President Obama, fix the economy

by Michael Granger

The thought that the President is the economist-in-chief who can fix the economy is at once a misnomer and a distinct reality. The President can surround himself with the brain trust of industrial genius that it will take to develop the vision for the economy of the future and he can determine how the government can support that vision. His best decision was to include Jeff Immelt of General Electric on his council of economic advisors.

The GE Chairman did more to deserve the honor than anyone else by his recent statement that the United States should be an export oriented economy with a manufacturing sector comprising at least 20 percent of GNP. What a novel idea in today’s China centric corporate setting that thinks we have lost our manufacturing mojo. And this is precisely the statement of industrial vision that needs to be articulated by the President.

What Immelt did was to follow the maxim: How we define ourselves determines how we assert ourselves. The President’s job is to help the nation articulate who we really are and to help define the way forward for an economy that is at present moribund. He must break us out of the current paradigm that only the large companies in the economy can rescue us, and that Jamie Dimon of JP Morgan Chase and Lloyd Blankfein of Goldman Sachs will save us, while we pay only lip service to the job creation of small businesses and the innovative sector of our economy.

Big companies do not create jobs

Large companies excel at building and operating large complex systems, like a telecommunication network or complex manufacturing processes requiring a global network of suppliers such as airplane and auto manufacturing. However, in a recessionary economy large companies downsize, they don’t create jobs or innovate. On the other hand, small companies are the best innovators and they tend to grow during a recession, benefiting from outsourcing and the availability of talent shed by large companies. But in a tight credit market, fledgling companies are less likely to be able to access credit and have a greater need for equity.

That equity has all but dried up. According to Dow Jones LBO Wire and Private Equity Analyst, private equity has plummeted 64% to $55 billion in the first half of 2009 compared to $153 billion in the same period in 2008. This is the capital that would have gone to cash strapped, high growth companies that create the jobs in the economy.

For more than the past three decades, fueled by venture capital, trillions of dollars of wealth and immeasurable productivity increases have been created by the emerging segment of the economy. The United States has exclusive domain using the nexus of entrepreneurial talent and technological innovation to create new industries and wealth. Yet all the remedies for recovery have either excluded or placed an infinitesimal amount of resources into venture capital. This has happened in large part because entrepreneurs spend very little time in Washington advocating for their cause, which is our collective cause.

Entrepreneurs are the millions of Americans from all walks of life who utilize the individual freedoms enshrined in our constitution to reinvent the economy, largely without any direct capital and contract assistance from the government. In building their companies, the only help entrepreneurs have sought is that of the venture capital industry, which has been instrumental in financing their dreams. The Congress passed two unprecedented pieces of legislation, the Stimulus and the Investment and Recovery Act (TARP), collectively allocating $7 trillion, with only $15 billion of SBA funding allocated to small businesses.

Meanwhile the pressure is building in the economy with 6.5 million jobs lost in the recession, a 9.5 percent unemployment rate and unemployed executives and workers with no place to go. In a rationally devised economic recovery plan, where would these millions of unemployed people go?

Where might the unemployed go?

They would work for emerging companies that are funded by the billions in TARP money that should be allocated to venture capital and private equity. The President’s council of economic advisors should not be a council of old cronies who understand very little about the economy of the future and are only there because they have the juice to get the appointments. To begin with, the majority of them should be under 50 years old (which excludes me) and they don’t even have to be high profile. In fact, being high profile should in most cases disqualify them for lack of time spent in the trenches.

As a Marine, I know all too well that in a crisis you want the best people to do the job, not the most popular. And whoever they are, they should be charged with placing on the President’s desk an industrial policy recommendation with input for every segment of the economy, geographic, industry, urban v. rural. And it had better include a plan for deploying over $100 billion dollars of venture capital to be widely distributed into the private, entrepreneurial economy as well as tax incentives, say a reduction in the capital gains tax rate, to free up the more than $1 trillion in capital sitting on the sidelines. We should dare to ignite an economic renaissance with our own industrial strokes of genius. On the tax issue, we cannot allow class warfare politics to get in the way of our economic future.

This President seems to have an inordinate ability to grasp and work with complexity. I implore those in leadership positions to give him the tools to rebuild our economy. We can start with a new industrial policy and the means to implement it.

About Radnor Reports

Ken Feltman is past-president of the International Association of Political Consultants and the American League of Lobbyists. He is retired chairman of Radnor Inc., an international political consulting and government relations firm in Washington, D.C. Know as a coalition builder, he has participated in election campaigns and legislative efforts in the United States and several other countries.
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