Global Crisis Blog

“Yes, We Can!” —  But, Uhhh,  Can We? And How?

By Shlomo Maital

      All managers are familiar with the concept of “stretch goals” — setting ambitious visionary objectives, to energize the organization (for instance, President Kennedy’s “we will go to the moon by the end of this decade!”).   The tricky part of stretch goals is to set them high enough to be energizing, but not so high as to be Don Quixotic, utterly impossible.

       President Obama has promised to double US exports over the next five years, from $1 trillion to $2 trillion in 2015.   This implies a 15 per cent annual rate of growth in exports.  (He refers to goods exports, which amounted to $987 b. in 2009; services exports were another $480 b.). 

       Is this a stretch goal? Or another empty, impossible promise?

       To answer that question, let’s see what it would take to make it happen:

* persuade the left wing of the Democratic Party to stop its efforts to impose tariffs and other protectionist measures.  If America tries to halt imports, so will other countries — so much for US export expansion.   Proposed free trade agreements with South Korea, Panama and Colombia are stalled, because of Democratic Party opposition, mainly from manufacturing states.

* allow the US dollar to drop steeply, by 30 per cent.  This will cause a steep fall in US bond and equity prices, enraging the powerful special interests on Wall St. 

* overcome the Wal-Mart bloc, which makes its profits through importing cheap products from China instead of buying US-made products.

* articulate a detailed practical trade policy.  No such policy yet exists.   Obama said he is starting a National Export Initiative that would “help farmers and small businesses increase their exports.”    Does Obama understand that corn farmers in Iowa or plumbers in Utah do not themselves directly export their crops or services?

*   Initiate legislation to bring American manufacturing home from Asia.  No such legislation exists.  I’m not aware even of draft legislation.  Commerce Secretary Gary Locke, who will lead such an initiative, is the former governor of Washington State, and is a lawyer.  He lacks the business experience and economics knowledge that is required for this to succeed.

*   Woo China.  America just signed an $8 b. deal to sell arms to Taiwan.  To boost exports by 15 per cent yearly, America will need to sell its products and services to the fast-growing economies of India and China.   But America has just greatly angered China. Typically, America’s Defense Dept. operates in direct contradiction to America’s Commerce Dept.

*  Boost investment.  To make globally-competitive products, America will need a huge wave of new capital investment in its industry.  There is no sign whatsoever of such a wave; it depends crucially on restoring business profitability, and profits remain low. 

* Curtail imports.  If American imports double, as well as exports, nothing is gained;  jobs lost to imports offset jobs gained by exports.  But if imports are curtailed, why should other countries expand their purchases of American products? 

* Solve the “rebalancing” problem.  The world needs rebalancing — it has been knocked for a loop by huge American trade deficits.  Creating a large American export surplus will not ‘rebalance’, but will create a new imbalance problem, impoverishing other countries.  

*  Boost saving.  To free resources for exports, American consumers will need to spend less, and perhaps lower their standard of living, just as Germans, Japanese, Chinese and Indians did for decades.   Does anyone believe this will happen?

   Prepare for another Obama “we failed and here is why” interview, in TIME magazine, in three years.   Perhaps Obama’s advisors should learn from business leaders. They know that before you launch a new “brand promise”  campaign, you first build the foundations for it, so you can fulfill that promise.  Before Staples launched its “that was easy!” campaign, they redesigned 1,500 stores, and retrained all their key personnel. 

     Obama consistently launches “yes, we can” rockets,  and then wonders why they crash and burn.    

     How about a new slogan:  Yes, we can!  and here is how! 

  ***  Footnote:  Banner headlines scream “America’s GDP grew by 5.7 percent in the last quarter of 2009”.   As I noted before in this blog, this is an optical illusion. Here is why.   Final sales to domestic purchasers rose by only 1.7 per cent.  That is the increase in what was actually SOLD.  Most of the GDP that was produced in Q4  2009 was stuffed into inventory.  The change in private non-farm inventories contributed 3.61 per cent of the 5.7 per cent GDP growth, or more than three fifths of the GDP growth!   This implies that when businesses stop producing for inventory, GDP growth will fall sharply in 2010. (Source: Bureau of Economic Analysis, US Dept. of Commerce:  New Release, Jan. 29/2010).