More of the same or a fundamental realignment?
All eyes lately are focused on the nearly $800-billion stimulus package and other short-term solutions to the economic downturn. In fact, it seems that every day brings a new bill or executive order aimed at quickly stabilizing the economy. As we struggle to keep it all straight, an important question occurs to me: Are we paying too much attention to the short-term fix and not enough to what the future holds for American business?
Don’t misunderstand me. It’s clear that we must take action to jolt this economy back to life. And that’s precisely what the stimulus package and other pieces of recent legislation are designed to do. But then what? Once stabilized, will we simply return to a cooler consumption-based economy reined in by greater oversight? Or going forward, will a fundamental realignment occur in the US that will redefine the means of producing future growth?
While nobody knows for certain what the future holds, I believe a fundamental change is coming. And while companies need to do today whatever it takes to ensure their survival, they must, at the same time, prepare to lock in their ability to seize tomorrow’s opportunities.
But where will those opportunities lie? I think the broad outline regarding infrastructure spending in the stimulus package provides a clue. The center of wealth creation in this country will no longer be exclusively Wall Street or even Silicon
Valley. That much is clear. Rather, the engines of growth are likely to be driven by jobs that discover, produce, and utilize alternative and other forms of clean energy; that are instrumental in reforming our healthcare system; and that get our education system back on track.
Our research indicates that many CEOs are moving away from a short-term mind-set to thinking about how to achieve and sustain long-term growth. While the way is not entirely clear, over 90 percent of the CEOs we surveyed see such growth residing in time-honored qualities that take years to build—qualities like talent, agility, reputation, and customer service. It seems that the old adage is true: The more things change, the more they remain the same.
While we need to think about the future, it’s also important not to forget the past. If we’re honest, we should all be chastened by what’s happening in the economy. Could the business and government communities have acted more prudently? I think so.
We should have been watching housing, commodity, and other asset prices more closely so that when bubbles started to form, policy could have been amended to respond. We could have demanded higher underwriting standards and, perhaps, kept a closer eye on both short- and long-term interest rates. There is much that could have been done to prevent the asset
bubble from growing to monstrous proportions before bursting with a powerful, negative impact.
A fundamental change is coming. And while companies need to do today whatever it takes to ensure their survival, they must, at the same time, prepare to lock in their ability to seize tomorrow’s opportunities.
But hindsight is, of course, easy, especially when there’s plenty of blame to go around. Some have said that a crisis is a terrible thing to waste. I prefer to take that advice and learn from this one. Looking forward, I see a number of areas where we can do better. They involve taking steps so that all stakeholders from financial institutions to investors understand the risks they face as clearly as possible; promoting stability with balanced prudential regulation aimed at assuring secure and reliable financial services but not hamstringing progress; refining fair value accounting, which works well in principle but would benefit from fine-tuning in practice; strengthening underwriting standards to prudently manage asset securitization; and establishing something like an asset price index to monitor and manage excessive volatility.
Will taking these steps guarantee that a financial crisis will never again occur? Of course not. Boom and bust cycles are a part of economic reality, and no doubt we will see both again.
The difference, though, is this: The depth and breadth of the current recession took us by surprise, and we are responding with uncertainty rather than confidence. The steps I’ve outlined won’t rescue us from fundamental change. But the next time an economic cycle presents us with that possibility, we’ll be better prepared to meet the challenge head-on.
And that’s my view.
Dennis Nally is chairman and senior partner of PwC.