Friday, December 6, 2013

I'm Optimistic! *

* if we don't stifle ourselves

Earlier this week I attended "Economic Outlook", a morning conference that was co-sponsored by Washington Business Journal and Fairfax County Chamber of Commerce. With opening remarks by Governor-elect Terry McAuliffe and a panel discussion of business leaders, the keynote speaker was AOL and Revolution founder Steve Case.

Bottom line up front: all speakers were fairly optimistic about our economic prospects for 2014 and beyond – if we don't screw it up. Along that line Charles Dumas wrote in the Financial Times, "Assuming federal budget disputes get resolved by late-winter, [U.S.] growth should accelerate to more than 3 percent."

Walking around the National Mall in Washington, Mr. Case said, we see monuments to Washington, Lincoln, Jefferson, and others. But the United States is not about stately shrines and staid founding fathers, he continued; rather, our nation was built by revolutionaries and is continually rebuilt and reimagined by "crazy entrepreneurs who think there's a better way". This, in my opinion, is the basis for American exceptionalism.

Sometimes the best way to think about success is to highlight a counterexample. In business and governing, Detroit is such a counterexample; its bankruptcy arose for poor governance and business arrogance. Grand promises were made to public employees and changing tastes left car manufacturers in the dust. Mr. Case said that Detroit "lost its entrepreneurial mojo" and 65 percent of its population, but he's "hopeful that Detroit will fight its way back".

Growth often comes from disruption – sometimes catastrophic, sometimes incremental. Detroit suffered the former; the internet allows the latter. It used to be that banks could only operate within the bounds of the state where they were physically located; the Interstate Banking and Branching Efficiency Act (IBBEA) changed that and the innovation of internet banking gives us greater choice and control of banking services across the country. And despite all its troubles, is innovative and disruptive – not for cancelled health plans but because it puts more power in consumer hands.

Yet isn't disruptive enough. Rep. Mike Rogers claims that the website is built on 5 million lines of software code where similar commercial websites are built on 500,000; if true, it's the age-old redundancy and inefficiency of government projects. And it restricts insurance to plans offered within shoppers' state of residency. House Resolution 2300 is somewhat disruptive: it allows interstate insurance sales and purchasing pools but (undisruptively) maintains preferential tax treatments and expands subsidies.

Our current political discourse is seldom constructive and frequently (and literally) disruptive, but not creatively disruptive. Washington is, in Steve Case's words, "a mill town": a location where one industry dominates. But unlike textile mills, government won't get offshored (even though some people would like it shut down). And that certainty of existence can result in an impediment to change. Linda Bilmes and William Daley point how "fierce global competition has forced corporate America to modernize how it manages projects so that they can be delivered as efficiently as possible. The federal government, insulated from market pressures, has fallen badly behind."

Dominant industries need creative disruption and reconstruction every once in a while. Disruption and failure often happen at the bottom of the economic cycle when businesses aren't prepared for change. Ideally the need for change is foreseen and the process of change is deliberate, happening at the top of the cycle so businesses, employees, and the economy are fiscally and finacially prepared for the shock with a plan and resolve that ushers a prosperous way forward.

So plan and be optimistic but fasten your seat belts – the path to success and prosperity can be bumpy.