Estimated read time: 4-5 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
SALT LAKE CITY — During the next several weeks the Republican and Democratic parties will hold their state organizing conventions. As citizens prepare to convene and shape leadership and policy, challenges faced should be noted.
For the purposes of this business column, the interaction between policy and the broader economy will be central. Recent studies are illuminating a greater understanding of how questions surrounding policy continue to harm the U.S. economy.
Much recognition is given to the interconnected nature of today's global economy. While this is indeed true, not as much attention is given to the increasing interconnectedness of politics, economies and businesses. Presently and unfortunately, the nature of this relationship is less than ideal.
Risks to Growth
Organizations, both public and private, continue to speak out about the dampening effect policy uncertainty continues to have on the U.S. economy. Furthermore, in survey after survey executives of firms large and small continue to cite political risk as a major challenge to growth.
In survey after survey executives of firms large and small continue to cite political risk as a major challenge to growth.
In a recent survey conducted by McKinsey & Company, 58% of North American executives cited domestic political conflicts as the number one risk to growth. Similarly, 40% of respondents believe insufficient government-policy support is the greatest risk to growth. Both concerns ranked first and second, respectively as the most often cited risks to growth.
While much U.S. media criticism and analysis over the last few years focused on the dysfunctional relationship between the executive and legislative branches, policy uncertainty is not exclusive to the United States. In fact globally, domestic political conflicts rank as the second largest concern of business executives in their respective countries according to the same survey.
Global Concerns
Why are business leaders worldwide so concerned about policy? Business leaders are facing a challenging environment where the world's largest economic zones are all experiencing issues that must be resolved by policymakers. In the U.S., unsustainable fiscal policy is not only problematic over the long-run, but has lead to the formation of a series of mini "crises" such as 2011's debt ceiling debacle and the fiscal cliff. Meanwhile, China's economy must undertake reforms to become more consumer oriented and growth is slowing. Europe's debt crisis continues while an incomplete union struggles to deal with diverging interests and how to maintain stability in its large financial system - all in the context of slow or negative growth.
Business leaders are watching powerful interests in each of these geographic regions fight to maintain the status quo. However, the status quo cannot be maintained forever, which creates questions about what comes next and when. Due to the magnitude of issues being dealt with in the world's three largest economic zones, these challenges to growth cannot be ignored.
Uncertainty
Today's world is an inherently more volatile environment for businesses to operate in.
Research done by a group of Stanford and University of Chicago professors shows U.S. policy uncertainty was 50% higher during the last two years than its average since 1985 (can be viewed at policyuncertainty.com). Furthermore Federal Reserve officials, including Chairman Bernanke, continue to call on America's policymakers to enact responsible fiscal policy. Just last week Dallas Fed President, Richard Fisher, publicly stated his belief that fiscal policy and uncertainty are primarily responsible for the subdued nature of economic growth in the U.S.
It is also important to contemplate the consequences of having the world's most powerful economies preoccupied with problems at home. International challenges are more difficult to manage without focused and capable leadership. In essence, today's world is an inherently more volatile environment for businesses to operate in.
Credible Policies
Ultimately for uncertainty to abate, definitive and credible policies that will shape medium-term expectations must be implemented. So, the question is, when will the level of unknowns begin to recede? To be sure, nobody knows the exact answer to that question.
However, it is safe to say that uncertainty and the enhanced role of policymakers in economic performance will be maintained through the short-term and in many ways, medium-term. In the mean time, businesses with trillions of dollars in cash (collectively) will hold back on large investments and hiring. This is due to the fact that in an uncertain environment, revenue is less predictable; so, companies control what they can: costs. As a result, economic growth will be slower and more vulnerable than it would be otherwise.
Accountability
Beyond looking for representation that perfectly mirrors individual beliefs, perhaps it's time to make the ability to work with others in achieving a preferred agenda part of the analysis of leaders.
At this point, you might be asking, what does all this have to do with politics in the state of Utah? The answer to that question is simple: it's time to make effectiveness a part of the political conversation, because the time for action is now.
In the state of Utah, particularly on one end of the ideological spectrum, it can be easy to find those who might agree or hold similar political views to one's own. However, beyond looking for representation that perfectly mirrors individual beliefs, perhaps it's time to make the ability to work with others in achieving a preferred agenda part of the analysis of leaders. The cost of policy paralysis is too high and unnecessary.
In the private sector, you can't say that something didn't get done because you disagreed with a coworker on an approach to solve a problem. Perhaps it's time to hold public officials to the same standard. Leaders should be held to account on how effective they are in getting things done that we wish to see done, not just how much they agree with us.
