The So-called Recovery

Warner Pacific has had an adult education program for over 25 years. I am a firm believer in the power of education, and its ability to help people provide for themselves a better standard of living. I also believe in the power of business to improve the overall health of a community. A combination of large companies that provide the financial backbone and a cadre of small businesses that are built to provide goods and services for this community is a healthy economic system. I think this is the kind of economy that works for average American families. Some would say that this type of economy has not existed since the end of the Clinton administration.

The following is why they make such a statement. According to the U.S. Commerce department the median household income for 2013 was $51,939. This amount is 8% lower than the median in 2007 the year before the great recession. “Households in the middle of the income distribution earned about $4,500 less last year than they had six years earlier.”

The Federal Reserve triennial survey reported that the top ten percent of wage earners in this country, with annual incomes averaging $400,000, did see a slight gain between 2010 and 2013. “Families headed by college graduates eked out a gain of 1%, while those with a high school diploma or less saw declines of about 7%.” The current reports demonstrate the economic recovery has been slow and minimal, even though we have spent an incredible amount of stimulus money to encourage growth.

One of the most telling statistics though deals with the number of workers participating in the workforce. In 2007 there were 108.6 million American fulltime workers, and in 2013, the number had dropped to 105.9 million. “Although jobs are being created, too many of them are part time to maintain growth in household incomes.” According to the Bureau of Labor Statistics the amount of people working part time, but wanting a full time job, “jumped to 7.2 million from 4.6 million.” These are the numbers being reported as job growth. Ultimately we need to recognize two things when it comes to our economic situation. First, wages have stagnated. Second Americans want more hours of work. The question in my mind is why is this happening?

How big is the U.S. economy? In 2013 the world Gross Domestic Product, which is a number used to understand the size of an economy, is $74.1 Trillion. The United States GDP for the same period of time was $16.2 Trillion. The U.S. economy makes up about 22% of the world economy, so we are a wealthy nation. So why hasn’t the “American Economy worked for average families since the end of the Clinton Administration?” I think that is a very important question, but one that is difficult to address.

In 2013 17,487,475 students were attending 4,140 colleges and universities across the United States. Also, 11.57% of Americans have a Masters, and/or Doctorate, and/or professional degree; and 41.5% of Americans have a Associates, and/or Bachelor’s degree. We have a lot of educated people in this country, yet our economy is slipping. So education may not be the problem.

However, a January 19th Economist article may give a clearer picture of why this recovery has been so weak:

“According to a survey conducted by Harvard Business School last year, many firms are still deciding against basing activities in America. Professors Michael Porter and Jan Rivkin asked HBS alumni who were running businesses about their choices of location and found that many of them were deciding to leave because they thought wages abroad were lower than at home. Another important reason, though, was to be near customers in big new markets, which this report does not see as offshoring in the conventional sense. Messrs Porter and Rivkin argue that firms are now ready to reconsider offshoring. They realise that in many cases they overdid it, and are discovering hidden costs in moving production a long way from home. But, the authors argue, America’s government is not making the country’s business environment attractive enough for companies to want to come back.”

They latest indication of this reality is inversion, companies moving their headquarters to other countries to avoid the heavy taxes of the United States. On paper the U.S. corporate tax rate of 35% ranks as highest in the world, but there are so many variables in corporate tax law that it is difficult to identify one number. So it really does come down to a company decision based upon strategy and profit margin. Globalization and American market saturation, as well as lower costs, are the main reasons for much of the offshoring of American work.

The question then what needs to be done? I want you to know I think about this all the time. I want to find another answer than just forcing companies to onshore, or reduce corporate tax rates. Currently, I think the answer lies in the realm of innovation. All of our educated people need to get the innovation religion. Come up with new product and service ideas. This is what entrepreneurship is all about. Come up with ways of doing what these large companies are doing, but doing is cheaper and here in the United States. Through the power of innovation and creativity show these large companies what they are missing by not using American workers to create, build, and provide their product and services.

This may seem simplistic and naïve and maybe it is, but that is how creative destruction works. Maybe it is time to fall in love with creativity again. Then maybe those corporate fat cats will see just what they are losing by racing to the bottom. More detail to come.

And that is my thought for the day!

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