It seems like just a short time ago, we were bemoaning outsourcing, and now, manufacturing seems to be booming. The weakened dollar and improving domestic economy are finally driving Wisconsin’s manufacturers.
From a point where all companies needed to consider outsourcing to survive, we are now at a point where companies need to examine whether outsourcing makes sense. China’s Yuan may be tied to the dollar, but the Chinese raw material stream, transportation and insurance are not.
Will the recovery continue? That is a question many are asking, since there are indicators that still show a fragile economy. Unfortunately, no one can predict the future with certainty but there are issues that need to be examined.
The topics driving the uncertainty at this point are the dollar, energy costs and health care.
The weakness in the dollar should be no surprise. The deficit has gotten so large, and pork barrel spending continues to such an extent that even John McLaughlin and Pat Buchanan in a recent edition of The McLaughlin Group bemoaned the lack of any deficit hawks in Congress.
Our large consumer debt and trade deficit are also looming large in this equation. If we were judged in financial markets the way other countries are, our currency would be tanking. No wonder many countries think the United States is hypocritical, since we preach fiscal restraint and responsibility but practice something else.
The only thing propping our currency up is the willingness of our trading partners to buy U.S. debt, e.g. China, Saudi Arabia, Russia and other Middle Eastern oil producers.
There are some strong allies of the United States buying treasuries like Japan, but the list above should give us some pause. Our financial irresponsibility is playing into the hands of nations who have not been our biggest fans.
A cheap dollar, of course, will be good for business to a certain extent, but a rapidly falling dollar will mean rampant inflation, rising interest rates and commodity prices. So as long as countries are willing to shoulder our debt, the dollar will be OK. When we look at our ever-declining image in the Middle East and the rest of the world, our politicians should be worried.
The question is why isn’t anyone holding our representatives in Washington to task over our fiscal policies? Is gay marriage really that important of an issue that we are willing to give a blank check to anyone who opposes it?
Company strategy at this point should be clear. To realize that the dollar will have a long-term trend downward means that outsourcing decisions need to be made with a lot of analysis and expert guidance.
Companies also need to explore export opportunities to take full advantage of a weak dollar. Exports will be good for the country.
Energy is another issue of concern. Oil prices are declining now, but the long-term trend is going to be up. China and India are growing rapidly, and as they grow, their energy and oil consumption will rise.
In this environment, the future will belong to the energy efficient and to those who develop alternatives to oil.
The Europeans and Japanese are ahead of us in this arena. If we would slowly increase taxes on oil, we would not only drive some conservation into the marketplace, but also help with the deficit.
If we would switch over to diesel engines, we could save 30 percent on the energy of gasoline engines. Neither of these things will happen, with th Republicans fighting the tax and Democrats fighting the diesel engines. So companies will have to make conservation a priority, and those companies in alternative energy such as wind, solar, etc., will prosper.
Health care cost is an anchor on business that continues to get heavier and heavier. Most our trading partners have single-payer systems paid for by value-added taxes, so foreign competitors essentially enter world markets unfettered by health care costs.
Also, world health care statistics rank the U.S. health care somewhere below 30th in the world, even though we have the best-trained physicians and the latest technology.
Insurance companies are not doing us any favors. However, the biggest problem is the rapidly escalating cost of health care. We are by far the most expensive health care system in the world, with very mediocre results.
The switch to allowing more of the burden shift to workers through health savings accounts just means fewer people will be able to afford the steeply rising costs. If very large companies don’t have enough clout to curtail the health care providers and insurance companies from raising prices at will, I don’t see how the consumer will.
More and more people will drop out of the game, and our health care statistics will just get worse.
Nothing is going to contain cost in health care in the coming years, given the unwillingness of Republicans to challenge health care providers and insurance companies and of Democrats to challenge trial lawyers.
Companies will be forced to reduce coverage and shift costs to their workers, in order to survive. As they do so, business groups must make medical care cost containment a major priority. Business groups need to lobby government to bring back certificates of need and diagnostic related groups and/or insist on other cost-containment practices in the industry.
Market forces have never driven the health care industry, and business leaders and government need to accept that fact. Free markets are powerful tools but not all powerful.
There is a lot of uncertainty facing us, and there are many forces in play that could put the brakes on our rising economy. Even though many business leaders are running hard to keep up with current demand, resources need to be aimed at the future. Taking actions now will smooth the ride when the next downturn comes.
Companies that take some time to understand their outsourcing (maybe even bring work back) and export opportunities, companies that become energy efficient and companies that help force cost containment into health care will be stronger competitors when times get tough.
Joseph C. Geck, a principal at Accelerated Solutions International in Waukesha, contributes economic essays to Small Business Times.
January 21, 2005, Small Business Times, Milwaukee, WI
