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UCI's Policano: Make Detroit our new China
Dean of Merage School of Business offers a stunning prediction, novel approach to save the nation.
By Tina BorgattaPublished: January 22, 2010 01:15 PM
The federal government could go bankrupt either in our lifetime or our children’s lifetime, if the U.S. simply pays the obligations it has right now. Operating at the current pace, the country’s financial future is unsustainable – which means a novel approach to the current crisis is essential.
One idea: Make Detroit our new China.
That stunning prediction – and creative solution – was delivered by Andrew Policano, dean of UCI’s Paul Merage School of Business, to some 500 local professionals who attended the 25th annual Business Outlook breakfast, sponsored by the Irvine Chamber of Commerce on Friday.
On a local level, David Crane, the governor’s special advisor for jobs and economic growth, spoke on the state of California’s economy, saying that its financial recovery is dependent upon a drastic restructuring that includes increasing revenues through taxes and significantly reducing public employee benefits, which accounts for an overwhelming chunk of spending. And, he says, the state needs to spend less on correctional facilities and more an education: “Higher education is important – you need the training to accommodate growth. If companies can’t find the talent that will allow them to grow in California, they will go elsewhere.”
Getting back to Detroit
By now, just about everyone has heard the buzz phrase “new normal” – two words that convey just how devastating the recession has been to the U.S. and global economies. It’s changed the way everyone does business, and it’s wiped out some sectors of once-profitable industries.
On Friday, Policano introduced a second post-recession catch phrase: “global re-balancing,” two words that represent a shift in the way advanced and emerging economies operate. And that principle can be applied on a national or local level. Hence, Detroit.
How it all trickles down
In recent decades, many businesses have uprooted their manufacturing and production operations and moved them to countries such as China, India and Brazil, where the work can be done more cost-efficiently. As a result – at least in part – economic recovery is occurring at a much faster rate in these emerging economies than in advanced economies (like the United States and Europe).
Here in the U.S., however (where the economy had been driven by construction, real estate, retail and Wall Street) the recovery is expected to be slow and bumpy. Full employment isn’t predicted to occur for another three or four years, Policano says. And that affects consumer spending.
“Over the past decade, U.S. consumers have been responsible for 20 to 30 percent of world consumption, but that’s not likely to continue,” he says. “So who will replace the U.S. consumer? … It will be China, India and Brazil. Look where Apple is taking the iPhone: China. Look where Harley-Davidson is going: They’re taking those motorcycles to India. So what’s needed is a global re-balancing. … Households need to spend more and save less in China. And in the U.S. (where most households are highly leveraged), we need to do the exact opposite.”
On a government level, Policano says federal officials need to initiate stringent regulations on the financial sector – and keep those regulations in place. Otherwise, we’ll be setting ourselves up for another disaster.
“We tend to over-regulate at first,” he says. “And then 10 years down the road, we make adjustments and loosen some of those regulations. And then we continue making adjustments until 30, 40 years later, those regulations that would have helped smooth things over are gone.
“It’s a 50-year cycle, and we’re right at the start of a new 50-year cycle.”
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One idea: Make Detroit our new China. That stunning prediction – and creative solution – was delivered by Andrew Policano, dean of UCI’s Paul Merage School of Business, to some 500 local professionals who attended the 25th annual Business Outlook breakfast, sponsored by the Irvine Chamber of Commerce on Friday. On a local level, David Crane, the governor’s special advisor for jobs and economic growth, spoke on the state of California’s economy, saying that its financial recovery is dependent upon a drastic restructuring that includes increasing revenues through taxes and significantly reducing public employee benefits, which accounts for an overwhelming chunk of spending. And, he says, the state needs to spend less on correctional facilities and more an education: “Higher education is important – you need the training to accommodate growth. If companies can’t find the talent that will allow them to grow in California, they will go elsewhere.” Getting back to Detroit By now, just about everyone has heard the buzz phrase “new normal” – two words that convey just how devastating the recession has been to the U.S. and global economies. It’s changed the way everyone does business, and it’s wiped out some sectors of once-profitable industries. On Friday, Policano introduced a second post-recession catch phrase: “global re-balancing,” two words that represent a shift in the way advanced and emerging economies operate. And that principle can be applied on a national or local level. Hence, Detroit. How it all trickles down In recent decades, many businesses have uprooted their manufacturing and production operations and moved them to countries such as China, India and Brazil, where the work can be done more cost-efficiently. As a result – at least in part – economic recovery is occurring at a much faster rate in these emerging economies than in advanced economies (like the United States and Europe). Here in the U.S., however (where the economy had been driven by construction, real estate, retail and Wall Street) the recovery is expected to be slow and bumpy. Full employment isn’t predicted to occur for another three or four years, Policano says. And that affects consumer spending. “Over the past decade, U.S. consumers have been responsible for 20 to 30 percent of world consumption, but that’s not likely to continue,” he says. “So who will replace the U.S. consumer? … It will be China, India and Brazil. Look where Apple is taking the iPhone: China. Look where Harley-Davidson is going: They’re taking those motorcycles to India. So what’s needed is a global re-balancing. … Households need to spend more and save less in China. And in the U.S. (where most households are highly leveraged), we need to do the exact opposite.” On a government level, Policano says federal officials need to initiate stringent regulations on the financial sector – and keep those regulations in place. Otherwise, we’ll be setting ourselves up for another disaster. “We tend to over-regulate at first,” he says. “And then 10 years down the road, we make adjustments and loosen some of those regulations. And then we continue making adjustments until 30, 40 years later, those regulations that would have helped smooth things over are gone. “It’s a 50-year cycle, and we’re right at the start of a new 50-year cycle.” NEXT PAGE >> Related headlines O.C.'s unemployment rate falls to 9.1 percent O.C. apartment rent rates drop 6.7 percent O.C.'s median home price jumps 9.6 percent |
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