Sluggish economic predictions and lessons from Michigan

17 Jan Sluggish economic predictions and lessons from Michigan

Editor’s note: This is part three of a three-part column on forecasts for 2008.
At this year’s Executives’ Club of Chicago luncheon, which focused on the future of the economy, the emphasis was on looking to global initiatives for growth. More than 1,200 people attended this luncheon. Many looked for answers to:
• The mortgage foreclosure debacle.
• The outlook for jobs.
• The general sense of where the U.S. economy is headed and how individual careers may be affected.
Some of the speakers – including Jack Ablin, CIO of Harris Bank, and Bob Froehlich, chairman of Deutsche Asset Management’s investment strategy committee, had some concrete explanations for the sub-prime financial crisis and seeing foreign investments for the future. Froehlich said the area to make money in is “going global.”
Even though this is an election year, he predicted the U.S. economy would be pretty flat again in 2008 with one percent to two percent growth, while the big growth would be found in other countries like China, Korea, and others. As for the presidential election’s potential for divisiveness, Froehlich said it could create an outflow of foreign investments from the U.S.
Are we giving away our leading position?
More than two decades ago, I made a very powerful statement that still resonates today: “Leading-edge organizations do not maintain their position using trailing-edge technology.”
Substitute “municipalities” or even “countries” for the word “organizations.” Without leading-edge skills and technology, there’s no way we can sustain the lead in the global economy. People are losing good jobs in America. That’s a fact. Good jobs that require degrees and technical background are being lost to other countries’ cheaper labor.
These are not jobs that “no one wants.” These jobs were good-paying careers. So where are these jobs going? Why are we – the United States – giving away knowledge and technology that would keep many people gainfully employed?
There is also evidence that some universities are shifting their focus on preparing foreign students instead of American students. What does this do for our global leadership position as well as our national security?
Foreign investments are good. While I am not an isolationist, I think some institutions are doing irreparable damage to the U.S. economy in the name of foreign investment expansion. There are a lot of concerns about China and its real long-term strategies. We don’t understand their whole culture as much as you may think we do.
In a government security meeting back in 2001, Michael Pillsbury of the National Defense University addressed the U.S.-China Security Review Commission and pointed out the following:
• We have very few people who can read Chinese who work on Chinese security matters, and close to none who can actually read a newspaper or an article published by the Chinese military or a Chinese government think tank.
• We have almost no one in our government and almost no one in the university sector who can do that.
In another part of his speech, Dr Pillsbury comments:
• China has many nightmares about the United States policy in the future. Overthrow of the government through peaceful evolution is one. Beefing up the Japanese is another. Pushing Taiwan toward independence is a third.
• If you use Chinese communist doctrine to analyze the biggest nightmare of them all, in some sense it would be that Steve Bryen would do to China what he did to the Soviet Union. Let me explain, in one sentence, why that is (it’s in the first chapter of the book).
• Deng Xiaoping claimed that he made a creative contribution – something new – to Marxist-Leninist theory.
The unthinkable
Now, this is almost unthinkable. It’s like someone today saying: “I’m adding something new to the message of Jesus Christ, and by the way, here it is.” It’s quite a claim. Very few people appreciate what that claim is and it’s the heart of Deng Xiaoping theory.
It is that science and technology from the outside is the prime force of production, and the prime way for China out of its poverty and its weakness.
Now, the National Science Foundation and other parts of the U.S. government have 13 agreements where we essentially provide science and technology almost for free to the Chinese scientific community.
Do you think back in 2001 to 2002 that Lucent had any effect on the amount of people it laid off in the U.S. in the last five years or why its stock tanked? It went from about $90 a share to 99 cents a share before they got bought out by Alcatel.
Underemployment: The lost variable in economics
In this election year, people are concerned about the economy. The predictions by the economists don’t reflect what’s going on in many families. Economists have to examine the whole concept of underemployment rather than just unemployment in the U.S.
Unemployment numbers are meaningless and not reflective of buying power and household sustainability. The true measure of what’s taking place is the amount of people who have slipped in salaries from between $80,000 and $120,000 to between $30,000 and $45,000 due to downsizing, outsourcing, and layoffs.
One IT person who is contracting today says he is making 20 percent less than on his previous contract in 2007. Another commented: “At least you have a contract.” Plus, oil has doubled in a year and the devaluation of the dollar is around 40 percent.
Mesirow Financial economist Diane Swonk has pointed out that there is a shortage of highly skilled people in the U.S. The whole concept that there’s a shortage of IT professionals is completely wrong. From an economic standpoint, if there was a real shortage, wouldn’t wages for IT people be skyrocketing up and not spinning down?
That, of course, is the law of supply and demand. If there was a real shortage, software developers, database administrators, and others would be well into a six-figure range of salaries comparable to doctors and getting a lot of perks instead of bargaining for cheap hourly rates with no benefits.
Labor dumping realities
Many high-tech jobs with decent salaries have been diluted because thousands of people have been imported into the U.S. They have not gone home after the NASDAQ crash. Instead, companies increased the cheap labor and replaced more highly paid American workers with them. Other professions are starting to see job erosion as more H-1B and L-1 visas are being allotted.
Though this might be good for short-term profits, it adds a lot of fuel on the skyrocketing foreclosure rates. These can’t be blamed on just sub-prime mortgages, the 20-year low in new car sales, and the huge increase in personal bankruptcies.
All of this is happening while CEOs like Angelo Mozilo of Countrywide Financial cashed in $400 million in salary and options in the last couple years. Mozilo awaits a severance package of another $115 million when Bank of America buys out Countrywide. Rewarding poor performance and failure with this magnitude of compensation should be more than just frowned upon.
The person should be summarily dismissed without any severance package. There needs to be more board of director reforms to outlaw this type of boardroom lunacy. His pay should be divided and given to all the people he put on the street. What are their severance packages from Countrywide?
The demise of Michigan
Look to Michigan as a state that has become an example of poor leadership and a totally wrong coalition of government, business, academia, and organized labor. Should we feel sorry for Michigan and the poor state they are in with jobs and its housing market?
I say they drove themselves into a declining vortex of joblessness, aimlessness, and lack of vision to move forward. That is a strong statement, I know, but two videos spotlight the lack of focusing on solving local problems. Both talk about U.S. taxpayer money subsidizing college tuition and job loss to China.
As one video states: “Patriotism is for chumps.” Policies have been set in companies to maximize short-term gains by transferring manufacturing jobs out to China. Higher educational institutions are enticing foreign students with tuition breaks that are being subsidized by U.S. taxpayers.
The second video is about the state of Michigan and the University of Michigan. It talks about shifting endowment money to develop offshore hedge funds and not spending money on supporting local students or start-up businesses. Instead, it talks about developing VC projects in China. By the way, much of this is taxpayer money.
It’s pretty clear to see there are catalysts at academic institutions who on one hand want your support, alumni donations and taxpayer money while they turn over technology, fund foreign start-ups, and even finance cheaper competition instead of helping the communities they profess to support.
Drive through Michigan. That state is devastated and its housing market is a joke. They will be asking other states to bail them out. They should be looking at their own business leaders and institutions who sold them out.
Sending money to your alma mater or buying an American car to “support American jobs” (which then actually fund foreign initiatives to undermine your job here by creating cheaper competition) is at best counterproductive. At worst, it’s treasonable if it affects national security.
Carlinism: Millions of dollars should be spent locally to strengthen our future education and economy first. Any change left over should then be seeded into international initiatives (not vice versa).
Recent articles by James Carlini
• Jim Carlini: Readers get a charge out of presidential critique
• James Carlini: Network infrastructure and holiday cocktail parties
• James Carlini: Broadband and other blowback from frustrated voters
• James Carlini: Presidential candidates clueless on broadband

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