basic principles of economic freedom.

What are those basic principles? They are property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.

Property rights involves the fact that we can own our own stuff. We are not in a collective society where we place everything in a big pile and split the pile between all of us. We have incentive to own our own homes and businesses, which is a good thing. Having the freedom to trade internationally allows us to grow our economic pie. It helps us to sell what we do very well to others who do something else equally well. We are both better off by making the trade.

Small government is better than large government, and policy construction actually hinders the ability of business to compete. Sound money means that the dollar is strong, not weakened by dumping a bunch of money into our financial system, Low taxes, maybe a flat tax rate, will support a strong voluntary exchange system. But the most important part is to have a monetary system that supports innovation and entrepreneurship.

I have no doubt that we need to reduce spending. Our defense budget needs to be reduced, and medicare needs to be reformed. I am not convinced that we need to privatize social security and medicare, but we do need to figure that system out to allow it work more efficiently.

We are a smart nation and we need to figure this out. Lets go back to the principles of economic freedom.

And that is my thought for the day!

Boeing, Berlusconi and Leadership

There are a lot of exciting things happening in the business world. One event involves Boeing. The newspaper stated, “Boeing pads lead on Airbus with record Emirates deal.” Emirates bought 50 777-300ER jets from Boeing. They also took an option of 20 additional planes. The deal was valued at $26 billion. This is the largest airplane deal in history. Good for Boeing, and good for the employees and retirees.

Now for the business of the NBA. Negotiations have collapsed with the union rejecting the owner’s offer of a 50-50 split of revenue. The player’s union has decided to fight it out in court rather than continue to negotiate. There has been some talk of decertifying the union, but I am not too sure why that is such an important part of this issue.

Also, the Supreme Court has decided to rule on Obamacare. The timing of this situation is rather interesting. They intend to rule on the constitutionality of mandatory health care about four months before the election. If it is determined that Obamacare is unconstitutional then it will be a boon for the Republicans, but if it is deemed ok, then the Democrats will have a leg up. Should be very interesting.

The event that I want to discuss though is the resignation of Berlusconi, who was the Italian Prime Minister recently replaced by Monti Benvenuto. Specifically I want to discuss what we can learn about leadership from the failed reign of this flamboyant Italian P.M.

All of us know what good leadership looks like. Someone who is driven, honest, and able to communicate and create shared vision. Good leadership involves some level of morality and the ability to get things done.  All of these are not what Berlusconi represents. This is very simplistic,  but will suffice for now.

Berlusconi was a throw back to early Roman times. He liked women and partying, as well as all the things that go with that. He was accused of various moral lapses, but was able to overcome the attacks. In fact, he emerged about 17 years as an Italian politician, and has been able to hang on for a long time. He burst on the scene as a free-market crusader, and considered himself a liberal.

However, the fact of the matter is that he was not a reformer. According to the Economist Berlusconi hardened his position against structural reform. As the country degenerated he played the fiddle like Nero. “He was almost physically incapable, it seemed, of telling voters that things were bad and would get worse if they did not make sacrifices.” Instead of leading his country by creating a vision that all could rally around, he created a facade, a house of cards that almost took down the Italian house and the city of Europe.

Leadership involves creating a vision and selling that vision so people can accomplish objectives. It does seem to me that there is a lack of leadership throughout the world, not just here in the U.S. Berlusconi is an example of that reality. What will Monti do? How will he impact the Italian economy, and Europe’s for that matter? We’ll wait and see, but it can’t be any worse than what has already occurred. Good luck Italy I hope it all works out.

And that is my thought for the day!