What's the frequency Kenneth...

Posted by: prolixous on: March 1, 2013

• In: Economy | Future | Leadership | Open Thread
• 24 Comments

Morning Widdershin friends — here’s hoping two days in a row of my ramblings won’t cause anyone undue emotional or intestinal problems.

Two weeks ago, I wrote about how important visioning is to leadership. Last week I wrote a Danny Downer post about the transitory nature of globalization. This week in focusing on the future after globalization, I was tempted to just write one sentence and call it good — something along the lines of, “Morning Widdershins, let’s hope the Earth learns how to jump out in front of asteroids — have a nice day.”

It’s not that the future is all that dismal even though some economists are a liquor store and pharmacy stop away from reenacting a Tennessee Williams play. The challenge here is that no one really knows with any certitude how the economic/militaristic/deglobalization future is going to unfold. Since I don’t have any real guideposts, today we will be flying from the soggy seat of my Underalls.

What I can do is share some hints about things I use as touchstones for the future. There’s little rhyme or reason other than they seem to make sense to me. I can say without fear of contradiction, they will be absolutely correct until they’re not.

Being the Bully on the World Block Carries a Price

Beginning in 1980 and accelerating in 1989 with the fall of the old Soviet Union, Americans have reveled in being the world’s one superpower. For the brief period of 1989 until 2001, it was doable within economic realities. Then 9/11 happened and with it, a wild and in hindsight, reckless military expansion the likes this planet has never seen began. In 2001, our military expenditures were roughly $287 Billion annually. By 2008, our military expenditures had risen to about $700 Billion without counting either the Iraq or Afghanistan Wars — and according to the old saying, “There’s no such thing as a free lunch war.”

We now spend more than the next 13 countries COMBINED on the military and the real irony is that 11 of those countries are our allies. This “out of balance, budget-busting quest” to be the world’s policeman has taken its toll in terms of scientific, industrial, and infrastructure investment. As northern Africa and the Middle East has demonstrated, even a modern, armed-to-the-teeth military can’t stop broad-based revolutions or as Iraq has proven insure democratization.

Many industrialists will tell you that our military has to make the world safe for commerce — many economic thinkers will tell you commerce will make the world safe from military adventurism. As always, the truth lies somewhere in between these poles. One thing is for sure — we have overspent and under delivered in terms of focusing 20% of the annual federal budget on the military to the exclusion of science, research and development, and infrastructure spending. That has to change.

Commodification of Labor

“Commodifying labor” is a fancy term for treating human beings like chattel — in other words, treating human labor as a commodity. This has to stop. In large measure, commodifying labor is at the heart of “off shoring” of production and runaway factories. Without going into the rudimentary aspects of “supply chains,” the good news is that the economic advantages of “off shoring” are dwindling.

By 2015, the economic labor incentive for China production will shrivel to 7%. The U.S. enjoys a 15% advantage over France and Germany, a 21% advantage over Japan, and an 8% advantage over Great Britain. What this means is an increase in domestic manufacturing and given the historic advantage of the “soup to nuts” U.S. supply chains, it is estimated that we might see 2.5 to 5.0 million new manufacturing jobs being repatriated to our shores by 2020.

We can see evidence of this in Apple moving some Mac production back to the U.S., G.E. revitalizing Appliance Park in Louisville, Otis Elevator moving production from Mexico to South Carolina, and Wham-O moving Frisbee production back from China to where else — California.

There’s also good news in that Moore’s Law seems to be slowing down. Moore’s Law, credited to Intel co-founder Gordon Moore, predicted computer chips would double in power roughly every 18 months. The deceleration of Moore’s Law means we have a little breathing room on robotic replacement of workers and more time to “train up” workers for new technologically advanced jobs.

Regulating Derivatives, Swaps, and Futures

This is an area scarier than an asteroid landing in your backyard. It is scary because no one understands it other than a band of chaos-mathematicians and Wall Streeters. It is also the primary reason the world economy collapsed in 2008. Books have been written about this so I won’t attempt to explain other than to say, the regulation of derivatives, swaps, and futures should be a question about which everyone asks their Congressional candidates in 2014.

In short, the market for interest rate swaps is $379 Trillion and credit default swaps is $27 Trillion — that’s Trillion with a “T”. Under the legislative response to the unregulated explosion in the derivative market, Congress passed Dodd-Frank attempting to put some fail-safe mechanisms in place to avoid another cataclysmic 2008 collapse. Last October the rules went into effect that the Commodity Futures Trading Commission had spent two years putting together.

What happened — a large piece of the market simply reclassified itself as futures and sidestepped the rules. There’s nothing short of new legislation that can fix this. Every trading hour, computer programs whose masters are unknown to all but their bankers and Maserati dealers, are playing roulette with the economic future of the country. Ayn Rand devotees will say, “Let the invisible hand of the free market regulate,” but it is this same invisible hand that shived the economy in 2008. This has to change.

“Create More Value Than You Capture”

Tim O’Reilly

That is a quote from Tim O’Reilly — a legendary tech futurist who has remarkably and repeatedly been years ahead of anyone else in seeing what is just beyond the horizon. Simply put, his quote means remember your roots — have a guiding ethic and stick to it — greed is not good and is debilitating to progress.

O’Reilly talks about companies that start out with idealism, democratization, and opportunity, but when they succeed and make it, their focus turns to protecting their territorial success by closing off innovation and access. In other words, “We got ours, sorry about your luck.”

Creating more value than you capture is a concept that is the antithesis of American business in the last 30 years. We have legislatively enabled monopolization and consolidation with tax incentives that do little for the consumer other than guarantee a shrinking middle class. This must stop.

While “creating more value than you capture” may seem like pie in the sky, real transformational leadership is rooted in this concept.

Fortunately, I believe we are beginning to see the light about the great Ponzi-scheme of supply side economics that has created the greatest chasm of wealth in the world’s history. If there is any bright spot for the foreseeable future, it is the wholesale rejection of the One Percent crowd and their political slogan masquerading as an economic policy. It has taken us thirty years to learn this lesson, hopefully it won’t take us that long to remedy it.

I hope this gibberish isn’t the equivalent of Dan Rather’s 1986 attackers asking, “What’s the frequency Kenneth?”  Next week, I’ll dive deeper into the donut hole with, “Is the world really flat?”

This is an “all skate” open thread.

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Tags: apple, ayn rand, Commodification, Dan Rather, deglobalization, Derivatives, Dodd-Frank, Futures, G.E., Globalization, Gordon Moore, Labor, Military, Off shoring, Otis Elevator, Swaps, Tim O'Reilly, Wham-O, What's the frequency