What they say

Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School


USA in decline but all is not lost

The Accelerating decline of the USA as an Economic Superpower

Can leadership and skill reverse the trend?

Back in March I gave a key note at a conference on this subject. It raised a few eye brows. To most people, particularly those in the US, this has been an unthinkable concept. However, the scale of the US debt and the unfortunate manner of its interim respite has brought the US into sharp focus.

The US decline is not just about improving completion from the BRICS and others. But I will end on some notes of optimism. The similarities to other debt laden countries are uncomfortably similar; perhaps France with 85% debt to GDP is closest to the US with 65%. The key difference between the US and France compared to Greece is that there is no serious concern about solvency. But questions are being asked and the Chinese are now less happily in for the long haul with US debt.

The US will lose its place as the global Hyper Power (in fact, it probably lost its place as Hyper Power after 9/11) but also its place as the lead Superpower. Given that 100 years ago the United Kingdom was the world superpower, should the US worry, is this just the macro waxing and waning of the world economy? The UK’s decline was precipitated by WW1, costly enough in itself. The US decline is far more complex and has an uncertain end game and it may not have been helped economically by its heavy presence in military actions over the past decade.

So why will it cease to be the lead superpower?

-Militarily, in the international context it has been compromised at least since 1975 when the Vietnam War finally ended. It’s authority as a global citizen has been further weakened in the past 15 years by Iraq, Afghanistan and its very uncertain touch in matters such as the very recent Middle Eastern changes. The US was once seen as the cavalry – now it is viewed with far greater caution, suspicion or even fear.

-Politically, Obama has move a long way downhill since his promise of ‘yes we can’. His authority since the mid terms of 2010 has dissipated enormously. Worse that losing power in congress has been the weakening of the republican by the tea party that effectively derailed a more globally attractive debt package. The tea party may be a minority but their role in Washington in recent weeks is a major reason for the S&P downgrade. The rating agencies now view the US as unable to manage the difficult decisions due to political paralysis. The political structure, even the constitution, is also holding back the US, a presidential term of 4 years is too short.

-Confidence was once an abundant feature of the US but since 9/11 this has been shaky and with the more recent economic debacle this has taken an even bigger knock. The climate of ‘anything is achievable in the US has been severely tested by the reality that; ‘anything’ can also mean 9% unemployment and numerous other economic woes. The loss of confidence in banking and property has greatly undermined the US economic fabric.

-Competition from the European Union (in combination, a bigger economy than the US) and from old foes like Japan, Korea but more recently, and critically, China has meant that the seemingly natural pre-eminence of the US as an economic power is threatened. The European Aviation and Aerospace industry has as joined up entity across several large countries shown that the EU can be commercial threat to the US in large, advanced industries. The same applies to automotives

-Growth is driven too much by M&As than organic means. 70% of M&As fail to meet key objectives and yet investors are highly attracted to the risk. Without core organic growth the US will struggle to compete and trade its way out of the current situation.

-China, we all see that they will overtake the US in GDP terms having already taken the number two position ahead of Japan in 2010. China will most likely overtake the US within a decade and India will follow suit within the next 20 years after that making the US 3rd in the world rankings.

-The US is in poor economic shape. If the US was a business it would be underwater. Its deficit is running at $1.4trillion and its debt is ten times that and heading north. Debt is rising at >$2b per day. Think of the interest cost.

-China. It owns 40% of the US debt and supplies 30% of the US imports. Even China has cut its lending to the US expressing fears about the US’ ability to serve its obligations.

-Structural weakness. Wall Street is dragging down the international competitiveness of the US by its short termism and focus on revenue rather than value growth. Regulations, legal frameworks also reduce competitiveness.

-The US business culture is outmoded. It is sluggish, bound by an ‘entitlement culture’ and ineffective leadership mechanisms in corporations. Too few businesses see themselves in the context of the world markets. Its insularity is therefore at risk of starting to really damage it. 40 years ago it had the first signs that Japan would take a large slice of its automotive market but it has still not changed enough to take on the challenge.

-The talent coming out of US education system is now behind many emerging nations and this is proving a challenge to employers needing world class expertise. The US is 35th in the OECD world ranking for high school maths competence. Its immigration position is loading up the social security cost obligations more than it is providing value from skilled resources. Yes, its top graduates are world leading.

-Innovation, with a few notable exceptions is the US innovation strong enough to take on the new world players? I am sceptical. Whilst Wall Street’s demand for quick fixes comes into play the most innovative (risky) R&D products often get parked. 27 of the top global innovators are now businesses outside the US. This number rose by 15 in 2010 alone.

So what is the good news?

The US has the ability and the freedom to turn itself around. It has just not recognised the shape and scale of the issues and the significance of the crisis though the S&P rating has woken many up.

So what can the US do to turn around and climb back up towards a pre-eminent position? Or at least a position where it stays at the top table with a strong voice.

The structural issues are in the hands of Government and it will probably need more QE, some tax rises and of cost budget cuts – most conspicuously in defence.

Leadership is seen as the big driver of performance and I would suggest that this is the number one key to a high performance business and economy.

The US has some exceptional leaders and it has a lot of people who are seen as exceptional. The propulsion of leaders to the front is needed now and fast. In Washington a new political paradigm is needed – even if only for a few years.

Ultimately the US leaders of medium to large organisation need to be freed of short term goal pressure and the excessive processes, complex structures, poor accountability cultures and legislation.

The US needs to totally re-calibrate its leadership model in most medium to large businesses in order that the performance of people can be improved and therefore the organisations can be raised.

To move the culture requires total, white knuckle honesty and courage. Values have to be established, aligned throughout to the business goals and the markets in which the business trades. Culture change is often seen as a luxury and a soft exercise. The reality is that it is one of the hardest and yet most valuable things a company can do.

Leaders also need to appreciate that their employees really are the future of the organisation and invest in them, whatever the economic situation. If leaders treat all of their staff as leaders then business effectiveness will rise dramatically.

Organisational behaviours stem from leadership and culture. US organisations can be and need to be more outward looking and global thinking.

The US needs to establish an education channel to help management see their business in the global trading and finance grand scheme.

Training for commerce in an international context is needed in high school, not business school. The next generation of leaders and managers has a job on its hands to make the US competitive but if it imitates previous generations there will be no progress. The US should set up 500 business academies for high school graduates. Not universities and not for MBAs. This would establish higher education and international commercial skills.

Finally, more US businesses should look at financing away from Wall Street. Remote share holders have different motivations to those that the leaders need to have; long term investment and growth. Sure, Dow companies can point to this being the case too. But the pressure on leaders is so huge on the 12 week cycle that the required laser focus on long term goals is nearly impossible.

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