Investing And The Restructuring of Global Economies

The world is changing because it must change. When the unemployment rate hits 27 percent, as it now stands in Spain, something more is going on than just a business cycle.

Unemployment is also above 27 percent in Greece. In Italy, the unemployment rate is close to 12 percent. In France, the unemployment rate is above 10 percent. The employment problems in these countries are not just cyclical, they are structural.

The same for the United States. Although the unemployment rate in the United States is under 8 percent, the startling figure concerning the U.S. labor market is that the labor participation rate has dropped below 64 percent, a figure not reached since the latter part of the 1970s when women were not as big a part of the workforce as they are now.

These structural forces are causing divisions between countries as the world tries to recover from the Great Recession and more. Angela Merkel, German Chancellor, “highlights eurozone divisions.” The unemployment rate in Germany is 5.4 percent.

But, as we know, the utilization of capital in the western world tends to be lower now, for this stage in the business cycle, that at any other time in the past fifty years. Western countries are not only not using the human capital that is available; it is not using the physical capital it possesses. The competitiveness of the eurozone is an issue that comes up over and over again.

Phillip Stephens writes in the Financial Times about The New Deal for Europe: More Reform, Less Austerity. “High unemployment in Europe is not just a reflection of recession. It often mirrors ossified labor markets that lock out young people and discourage investment and innovation.”

But he also goes on to talk about the problem in the pension area. Additionally, there is the education and training shortfall. The infrastructure is not up-to-date. And, then there is always the problem in many areas of Europe of political corruption and unworkable governmental bureaucracies.

The problem for politicians is that these are long-run problems; they are not problems that are going to be achieved in the near future. And, that is where the austerity issue also comes into play. Almost everyone seems to believe that government deficits must come down. However, trying to bring the deficits down in the short-run can just exacerbate the problem. Most countries in Europe that have attempted to reduce their budget deficits have found that due to the slower growth that results their budget deficits have actually increased.

So many politicians act according to the quote attributed to John Maynard Keynes: “In the long run we are all dead.” To the politicians, if they focus on the long run, they fail to get re-elected. Thus, the time horizon for a politician is the next election.

But, this is where money comes into play. Politicians also need money to get re-elected and to live “the good life.” In some areas of Europe, getting money from constituents is just “business as usual.” So there are a lot of structural issues that must be dealt with and, in most cases, these issues do not have easy solutions.

These issues, however, will produce some kind of results — one way or another — because the world always moves into the future. Even the political corruption issues cannot continue to be ignored. For an insight into this issue check out the book review by Janet Maslin in the New York Times headlined, “Formatting a World With No Secrets,” which deals with the book “The New Digital Age.”

The important point is that these structural problems are going to have to be dealt with. Education and training are going to be done differently. How much can on-line courses help resolve the issue? Do we continue to need massive universities and public school systems to educate the masses? Are public and private pension systems on the verge of massive changes?

But, what about our financial system? If the commercial banking system of the United States, which at present provides about fifty percent of the credit to the US economy, becomes a smaller and smaller contributor, what is going to happen to the financial structure of the country?

What about the natural gas revolution that is taking place? How is this going to impact utilities, manufacturing firms, and the infrastructure? And, there are the changes taking place in the health system. The health system has constantly been a laggard in the use of information technology. This is changing rapidly and everything I read about this the “revolution” here is going to change how we are treated, how we benefit from the new associations being created in the health field, and, I am told, these changes are going to increase our ability to deal with sickness, old age, and quality of life.

The story can go on and on. This re-structuring is going to create a large number of investment opportunities. However, these opportunities are not going to be short-term opportunities. These opportunities are going to be of the longer-term type because they involve major changes in the way America, Europe, and the world, do business.

Editor’s Note: This is the first of a series addressing the implications of profound changes underway in both the domestic and global economies. Future business success will require entrepreneurs to foresee the impacts of these changes and steer their firms accordingly.

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