The Economic Forces of Leadership --- an essay

THE ECONOMIC FORCES OF LEADERSHIP

As we approach the November elections for President on our country, we have all been pretty much worn out with all the rhetoric, threats, promises, name calling, claims, blames; just deafening.  When I think of the billions of advertising monies invested in this venture when there is so much more dire need in our nation and our world, I simply shake my head in wonder and disdain.  But looking past all of that, I invested nearly an hour in a class in a class last evening drilling into the tectonic shifting of a nation’s Gross Domestic Product through the maturing evolutionary phases from Agriculture to Industry to Service.  These forces or immutable and much history supports the meandering nature of cutting a pathway many times, most times, unseen nor understood but still a new pathway is cut and cut deeply into the landscape of Man.

I have learned many things in my life but one of the key lessons concerning numbers used to tell a story is to never react to a number but seek to ascertain the validity of the number by view it from a historical evolutionary perspective.  In other words, what was the trajectory and velocity of events and forces that have led to that number. GDP is a great example of this belief.  If you want to understand GDP and its relativity, one must understand economic history for events are the chisel of carve out new architecture that is at times good and at others times horrific.

A solid principle of economics is that nations evolve as they mature from Agriculture to Industry to Service; the three components on the Gross Domestic Product.  Defining GDP is vital and the definition I use is that it is the value of all the goods and all the services produced in a given economy over a given period of time.  The equation that is used to calculate a country’s GDP is:  GDP = C + I + G + (X-M).  That would be the total dollar value of all Consumer spending, plus all Capital investment plus all Government Spending plus the difference in all Exports minus Imports. The US GDP sits today at about $15.4 trillion; the largest in the world with no close second.  In other words, America is still the largest, stronger economy on the face of the earth.

However, the context of my writing is that nations at their origination are powerfully driving, measured in GDP, by Agriculture.  As the factors of production are more effectively and efficiently used, Agriculture begins to produce more than the needs of the nation so there are more foods for sale. That is where exports originate.

As food becomes less of an economic drive and technology and need escalates, economies move into the Industry or Manufacturing economic phase meaning Making Things takes on a more and more influential element of GDP and thus, less of a percentage of GDP influence from Agriculture.   It is at this juncture, when Manufacturing triggers that terms like “Industrial Revolution” ignite as we saw in Europe that led to one in the US leading up and after the American Civil War.  More factories need more workers, more fuel, more food, more housing, more cars, more everything.  As technology of manufacturing improves and efficiencies are realized, cost of manufacturing becomes the primary driver for competitiveness.

A global economy where vast amounts of goods can be produced at the same or better quality but a much lower cost changes the geometry of the Manufacturing component of GDP rapidly and broadly.  To illustrate, much rhetoric in this campaign has been spent on peddling the story that nearly three million manufacturing jobs have been lost / stolen to / by the Chinese in the last fifteen years.  Makes for interesting sound bite but leaves me cold in believing for what is not talked about, as it should be, is the phenomenal number of American jobs created by foreign transplant auto, tire, auto parts manufacturers in the Southeastern United States.  The three million jobs that have left our nation left due to cost to produce in America being globally made a relic.  Then if you factor in the every thickening union rules in the Rust Belt that focus on poor performers thus inefficiencies, then the powerful forces of the global economy become a hammer pounding on the anvil of competitiveness.

The famous three million jobs were not stolen by China but were given away via too globally noncompetitive compensation costs and union-driven inefficiencies.  The three million jobs lost are not lost if they are redirected for the redirection takes us to the reality of the tectonic economic shifts from Manufacturing to Service. America, like West Europe’s economies have matured since WWII to Service and Information.  Our challenge is not to try and return to that “golden” era of 8,000 person steel and tire plants.  Our challenge should be and must be to invest in new technologies and fuels such as wind turbines and maximize our factors of production on those technologies of tomorrow, today.

It is my fundamental belief that there is not going backwards for a national economy for the march forward is always the drumbeat of civilizations.  None of you reading this wish to return to the farms of our grandparents nor to the factories of our parents.  There will always be a place for Agriculture and for Manufacturing as economies mature, a good thing. It is how the maturing economies embrace and utilize the capabilities of the Service and Information Age. We are just on the periphery of this age as China is on her periphery of her Industrial Age.  China has over a billion people still on farms in the western provinces of that vast land with over a million each day moving east to the manufacturing jobs along the Eastern coast of China. That should sound very familiar to use if we could talk with our grandparents and great grandparents that moved to Ohio, Pennsylvania for the factory jobs; the exact same thing China is experiencing today; and that is a great thing I believe.