Chapter 11
Cash Flows and Flaws
Peter Jennings of ABC News played the role of Peter Prometheus, a fast-track corporate engineer, inventor, and entrepreneur. Valery Giscard d'Estaing, France's former president, was the CEO of a French company. Japan's vice minister of foreign affairs played a Japanese middle manager, and U.S. civil rights activist and 1988 presidential candidate Jesse Jackson took the part of a worker complaining of racial discrimination.
They were participants in a panel of fifteen business, economic, and political leaders from nine nations called together for the Wall Street Journal's Future Forum. For two and a half hours they gazed into the 21st century — wrestling with problems of loyalty between employers and workers, creating new businesses and technologies, and investing and selling across international boundaries.
As the panelists acted out hypothetical business situations, they projected a world of intensifying global business opportunity and competition that could eventually blur national loyalties and boundaries. Twenty-first-century businessmen could be saluting company flags instead of national flags, suggested Kenichi Ohmae, a Tokyo-based
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international management consultant. And when Mr. Prometheus announced he had invented a fantastic new battery and was leaving the mythical Creative Motors Corp. to found his own company, Ohmae urged him to start the new business in Japan.
If your business grows in the United States, he warned in the simulation, "You will be raided, restructured, and taken over." Japan "will protect you from all of that," he said.1
The "real" business and economic worlds of the approaching millennium could be far different, of course, but all of us will be deeply affected by government economic policies and private economic decisions. We will be better able to cope if we first scope out these forces that will shape the future.2
Trouble is, economics is not an exact science — economists can't conduct experiments with carefully monitored control groups of people or rats. And economists have a rather poor track record in predicting such things as household savings rates and what the stock market will do. The league of the winning Superbowl team is as good an index as any for predicting a bull or bear market. (The market goes up if the National Football Conference team wins, so the theory goes.)
The experts are divided over the likely scenarios for economics in the decades ahead — more divided, in fact, than the experts on any other topic in this book.
Nevertheless, let's sample some informed economic thought about jobs, pay, and the workforce; let's peek at possible corporate structures, banks, and the government; and let's assess how cash flows and flaws may affect the health of the U.S. economy at the dawn of the new century.
Working It Out
The best one-word description for the U.S. labor force in the 21st century is diversity. And demographic change will be at the heart of the issue. Women, minorities, and immigrants will account for 90 percent of the labor force expansion of the 1990s.3 "Cultural diversity" is a desirable goal, companies are discovering.
Yet workforce growth will slump to 1 percent this decade, well below the 2.9 percent growth of the 1970s, predicts the Hudson Institute.
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Nearly two-thirds of the new entrants into the job ranks will be women; an additional 20 percent will be nonwhite or immigrant men.4 But white, non-Hispanic, native-born males will comprise a mere 9.3 percent of the new workers by 2001.5
Women still lag behind men in pay. For example, in their first year after receiving an MBA degree, women take home an average of 12 percent less than men in annual salary.6 And women still face the now-familiar "glass ceiling" that often bars their access to top management positions.
Nevertheless, they have been making dramatic progress in occupations previously considered to be largely male preserves. About 18 percent of doctors are now women, as are 22 percent of lawyers, 32 percent of computer systems analysts, and nearly half of accountants and auditors. Before the decade is over, women will hold down the majority of new positions for skilled and educated workers. And they are starting their own businesses at twice the rate of men; in 1987 women owned twice as many companies as they did a decade earlier.7
Despite the clear barrier, the breakthrough of women managers will continue as more and more firms set quotas for female workers. The glass ceiling won't be shatterproof after all, and the "feminine style of management" will become more prevalent "not only because more women will achieve positions of power but also because a flexible, mediating approach will be vital in dealing with America's ever more hetergeneous workers."8
The baby boomers who swelled the labor force for the past two decades are being replaced by the less-plentiful baby busters. So companies that once rejected applicants without necessary skills are scratching around to find out what prospective employees can do — or be trained to do.
Where the Jobs Will Be
Meanwhile, workers in large plants will play a larger role in designing and refining production processes. And unions, no longer the powerful negotiating force they once were, will recognize that "their prosperity rests on the success of the company, not on the
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extraction of high wages without concomitant increases in productivity."9
Eight of the twenty-five fastest-growing jobs in the next decade will be health related, says U.S. News & World Report. In addition,
Lawyers specializing in toxic-waste regulations and accountants familiar with European trade standards will gain an edge over their colleagues. In the automobile industry, technicians who can keep robots running will be worth more on the factory floor than assembly-line workers. While industry continues to replace workers through automation, many corporations will continue to trim middle managers. The 1990s will offer you less job security, but they will distinctly enrich your job possibilities.10
Yet many new workers lack even the rudimentary skills. The dividing line for working America will be between those who have learned how to learn and those who have not.11
Most low-skill jobs will be in retail trade and services — segments that don't pay enough to make rent affordable, much less home ownership. The Bureau of Labor Statistics projects that about 70 percent of the new jobs expected between now and the end of the decade will be in those sectors. Thus, by 2001 nearly half the jobs in the country may not pay what's needed to rent decent housing.12
The decade ahead will see increasing numbers of unemployed Americans. Joblessness of youths among minority groups and in large cities will continue to be a particular problem. Many Americans will be able to hold only low-paying, unskilled jobs which will keep them at or below the poverty line. This class will clash with workers whose highly marketable skills make them candidates for brighter economic futures.
Hope in Detroit
In an effort to help the poor through job training and technology, a tough-talking Roman Catholic priest has set up a nonprofit civic organization on Detroit's northwest side. Father William Cunningham's organization, Focus: Hope, is part charity, part business,
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and part job-training program. It has grown from a grass-roots group that began preaching racial harmony after riots swept the city in the mid-1960s. Focus: Hope operates food banks that distribute groceries to 80,000 people a month, and it employs about 180 inner-city workers in it's homegrown manufacturing enterprises. It also provides math, computer, and machinist's training "to scores of willing but poorly educated Detroit residents."13
At the end of 1990, Focus: Hope added its most ambitious project yet: its Center for Advanced Technology. Funded by $15 million in Defense Department grants, the center explores ways to improve the production and technical skills of inner-city workers.
Government and industry experts say the program could be a model for training young people and could help alleviate a critical shortage of highly trained machinists.
But to Cunningham, who preaches economic salvation through hard work and high tech, it's "more than a jobs program, more than just helping blacks keep up. The issue here is to provide the tools and discipline and very best of training and equipment to bring minorities and poor whites into real positions of control, at the very center of the technological revolution."14
Several hundred miles away, Eastern College, an evangelical Protestant school in Philadelphia, has become the nation's first college to offer the MBA degree to students who then become entrepreneurs among the "marginalized." Graduates help the disadvantaged, both overseas and in this country, achieve economic independence.15
Yet despite these and other efforts, the richest one-fifth of the U.S. Population is getting richer while the poorest one-fifth either holds steady or grows poorer. White households typically have ten times as much wealth as black households, and the disparity is likely to continue even if the income of blacks catches up with that of whites.16
Adjusted for inflation, "the purchasing power of working people has retrogressed," said former United Auto Workers president Douglas Fraser. And if the national debt continues to surge, the next generation will be saddled with interest payments on our huge obligation, further threatening economic growth and standards of living.17
In fact, the budget deficit may pose the greatest single threat to standards of living in the 21st century.
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"Heavy borrowing by consumers and by the federal government has turned the United States, once the world's largest creditor, into the world's largest international debtor. And the burden of paying interest on that debt will drain American incomes well into the next century, particularly if productivity growth remains slow," said Alan Murray in the Wall Street Journal.18
Savings, Social Security, and Retirement
Americans must learn how to live within our means instead of borrowing from our future, says Tom Sine.19 And that must be accompanied by an increase in personal savings.
One reason saving is difficult is the mounting Social Security withholding tax; more is taken out of the typical American worker's paycheck for Social Security than for income taxes.20
This may be necessary to keep the Social Security system solvent, but unfortunately Congress for many years has used Social Security Administration funds "like a checking account. No capital has ever been accumulated and no interest or other benefits . . . allowed to accrue" to these accounts.21
Lifetrends authors predict that by 2020 full Social Security benefits won't start until age 70 and that
To save Medicare from bankruptcy, some costly medical procedures, such as bypass surgery, will be curtailed. Money will be funneled away from heroic measures and into preventive medicine; funding for nursing homes will be minimized, expenditures on home care substantially increased.22
Early retirement may tempt executives, but many 21st-century employers will have eliminated retirement incentives as they try to retain — and sometimes retrain — their best workers. And both the high costs of retirement plus longer life expectancies will mean that many workers may stay on the job longer; 70 may replace 65 as the "normal" retirement age.23
By 2000, predicts Judith Waldrop, one retiree in three will return to work within two years. "To retire in 2030 on today's equivalent
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of $1,000 a month, workers will have to save $4,800 a year starting now."24
Corporate Cooperation and Competition
As the era of domestic-only competition fades, the one-industry, one-company chief executive is also on the way out. By the dawning of 2001, a company's selection for top honcho will be governed by international competition, globalization of companies, spreading technology, and speed of overall change. Ohmae, the Tokyo-based international management consultant, wasn't just role-playing when he said employees may be saluting company flags instead of national.
The corporate chief of the next century, says Ed Dunn, corporate vice president of Whirlpool Corp., "must have a multienvironment, multicountry, multifunctional, maybe even multicompany, multi-industry experience."25
Expect to see growing numbers of foreign-owned plants in the United States as the next century rolls into sight. Nearly every business will have to compete globally, and joint-venturing will become more common.
In 1990, Japan seemed to be buying everything in sight, taking over more and more U.S. companies. Although the prospect of more Japanese megadeals raises corporate eyebrows — even hackles — not all economists think that would spell sayonara for U.S. interests "Given the fact that they've got all those U.S. dollars, I'd much rather have them turn around and be invested back in the U.S. than in Germany or Japan itself," says Murray Weidenbaum, former chairman of the Council of Economic Advisors.26
The acquisition of U.S. businesses and real estate by the Japanese and other foreign investors "should lead to greater productivity here, greater taxable income, a higher standard of living, more jobs and yet greater investment," says John F. Welch, Jr., CEO of General Electric.27
Furthermore, the British — not the Japanese — hold the largest share of direct foreign investment in the United States. All told, foreigners own less than 5 percent of the assets of the U.S. economy. Anyway, what's foreign? What's domestic anymore? More than 300,000 Americans work for Japanese companies while 100,000 Japanese work for American ventures in Japan.28
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And there will be plenty of room for the little guy too. Experts predict that businesses employing fewer than 100 workers will spawn as many as half of all new jobs this decade. While Fortune 500 companies have slashed 3.5 million jobs since 1980, small businesses generated 20 million new ones.29
"In place of an economy dominated by a handful of giant monoliths," observes Alvin Toffler, "we are creating a super-symbolic economy made up of smaller operating units, some of which may, for accounting and financial reasons, be encapsuled inside large businesses."30
Because smokestack industries are declining in favor of service jobs and microelectronics, not only will the size of the average workplace shrink, but so will the number of employees who work there. And because of better control, customizing and specialization, and quicker turnaround time most businesses won't have to stock large inventories. But as specialization increases and mass manufacturing and mass marketing recede, competition will intensify.31
We already see some of that happening as private businesses give the government a run for our money by providing services historically furnished only by the government. Services such as education, transportation, and mail and package delivery come to mind as examples.32
Toffler colorfully describes "a tsunami of business restructuring that will make the recent wave of corporate shake-ups look like a placid ripple. Specialists and managers alike will see their entrenched power threatened as they lose control of their cubbyholes and channels. Power shifts will reverberate throughout companies and whole industries."33
Diversity is indeed the new ideal in the corporation boardroom and the family-owned workplace. Diversity is a "way of encouraging workers to contribute their best ideas and efforts in an intensely competitive international arena."34
Banking on it
No less than a tsunami swept through the savings and loan industry and the junk bond market in 1990-91. The collapse of
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junk-bond firm Drexel Burnham Lambert "epitomizes this paradigm shift away from paper shuffling and the creation of artificial wealth . . . Real capitalism will replace paper capitalism, the latter having to do with all of the foolishness engulfing Wall Street today."35
Is this really a paradigm for prosperity at the new millennium's early dawning? And was it foolishness or moral failure on the part of business moguls like convicted felon Michael Milken, the junkbond "king" of fraud?
Corporate leaders have become increasingly worried about the erosion of moral and ethical values in their companies, according to a study of thirty-three business, banking, government, and academic officials.
"Self-indulgent permissiveness . . . has become so pervasive and corrosive that . . . executives have lost confidence that their employees and colleagues will act in ethically responsible ways," their report said. As a result, they are "worried more than ever about lawsuits, institutional instability and the erosion of respect for business as a profession . . ."36
This comes as no surprise to Christians who have been sending warning signals about our nation's loss of moral structure. As Christian Century editor James Wall points out, if the religious worldview is left out, Milken's illegal manipulating of the U.S. financial system is "merely a miscalculation, a failure to be prudent in one's drive to maximize profits . . . [W]ithout input from our religious traditions we have no moral language to refute St. Milken's secular religion of greed."37
Partly as a result of the junk-bond fiasco (which may have lost $50 billion in investors' money) and the savings and loan debacle and subsequent bailout (which may require $1 trillion in government dollars),38 an enormous credit crunch looms.
The nation's weakened financial structure might buckle if the economy nosedives for any lengthy period and sets off a huge wave of defaults, warns James J. O'Leary, economic consultant to the United States Trust Company of New York.39
Ron Blue, the author of several books on personal finances and a partner in a financial planning and management firm, also sees more blue than rose in the economic future. There are flaws in the
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cash flows, he says, and during the 1990s we will see taxes go up, inflation extend, and interest rates continue to reflect inflation. Our economy will become even more global, and over-consumerism will persist.
But based on his counseling experience with Christians nationwide, Blue believes Christians during the 1990s will "give more, save more and spend more wisely . . . because with continuing and increasing economic uncertainty" they will turn to the Bible. The Scripture, Blue believes, "is very clear about how to experience continued financial success" in changing and uncertain times.40
Rosy Boom or Gloomy Bust?
Toffler remains an optimist. Downplaying America's "relative economic decline," he says that the United States still represents "about the same share of Gross World Production that it did 15 years ago."41 In all fairness, it should be noted that his book Powershift was completed before Iraq's invasion of Kuwait and the subsequent Gulf War.
But if Toffler is Mr. Positive, John Naisbitt is a mega-optimist, the ultimate bull on America's future. As does Toffler, Naisbitt minimizes the "supposed twin deficits" of U.S. domestic and trade debt.
In reality the domestic deficit is not out of line with what it had been for the 40 years, is declining, and as a percentage is not much greater than other Western countries . . . In constant dollars, the total U.S. government deficit has fallen by 57 percent since 1986. As a share of the GNP, it is one of the lowest in the world.42
And they say it isn't clear that the United States actually has a trade deficit with any nation.
"Sadly, Naisbitt is wrong," counters Pat Robertson, the one-time presidential candidate. Though not an economist, Robertson has marshaled an array of figures to show that the key indicator to look at is the federal debt in relation to our national output — the debt/GNP ratio. In 1990, that ratio was 60 percent — twice the 1980 level.43 Direct national debt, Robertson says, now exceeds $3 trillion,
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in addition to government-guaranteed loans amounting to $2.8 trillion. Total U.S. debt now outstanding tops $12.5 trillion. It was just $2 trillion fifteen years ago, according to economics columnist Leonard Silk.44 {Webmaster's note in year 2010: The total national debt is now 55.7 trillion or $180K per person ... see this web page, the National Debt Clock}
"However one counts the numbers, it is clear that America is in hock up to its eyeballs," says Robertson, and we "will see a debt blow-out which could trigger a serious worldwide depression."45
A panel of seventeen prominent futurists tends to agree: A global economic collapse is possible, they say, and some debts will have to be written off in order to keep some nations from going broke.46
Despite its sometimes exorbitant cash outflows and flaws of excessive consumerism, the United States of America is still the world's preeminent power and the best working model of free enterprise. That is likely to remain true as we approach the threshold of the next century.
"Can this country still lead?" asks Henry Grunwald, onetime U.S. ambassador to Austria and former editor in chief of Time Inc. "Can it impart its ideals of freedom and justice, its formula for creating wealth, its generosity? . . . Must America lead?" he continues, answering, "Yes, because the world is now too interdependent for the United States to create a prosperous enclave."47
But the larger question is not whether America has the ability to lead, but whether she has the will to lead, if she is again stirred by what Henry Luce called "the blood of purpose and enterprise and high resolve."48
May God mend our every flaw. And may he give us the political and spiritual leadership to accomplish it.
