Rooted in Reason: Nurturing the Seeds of Liberty

USA: The Corporation by grassroothawaii
February 25, 2011, 11:20 am
Filed under: Economy | Tags: ,

by Frances Nuar

Imagine if the United States was run like a corporation. Imagine if actual economic theory was put into place and practiced as opposed to partisan political agendas swaying the country back and forth like a giant game of tug-of-war. Politicians promise so much while campaigning (and let’s face it, on a two or four year track, they are always campaigning), they always come in and blame the previous administration for the mess they are in, all the while trying to get re-elected, so making even more promises. Economic cycles don’t translate into two and four year cycles–economic policy must be long term; politics is often very short-sighted. No corporation could run successfully with the “business plan” of our state and federal governments–it would fail miserably. Which is why it’s time our government adopted sound economic policy to get our country on track, not popular political campaign slogans. “Yes we can” is a catchy slogan–but it doesn’t mean the job is getting done.

What will get the job done? Mary Meeker, a partner at Kleiner Perkins Caufield & Byers, conducts a fascinating, in-depth analysis of “USA Inc” and finds: “First, USA Inc. has serious financial challenges. Second, its problems are fixable. Third, clear communication with citizen-shareholders is essential. If the American people embrace the need for bold action, their political leaders should find the courage to do what’s right.”

I highly recommend reading her article in depth. Some snippets:

  • By our rough estimate, USA Inc. has a net worth of negative $44 trillion. That comes to $143,000 per capita. Negative.
  • Medicare and Medicaid are the crushers for USA Inc. Excluding them and one-time charges, the “core business” shows a median net profit margin of 4 percent over the past 15 years. USA Inc.’s core operations were in surplus nine of those years. In the early years of the Republic, the only entitlements were military pensions. The big change came with the 1930s and World War II, when the federal government substantially expanded its role in the economy (in effect, its “business lines”).
  • Entitlements experienced a surge in the Great Society of the 1960s. Since 1965, the nation’s gross domestic product has increased about 2.7 times over, but entitlement expenses have increased 11.1 times over. What do Americans have to show for it? Evidence suggests that when the government provides, families do less for themselves: There is an 82 percent correlation between rising entitlement spending and falling personal savings rates. With the aging of my baby boom generation, things will get even worse.
  • Social welfare spending and future-oriented spending are often presented as rival options. In the long run, they aren’t. One of the best ways to ensure that the U.S. has the wherewithal to support its poor and elderly shareholders in the future is to invest now in R&D, infrastructure, and educational support. Such investments should enable USA Inc. to compete better with China Inc., Korea Inc., and India Inc., all of whom would love to eat our lunch. From 2000 to 2010, China’s GDP per capita rose 216 percent (based on the yuan’s actual buying power rather than exchange rates). India’s per capita output increased 117 percent; America’s, just 34 percent.
  • The huge sums that the federal government lays out for Medicare and Medicaid would be easier to stomach if people believed the money was well spent; the evidence is that it’s not.
  • There’s a lot that can be done to make USA Inc. operate like a well-run business. A corporate turnaround specialist would quickly hire an independent firm to conduct an audit of each business line. Is each line operating at maximum efficiency? Where should we invest and where should we scale back? Are good performance metrics and financial controls in place? Can more processes be automated and optimized? Should some assets be sold? Why not hire a compensation consultant to see whether federal workers are overpaid vs. private-sector counterparts? Why not pay bonuses to federal employees who meet deficit reduction goals? Why not give the President the line item veto, allowing him or her to carve the pork out of otherwise worthy legislation?
  • USA Inc. has a spending problem, not a revenue problem.

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