A relative recently sent me the following summary of the 2011 US budget to help me understand the situation. I cannot vouch for the veracity of the numbers but whether they are 100% correct or not doesn’t really matter. They give a very simple picture of the situation and also illustrate why it is a problem, wherever in the world you are.
US Income: $2,170,000,000,000
Federal Budget: $3,820,000,000,000
New Debt: $1,650,000,000,000
National Debt: $14,271,000,000,000
Recent budget cuts: $38,500,000,000
All the zeroes are overwhelming so let’s remove 8 zeroes and pretend it is your household budget.
Total annual income: $21,700
Amount of new debt: $16,500 ($38,200 minus $21,700)
Total debt: $142,710
Proposed expenditure reductions: $385
In other words the budget cuts proposed by the US congress are the equivalent to you reducing your expenditure by £385 in the face of a deficit of $16,500 and a debt increasing to $142,710. Hardly a sane solution, you will agree, and one that clearly lays up problems for the future.
The problem is that the entire western world is in a similar situation. This is serious because you stimulate an economy by stimulating growth, and historically we have done this through increased borrowing – something which is clearly no longer a viable option. However, it is even worse than that because repaying past borrowings has to come out of current income. This means reducing expenditure on other things, including things that we have come to take for granted.
The fact is that we have fuelled our past growth by unsustainable borrowing. This means we are not as prosperous as we like to think we are. Of course this has serious implications but the real tragedy of this is that we are not facing the truth. Expecting things to return to “normal” anytime soon is a fool’s dream. Yet we continue to live in that hope.
Neither the press nor our political leaders are being open with us and telling us how it really is. In the US the Republican refusal to tolerate additional taxes seems to be a denial of Canute-like proportions, while here in the UK our coalition government is doing its best to reduce spending and introduce “austerity” measures but is facing a tremendous backlash. The threat of industrial action is a result of a failure to communicate more openly and effectively. Yet, while softening us up for a prolonged struggle, they continue to focus on whether or not we will have a “double-dip recession” when the reality is that we are facing a significant decline in our standard of living. How can it be otherwise when you are spending your current income paying off your past debts?
The galling thing about all this is that, in this failure to face up to facts, we are delaying the development of new solutions.
The fact of the matter is that we have become too inured to thinking it is government’s responsibility to lead us out of these difficulties. Yet government is financed either by taxing the people or borrowing. As it cannot borrow, this only leaves raising taxes – a gloomy prospect in the face of a shrinking economy and declining incomes. Thus it is up to us as businesspeople to provide leadership and develop the solutions.
And the first solution is to call a halt to the pattern of redundancy that is default solution in a shrinking market. This is imperative as redundancy perpetuates the cycle of decline. Making people redundant is a double whammy because it causes the market to shrink further and compounds the situation while at the same time transferring the costs of unemployment to society.
Of course as a business leader you can argue that it is your responsibility to do the best for your business and that entails laying people off. However, if you look at the bigger picture you can see that this argument is based on self-interest and is not actually for the greater good. It calls upon a minority to pay the price for the rest and – even if you feel you can justify it on the grounds of eliminating your least productive employees – you know that it has a long-term price, both on the morale of the remaining employees and on the business itself. Furthermore, in the economic environment we currently face, where you cannot rely on someone else to be creating new opportunities, you are jeopardising the future even more.
That is why I recommend that you look at people as human assets; assessing their value to the organisation (rather than just viewing them as a cost) and building on that to create the employee ownership and hence the employee engagement that offers us all a brighter future: you, your business and the economy as a whole.