The US is at a “strategic inflection point,” with the opportunity to re-assume global leadership on both diplomatic and economic fronts or to become mired in its own problems, losing influence, power and pride both at home and abroad. Andy Grove, the former CEO of Intel and author of the seminal business text Only The Paranoid Survive, provided us with this useful prism through which to view the environment currently facing the US.
A strategic inflection point can be summarized as “…a time in the life of a (business) when its fundamentals are about to change. The change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.” It is tempting to view the US’s current plight as merely another bump in its inexorable ascent, but I believe the environment tells a different story. It transcends the stock markets, the credit crisis, proliferation of terrorism and warring nuclear powers. A healthy nation, a sovereign power that can effectively use diplomacy to achieve positive ends requires a stable economic foundation, and the economic underpinnings of the US have become so fractured that it risks being marginalized on the global stage. This “change in fundamentals” that is creeping up on us? Our creditor’s willingness to hold dollar-denominated assets in general and to finance our persistent budget deficits in particular. This is the real credit crisis facing the US.
Why are things different this time? The Great Depression is held up as the singular economic event in the US to be avoided at all costs. The Government put “safety nets” in place to help those who cannot help themselves in difficult times. But this doesn’t tell the whole story. We, as a nation, have been spending far beyond our means for generations; so much so, in fact, that the purported safety nets place a greater risk to our future than the risks they were created to avoid. The Social Security system is bankrupt. Medicare and Medicaid represent looming obligations that will swallow a progressively greater share of US taxpayer dollars that subsequent generations will have to fund. Institutions such as the Federal Deposit Insurance Corporation (FDIC) are woefully under-capitalized. The Pension Benefit Guaranty Corporation (PBGC) will be bankrupted in the current economic downturn. And the trillions committed to bail out our financial institutions has further weakened the integrity of the US dollar, regardless of its benefiting from the “flight to quality” rally that has pushed Treasury yields to historically low levels.
Reliance on foreign oil is a popular issue with voters. The price at the pump and the threat of hostile nations are things most citizens can relate to. Yet it is hard to argue that the dependence on foreign cash poses a far greater risk to US security, stability and power. It is a much more complicated problem with a broader impact, but it is hard to understand how it effects our daily lives. Each poses huge threats to our well-being and takes power out of our own hands.The US has created a very unstable situation where it is no longer in control of its destiny; the Governments of China, Saudi Arabia and Singapore, among others, hold the keys to its future unless it can reverse the trend.
The US manufacturing sector is in shambles. The financial sector is still badly damaged and in need of repair. The US infrastructure base in is dire need of investment. Promises have been made to workers who have paid into a flawed Social Security system for decades that will not be kept. Health care costs continue to spiral out of control, with skewed and inefficient incentives that penalize prevention and reward acute care. Our military is overextended, ill-equipped and consuming hundreds of billions of dollars per year. The charade has to end. Every day the President and Congress avoids dealing with the root cause problems makes them harder to address. Yet it may be that they are too close to the problems to actually see them, and too personally invested in the past to push for aggressive and necessary change.
Andy Grove makes the point that middle managers, those in the trenches doing the hard work day in, day out, are better able to see the coming tsunami of a strategic inflection point before their bosses do. And a good senior manager will incorporate the input of these colleagues, arrive at a new strategic vision, create a set of required actions and clearly communicate them throughout the company. The hallmarks of a leader who can manage through a strategic inflection point include: open-minded and humble; a good listener; a critical thinker; decisive and strong once a decision has been made; and an effective communicator. Leading through a strategic inflection point is a scary, often lonely experience when the future of your company – or your country – hangs in the balance. Yet the risks of inaction almost always outweigh the risks of being too early.
We need the creation of interdisciplinary teams to study, analyze and propose strategies and actions in each of these critical areas. And the marching orders from the President should be to come back with solutions grounded in fiscal reality, and with zero input from lobbyists with agendas that morph based on who’s paying. Quite simply revenues need to go up and costs need to go down, and unfunded promises need to be restructured to match hard-dollar contributions with benefits payable. We need a redo. Nothing can be viewed as sacred. A “do nothing” strategy is a recipe for disaster, an almost-certain path down the road of nations who struggle to meet their external obligations with predictable and unpleasant effects. But most importantly, the US citizen needs to understand this shadow threat that lurks in the background, with the possibility of damaging their quality of life in ways previously unimaginable.
Our success as a nation poses the greatest risk to addressing these monumental issues. We are plagued by inertia both due to partisan politics, a lack of understanding of the magnitude of the threat and the relative comfort most citizens enjoy. The US has been and still is a great nation, and has accomplished a staggering amount in its relatively short life. But as the disclaimer states, “Past performance is no guarantee of future results.” Resting on our historic achievements and hoping that time will solve our problems is both foolish and harmful. Hard and painful changes are absolutely necessary, and will require sacrifices from everybody. But for the good of our country and the life we want for our children and subsequent generations, we have to take decisive action – now.