Uncle Sam Meets Chicken Little?

Jim Cortada, Insititue for Business Value, IBM Business Consulting Services

 

Look out ahead! There's a speed bump on the road to prosperity... While governments around the world are implementing numerous initiatives to make their economies competitive in a global market, there are some flashing yellow lights: 

 

ð        Increasing social commitments.  In the developed world, falling birthrates are coupling with aging populations to rapidly shrink the workforce.  As the ratio of retirees to working citizens rises, governments will be harder pressed to support their retirees.  By 2010, the OECD predicts for its member nations, the cost of social commitments will exceed the revenue for them.

ð        Inability to raise sufficient revenue.  According to the European Policy Center, the cost of caring for retirees in Member States will grow 3-7% per year in the coming decades – while GDP growth in these states has averaged 2% per year.  Growth rates, then, would have to triple or quadruple to meet this burden.

ð        Variable, competing funding priorities.  Even with superb planning, it is difficult to foresee all possible contingencies and their costs.  Before 9/11, who in the U.S. would have envisioned the need for homeland security as it exists now – with its $550-600 billion annual cost?  These unplanned expenses can crowd out investment in infrastructure and R&D needed to ignite economic growth.

ð        Rising globalization.  With international competition for jobs, capital, services, and goods, governments are less able to act independently or monopolistically within their borders.  They’re obliged to take steps – often expensive ones – to increase their attractiveness.

 

So why a blog on these issues?

 

If governments fail to respond appropriately and with due speed to these real and inescapable threats, they risk fiscal instability, the loss of national competitiveness, and, ultimately, a drastic decline in living standards.  Nations accustomed to prosperity and built upon it could find themselves facing social unrest.

 

But we're not here to focus on doom and gloom, our aim is to generate some awareness and discussion around these issues.  This blog isn't meant to be a discourse on how the current demographic dynamics are warping the workforce in the public sector, but rather a forum for contributing experts who are approaching these issues from different perspectives.  We hope to build out this group blog to include insights from people concerned about the looming perils in the public sector and to tee up issues for debate and discussion on what is possible.  We'll also branch out on occasion to discuss how the maturing workforce is impacting other industries and countries.

 

And of course, we'll include the latest news and trends we see out in the world and give our take on what is real, what is hype and what we should be thinking about as we move forward. It is our firm belief that the if the sky really is falling, there's no time like NOW to hoist it back up on the pillars of innovative and creative thinking.

 

Please join us -- we are happy to host guest bloggers on our site to tee up issues for discussion, and if you'd like to be a regular blogger on this site, we welcome that too. As new members join they will post a bit about their background and dive right into the discussion. If you'd like to participate, just start commenting. If you'd like to become a regular or guest, drop us a line here. 

 

Comments

[David LeBlanc]

In the story of Chicken Little, the sky really wasn't falling. But, in this story, it's not Chicken Little we need to focus on, it's Uncle Sam. The US government has turned into a giant turkey, gobble-gobbling up all of society's resources, and wasting them on the Donkey's and Elephant's favorite boondoggles. It scares me that so many comments are made here about government holding the answers. Until all Americans wake up and realize that the government IS the problem, our economy will not improve. Businesses will have to leverage any political power they have to force the policy changes that they need. All Americans need to get educated and work to change American foreign policy; to find alternatives to oil; to get the government out of our education system, our healthcare system, and the insurance business; force an end the War on Terror and the War on Drugs, etc.; force the government to protect our borders; and force a repeal of the 16th amendment. A smaller federal government would not need income taxes, and that would give us all the R&D money we could imagine. Without IRS rules, businesses could retain older workers however and whenever they want... retirement would be a moot point. How's that for creative & innovative thinking!

[Jim Cortada]

Not sure if everyone saw this new piece from the Conference Board. Looks like others are beginning to realize the obvious-- we have some issues with the aging work force. I really like their spin that this is an opportunity for companies. What's so important is that here we have a really conservative organization getting it, instead of ignoring the issue. And there's a number of major companies (working group members include: BP America, Ernst & Young LLP, Ford Motor Company, JP Morgan Chase, Shell International, and IBM) that are helping them to get it.

I think the report is spot-on with its general tone and suggestions. But I wish it had a little more "bam" to it because we are getting close to a real mess without time to fix things. We need to light a fire under a lot of people's chairs. Anyway, have a read here is the url. http://www.conference-board.org/utilities/pressDetail.cfm?press_ID=2709

[Jim Cortada]

Chris, you haven't even seen the half of it. In addition to cutting R&D budgets, which is like eating your seed corn, we have the other problem of making it tough for college educated engineers, scientists, students, and other creative people to come and go as they need to, especially right now in the U.S. More senior folks looking to do creative things in a post-retirement period are getting frustrated. How does that link to R&D? Well they need financial support to continue doing this work.
Case in point, my friend Al Chandler, considered the father of business history, Harvard professor, Pulitzer Prize, the whole borrito, is 86 years old. He published two books this year, and one book year before last, and is writing another now. We have people in their 30s and 40s in his university that are not that productive. Folks like that should have R&D funds handed to them in buckets because you know they are going to spend it wisely.
But the real idea here is why not take some R&D funds and aim them at retired experts, giving them really tough scientific, engineering, and social problems to solve? Let's make them adjuncts to think tanks, universities, and government agencies and then get out of their way so that they can do their magic. Since part of their living expenses are already covered by their pensions, the additional salary cost would only be incremental and then you simply spend on lab fees, travel, supplies, and perhaps some young research assistants.

[Chris Steel]

It seems Economics is key here...and knowing which of your workers will generate the ideas of the future to generate economic wealth. Vinton Cerf, co-founder of the Internet and chairman of the board for the Internet Corporation for Assigned Names and Numbers (ICANN)wrote an interesting op ed in the WSJ yesterday. He said in real terms, the total federal R&D portfolio could decline for the first time since 1996 if the recommendations in the president's FY 2006 budget proposal survive budget season in Washington. It's a bit like a baseball team not having kids teams to develop future stars... whats the gameplan to keep the R&D team in shape?

[Jim Cortada]

Ian, economics is always an issue. To the degree an economy and its society is open to innovation and talent, new generations of workers, and even older ones like mine, create new sources of wealth and enterprise. The economic/social key is keeping things open enough to attract innovation and new forms of wealth, work, and meaningful activities.

[Ian Colley]

Interesting stuff. I wonder, also, to what extent this is an economic growth issue. You hear a lot about the baby boom generation as the generation that drove all kinds of economic growth over the last 30 years, tremendous increases in GDP, and all the residual impact on growth in capital markets, real estate markets, etc. We're starting to see the phrophets of doom predict busts in some of these markets, perhaps precipitated by this huge demographic shift and changing behaviour that occurs as a result. If there's truth to any of that, I'm wondering how prepared we (the royal we) are to drive new forms of economic growth, based on new kinds of public/private partnerships, new skills networks, globally integrated operations that leverage the inverse trend in emerging markets.