Originally Posted in the Wall Street Journal February 3, 2010
The grim news on jobs confirms the reality that many economists are unwilling to face: American jobs continue on a steady downward slide, with no tangible signs of recovery. As if to epitomize this trend, UPS – that bell-weather of the American economy – raised its 2010 earnings projections as it announced layoffs of 1,800 more of its 405,000 employees.
The first decade of the new millennium will go down in history as “the lost decade” in business. Consider the ugly facts:
- At decade’s end, 25 million Americans – 17.3 percent of the workforce – are searching for full-time work but cannot find jobs.
- In the past decade, the U.S. lost fully one-third of its manufacturing workforce.
- Information technology – the bright spot of job growth in the 1990s – was down 21 percent.
- The only growing sectors – education (up 32 percent), health care (up 30 percent), and government (up 9 percent) – are all funded primarily with taxpayer dollars. As the U.S. continues to shift away from the private sector, government deficits mount.
- The stock market began the decade with the S&P 500 index at 1,469 and ended at 1,115 – down 24 percent. This marked the first decade of declining stock prices, even after the S&P turned in a 24 percent gain in 2009.
- Real wages declined for the first decade since the Great Depression.
“Quick fix” programs like those included in last winter’s stimulus bill will not curb these long-term structural trends. Getting a significant proportion of those 25 million unemployed Americans back to work requires us to shift from a spending economy focused on “instant gratification” to an investment economy willing to support long-term programs that restore America’s economic dominance. If we fail to do so, the U.S. will enter an extended period of stagnation much like Europe and Japan.
Is there a culprit for these trends? Finger-pointing abounds, but I believe the root cause is leaders practicing short-termism.
In the 1980s and 1990s, America looked up to business leaders who created growing companies, dominated world markets, and employed millions in well-paying jobs. Today’s business leaders are so poorly trusted that they rank near the bottom of every poll.
Looking back at the last decade, it’s not hard to see why. The 2000s began with the Enron scandal and ended with global financial market meltdowns. In between, we were treated to the mischief of Bernie Ebbers of WorldCom, Richard Scrushy of Health South, Dennis Koslowski of Tyco, and the infamous Bernie Madoff, all of whom have joined Enron’s Jeff Skilling behind prison bars.
The leadership issues go much deeper than a few high-level crooks tossed in the clinker. As I wrote in Authentic Leadership, capitalism became the victim of its own success. In the early part of the decade, hundreds of corporations restated their revenues and earnings as their leaders were exposed for accounting manipulations that hyped stock prices to maximize shareholder value. In the process many formerly great companies like General Motors, the original AT&T, Sears, and K-Mart were destroyed.
Following the 2003 passage of Sarbanes-Oxley, many corporations cleaned up their acts. They replaced their CEOs with new leaders who have a long-term perspective on serving customers and building shareholder value.
Unfortunately, many Wall Street leaders never got the message. They continued to play the short-term game with excessive risk-taking and leverage. In the infamous words of Citigroup’s Chuck Prince: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.” In 2008 the boomerang Wall Street threw at the corporate world came back and hit it in the head, knocking out Lehman Brothers, AIG, Bear Stearns, Fannie Mae, and Citi, just to name a few.
In the 20th century, the United States became the world’s dominant economy thanks to leaders like Ford’s Henry Ford, General Motors’ Alfred P. Sloan, IBM’s Thomas Watson, General Electric’s Jack Welch, and Hewlett-Packard’s Dave Packard and Bill Hewlett. In recent years it was sustained by the dynamism of entrepreneurs like Microsoft’s Bill Gates, Intel’s Gordon Moore and Andy Grove, Apple’s Steve Jobs, Wal-Mart’s Sam Walton, and Starbucks’ Howard Schultz.
All of these leaders – and many more like them – believed their task was to build great corporate institutions that could dominate world markets by serving their customers with innovative products and superior services. But many people bought into Milton Friedman’s view that the purpose of the corporation is to maximize shareholder value. They were handsomely rewarded for delivering short-term results, but their collective behavior led to the destruction of long-term shareholder value, and in many cases their institutions as well.
What’s ahead for the next decade? Often a severe crisis is required to lay the groundwork for a major transformation in leadership. That’s exactly what is happening now. A new generation of corporate leaders is stepping forward that recognizes their responsibilities go well beyond enriching their shareholders and themselves. These new leaders recognize their corporations are chartered to serve society by creating value for their customers, sustainable jobs, and lasting value for their owners.
These new leaders face the challenge of building their corporations while at the same time rebuilding America’s dominance of the world economy. Rather than criticizing them, we should get behind their efforts.