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The Making It! Business Blog

from Executive Producer, Nelson Davis

"The world would be a better place if it operated on sound business principles"

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THE DIE HAS BEEN CAST

Thursday, August 14, 2008

I believe that business and politics operate in parallel and often connected universes. We need them because legislation sometimes determines our fate and their campaigns are lubricated by our donations. Right now both major party candidates are working hard to convince us that they have the best policy view and the ability to right many wrongs including the economic headaches resulting from the sub-prime mortgage mess. My contention is that whichever guy gets the big job, they’ll be struggling against a rising tide of challenges because the primary sources of today’s troubles were cast years ago.

 

For example we’ve all become familiar with the extreme plight of America’s legacy auto makers over the past several years. They have the wrong product mix for the times; they gorged on a fad—SUVs and they made pension promises are eating them alive. All of these strategic moves and the culture that bred them were created decades ago. It was in the early 1950s when America’s rosy future stretched to the horizon and beyond just like the newly constructed interstate highway system. In the intervening decades General Motors, Ford and Chrysler have had plenty of opportunities to change course and culture, but it has taken near-death situations to force change for all of them.

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.” Niccolo Machiavelli

We are living in a time that contains more pressure for change than any period in the past ninety years. Business owners and leaders are a bit more practiced in the process than those folks holding elective office or the people operating the bureauocracies. On the hardness scale, rapid change for big business is like “teaching an Elephant to dance.” However, the world of business has a way of self-correcting because those who get it really wrong tend to disappear from the landscape. No “term limits” are needed.

 

Let’s look at a couple of our current economic struggles and where they may have originated. Today our weak U.S. dollar can be attributed to a long period of artificially low interest rates provided by the Federal Reserve coupled with huge trade deficits. But there are some smart people who say the real root goes back to when we abandoned the Gold Standard. Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. This has been the case since 1933.

In 1932 the Governor of New York, Franklin Delano Roosevelt won the Presidential election by a landslide partly on the promise of a New Deal for Americans. The New Deal Roosevelt had promised began to take shape immediately after his inauguration in March 1933. It was based on the idea that the federal government was the only institution that could push the country out of the depression. The first days of Roosevelt's administration saw the passage of banking reform laws, emergency relief programs, work relief programs, and agricultural programs. Later, part two of the New Deal came into play. It included union protection programs, the Social Security Act, and programs to aid tenant farmers and migrant workers. By 1939, the New Deal had run its course. But here we are sixty nine years later with several of those programs still in place which cost Americans billions of dollars.

So the seeds for what Queen Elizabeth of Great Britain would refer to as a “Annus Horribilis” (horrible year) have been sown across the decades. No matter who wins the presidential election the big issues aren’t going to disappear quickly or easily.  We’ll be disappointed if we are voting for a miracle. To turn our country around is going to take a coalition of business and politics that we haven’t seen since the days of World War II and multiple election cycles. Democrats and Republicans, conservatives and liberals all have to know that the die we are dealing with was cast by all their predecessors many years ago.

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