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The Economic Edge Game

US President Barack Obama has latched on to a campaign to renew America as the cornerstone of the second half of his current term in office — and perhaps it represents the springboard for his reelection campaign.

But will businesses, including those in the high-tech sector, agree with his clarion call for increased hiring and investment in the country? US companies, according to Obama, are sitting on about $2 trillion in cash and short-term investments, which they could be pouring into the economy through capital expenditure, R&D, and other product innovation and manufacturing initiatives.

“Now is the time to invest in America,” the president said in a speech to the US Chamber of Commerce in Washington on Tuesday. “Many of you have told me that you are waiting for demand to rise before you get off the sidelines and expand, and that with millions of Americans out of work, demand has risen more slowly than any of us would like. But many of your own economists and salespeople are now forecasting a healthy increase in demand. So I want to encourage you to get in the game.”

Will companies “get in the game” and increase hiring? I think they'll do what they believe is in the best interests of their shareholders, and this may not necessarily be what Obama is looking for. Perhaps the more relevant question is: What will it take for American companies to spend some of the money they have on their balance sheet on new jobs? Please let me know.

Economists generally agree that the US economy needs a lot more than the fiscal boost and regulatory easing it received in the dying days of the George Bush administration and in Obama's first year in office. The unemployment rate remains stubbornly high at more than 9 percent, and the economic growth rate is still anemic and well below the job creation and replacement level needed to pull more people into gainful employment.

So, Obama has been doing a lot of talking to parties he believes can help energize the economy. After a rocky start to his relationship with the business community, he has been courting employers and their representative associations. He has also been insisting that America focus on certain industries to distinguish itself in the global economy. It's pointless, it seems, to try to compete against China — why bother producing toothpicks when we can be more productive in selling it aircraft engines?

I agree that American and Western companies should identify and focus on areas where they can add value in the global economy. However, I also believe that several fundamental issues have forever changed the dynamics of global commerce to the point where it has become too simplistic to talk about national rivalry. Today, it's one business versus another, one supply chain versus another, and one product versus another.

Many of the biggest companies we track in the electronics industry, for instance, may have headquarters in the West but generate a substantial portion of their sales and income in the same countries Obama sees as the US's economic rival. For these companies, including big-name businesses such as Apple, Cisco Systems, GE, Intel, and Vishay Intertechnology, the idea of a national border has long faded. Executives scour the globe for not only sales but also ideas, skilled employees, and competitive differentiation. The concept of a “home” base for most of these companies is as archaic as when almost every nation had to have a “national airline.”

This doesn't mean national and business leaders do not need to champion the economic causes of their nations. After all, Obama was elected to head the United States, not the United Nations. In his speech, the president told corporate executives: “Even as we make America the best place on earth to do business, businesses also have a responsibility to America.”

We'll find out soon enough whether the national and business interests have a clear meeting point and how well Obama has made his case.

8 comments on “The Economic Edge Game

  1. Barbara Jorgensen
    February 8, 2011

    The bad news is that companies have gotten used to doing more with less, so established organizations may not be so quick to hire. It's start-ups and new businesses that fueled the growth of the late 1990s.

    I'm not saying we should repeat that business model, but late-stage capital investment isn't a bad idea. And we shouldn't just cede some things to China–yes, they are investing a bundle in green technology but we are more dependent on fossil fuels. It's in our best interest to leapfrog green technology if possible.

     Any improvement in a smarter grid has an upside. And, if the government can freeze pay and/or spending as promised, companies and individuals alike may be more inclined to open their wallets. It's time the government leads by example.

  2. eemom
    February 8, 2011

    Barbara,

    I totally agree.  So many companies do not see a reason to add employees because for the past two years they have done more with less.  I listened to the President's State of the Union address and it did focus on investing in people, technology and the future.  If the government leads by example, maybe companies will follow suite.  Companies need to feel more confident in the rebounding economy before they can start Capital investment which in turn is critical for the rebounding economy.  So as Bolaji said, what will make American companies feel comfortable with spending some of the Capital they are hoarding??  I have wondered that very question for sometime now.

  3. Anand
    February 9, 2011

    Nice article Bolaji. But I found one point  missing here.

    Its the effort by the Obama administration to create jobs for americans by increasing the trade between US and developing nations. I belive the prosperity and the growth of the BRIC nation is inturn helping US to sell its advanced technology to these nations. Infact this was the main agenda of the Obama when he visited India last year.

    http://www.rediff.com/business/report/obama-visit-india-trip-has-created-thousands-of-jobs/20101107.htm

     

  4. bolaji ojo
    February 9, 2011

    Anandvy, Correct. The US has a multi-pronged strategy with regard to employment creation. It's investing in green technology as Barbara pointed out and working on resolving tax issues that some companies say hamper growth. It is also, as you noted, moving to improve export to developing nations. Obama said he would like to double US export in 5 years or so. All of these hinge on corporate investment, however. This is one situation where even the richest nation in the world can use some help.

  5. Parser
    February 9, 2011

    I am surprised that this topic does not generate wave of heated discussions.

    Why Obama was elected to head United States in the main sense and he also has to lead the United Nations in business sense where national borders have faded. The main issue for the U.S.A. remains employment. This can be improved by increasing production and services done here not abroad. Traditionally the government invested in the communication infrastructure, schools and sciences. After all many things (internet, GPS …) have proliferated to private sectors with various new business. One could say it is a trickle down economy, but not from millionaires. But what really can Obama or government do?

  6. bolaji ojo
    February 9, 2011

    Parser, The employment challenge faced by the US isn't going away anytime soon, too. Ben Bernanke, the chairman of the Federal Reserve Bank, said in a presentation before Congress today hiring will not rise for years to the level required to make a serious dent on the unemployment rate. Businesses will modestly hire in the quarters ahead but they are being very cautious to avoid getting burned.

    This issue should be a global concern. The US economy is by far the world's biggest and this is unlikely to change for at least a decade or more. This means the entire world cannot really grow at the optimal pace without its biggest component and its biggest consumer region. Let's hope the US gets it right eventually.

  7. Anna Young
    February 9, 2011

    I agree with everyone’s comments so far. I equally understand the need for the government to encourage businesses and High tech industries to spend more, to ease the high unemployment and encourage growth. President Obama has taken the right step forward now, however, the administration needs to do more

    The only clear language high tech industry and businesses alike would understand at this present time is tax relief. As you rightly mentioned Bolaji that Businesses will do what’s in the best interest of their shareholders – in effect profitability.

    For businesses and high tech industries to spend, in order to energize the economy and increase employment globally, I think the government ought to look closely into resolving tax related issues.

  8. Mr. Roques
    February 13, 2011

    I think companies are trapped in a chicken or the egg dilemma. They have savings but don't want to invest because they see demand is low… but maybe by creating new products, better R&D, etc, they could jump-start it.

    Companies like Apple are still posting huge numbers, why can't other companies do it as well?

    @Anna, I like your tax relief idea, it will definitely help companies invest more. Obama has to crunch the numbers and figure out the right incentive, so that the end result is positive (for companies, but also for the USofA as a whole).

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