(This article was originally published in The Huffington Post)
by Jay Pelosky and Bruce W. Jentleson
The outlook: for the U.S., the EU and the global economy is unclear. Political systems buckle under the challenge of domestic, regional or global governance. Consumers hunker down, corporates sit on cash, job creation is anemic, banks and sovereigns shrink. In this, our third column, we elaborate on the first of our five Bi-Sectoral Principles, Strength from within—for while the U.S. does depend on others, much more important is what we do for ourselves.
It's not "declinism" to acknowledge that America no longer assuredly sits atop the world order; it's denialism not to do so. As the world's largest debtor, the idea that we sit atop the rest seems almost silly. Nor do we sit apart as we have for various periods of our history—globalization ensures that is no longer the case. One look at how Italian bond woes sap the Dow Jones Industrial Average reveals the stark truth that we sit in and are of the world.
The fall of the Berlin Wall, approaching a quarter century ago, followed by the lifting of the Bamboo Curtain brought billions of low cost people into the global work force. At the same time, the spread of technology meant that a small segment of Western society could now market its talents across much larger audiences and hence get paid much more. Here, in great part, lies the origin of the income and wealth inequality debate now being argued around the world. Add tax cuts, leverage and self-regulating financial markets, and off you go. The push—pull of this process: a huge expanse of cheap labor which lifted millions out of poverty while a globalized audience for high end compensation also resulted in the middle being squeezed almost to the point of disappearance. This sets up the challenge of the our time—how to create well paying jobs and reverse the growth of inequality in America which saps our spirits and threatens our social compact.
We need a grown up conversation around our shared strengths, challenges and opportunities, led by our politicians and incorporating private sector leaders, investors and ordinary people as well. Both sectors are rational actors: politicians seek re-election and so, rationally, they focus through that prism, while the private sector views things through its rational lens of economic gain and loss. Politicians and private sector folks must each walk a mile in the others shoes as the old saying goes. The body politic can have its own impact: Occupy Wall St. and its domestic/global offshoots are a positive sign of engagement, engagement that may not fit everyone's how-to book but that has shifted the tone of debate away from austerity and toward growth. Growing the pie makes it a lot easier to share the pie.
America's strengths remain many, ranging from the rule of law that underpins economic and political life to the mobility that exists in both our capital and labor segments. Our culture, our technology and our great academic institutions act as magnets for talent while immigration ensures we have one of the youngest societies of the major economies. Leveraging these strengths should be top of mind for public and private sectors alike. But we can't rest on our laurels. For example, with all due respect to Zuckerberg and Jobs and Gates, and historically to Ford and Edison and so many others, when innovation-based competitiveness is measured by rate of change over the last decade our own National Academies of Science rank us 40th globally. It's the trend line that is key and that has to be addressed.
Government has a major role to play in moving America forward. The upcoming Deficit Commission report must have at its core a strategy sequencing growth now, led by Government spending, and deficit reduction later, once growth has recovered. That government spending needs to be strategic: creating jobs now in ways that enhance ongoing competitiveness.
We believe two bi-sectoral areas of strategic investment opportunity are particularly ripe today: infrastructure and green energy. The Way Forward, a recent report from the New America Foundation, lays out how infrastructure investment could be used on a grand scale to jumpstart the economy, put millions back to work and create new common goods that benefit all Americans. The time is right—our infrastructure is aged and too many are unemployed, while investors seek projects that offer reasonable rates of return over long time scales. Pensions, both private and public alike, are massively underfunded and burdened with return targets of 6-8% when 30 year U.S. Treasury Bonds yield 3%. Infrastructure is in a sweet spot: public sector needs and private capital wants can come together to generate jobs and public goods to benefit all Americans.
While there's been plenty of exaggeration of green energy's potential, and blunders like Solyndra, it does have significant potential and it can be done right. Look around the world at the technologies Germany, China, Denmark, Finland, Portugal, Israel and others are racing ahead in. Look where OPEC sovereign wealth funds are putting big chunks of investment in their own portfolio diversification strategies.
In fact, many argue we are close to a tipping point, particularly in solar. Green energy and careful exploitation of traditional energy can help reduce our dependence on foreign oil, our current account deficit and our dependence on foreign capital, a winning trifecta. Concerns about regulatory unpredictability do need to be addressed, but with clarity about the path forward, not backtracking into oil and gas sector coddling. The "gold rush" mentality needs to be checked; it's one thing to incentivize, quite another to assure huge profits. All this is do-able; others in the world are doing it, each with their own blend of policy and markets. We need to forge our own policy-market mix, which is our Bi-Sectoralism Principle #2, to be taken up in our next column.
Jay Pelosky is the founder of J2Z Advisory LLC, an investment strategy consultancy, and a board member of the World Policy Institute.
Bruce W. Jentleson is a professor at Duke University Sanford School of Public Policy. He is the author of the book The End of Arrogance: America in the Global Competition of Ideas, with Steven Weber.
[Photo courtesy of Linda Yakinodi]