Created 5/3/09
Businesses require appropriate conditions in order for them to survive, thrive and multiply. An economic “greenfield” has characteristics that allow businesses to survive, thrive and multiply in a sustainable manner. It is brimming with fresh and exciting opportunities. On the other hand, an economic “brownfield” is much the opposite, where conditions are harsh to businesses and they are much more likely to struggle, dwindle in number, and probably cease to exist over time. In a “brownfield” environment, businesses will often opt to move their operations and/or sales territories as they attempt to evade possible business failure.
One way to determine whether an economic “greenfield” environment exists is whether businesses are thriving and multiplying naturally – with an indicator being that they are choosing and wanting to locate their operations and sales territories in a specific location without needing to be artificially induced to do so through various incentives or coercions. However, this indicator has to be viewed in the overall economic context, as there may be circumstances that can serve to override casual observations.
This article explores this “greenfield” v. “brownfield” topic strictly outside of the Financial Crisis. Is America likely to be an economic “greenfield” or “brownfield” in the future?1 The path taken has been, and will be, largely dependent upon correct policy choices and the resulting governmental administration of these actions – the ability to efficiently and expeditiously translate decisions into action.
In order to answer the “greenfield” v “brownfield” question, one must determine whether there exists appropriate conditions for businesses to survive, thrive and multiply in the United States. A cursory examination of economic statistics would seem to indicate there are. Although an economic “downdraft” currently exists, it is widely perceived as being a “bad recession,” of which only a few have occurred since the Great Depression. If one examines the economic history of the United States leading up to the current Financial Crisis, one sees widely-recognized growth and prosperity evident among the spectrum of economic and financial indicators. Thus, it would appear as if there is little to fear from a medium- and long-term perspective, assuming two conditions: first, that the current economic downturn is a recession that is an inevitable part of the business cycle; and second, that America’s future prosperity will be at least as successfully navigated as in the past.
However, one need not delve too much into the specifics of our economic condition before one sees trends of rather disconcerting dynamics. These dynamics are complex and expansive, with almost innumerable negative manifestations. Some of these manifestations include a worrisome GDP composition; a wealth disparity that continually grows; inability for many to have stable careers and income growth – regardless of their skills; continual outsourcing of jobs and manufacturing abroad; increasing taxes; excessive levels of indebtedness at both the personal and national levels; lack of wage growth2; etc.
One may ponder why various conditions (the aforementioned manifestations) are so contradictive to the apparent long-term prosperity this country has experienced, and what the future holds – undeniable prosperity (prosperity with little or no contradictions) or a less fortunate condition – continued growth of said negative manifestations.
One can view the cumulative effectiveness of policy decisions to date in a variety of ways, ranging from outstanding to poor, depending upon the metric(s) used to measure success-to-date. However, while success-to-date is obviously important as it has provided this country with any and all benefits and strengths, there is another aspect that is of greater importance. This aspect is how have past policies positioned us for the future, both on an absolute scale as well as relative to those enacted by other countries?
How will the policies made to date, and the resulting conditions match those demanded for future prosperity? While this is of course difficult to answer, perhaps the better question would be to what extent has our prosperity been caused by policy decisions, and to what degree has our prosperity been hindered by them? The answer to this question may be far different than that widely held, and it is pivotal to assessing our future chance for true economic prosperity.
One glaring omission in our current governmental structure is the lack of what may be termed an economic-focused “strategic planning” function with sufficient authority. One can only imagine the problems a large corporation would encounter if it did not perform adequate strategic planning, or at least contemplate and act upon strategic issues. These problems are multiplied and magnified in the case of the United States, if it is viewed as a “company” with roughly $14 trillion in revenue – and (at least) 300 million+ stakeholders. Despite its size and complexity, somewhat unbelievably no clear function exists for strategic planning in the economic sense. While some may argue that the President is in charge of this, the way the office is structured and run (multiple responsibilities outside of the economy, political pressures, etc.) and the short four-year “guaranteed” tenure of the office make effective long-term strategic planning impossible. Others might argue this is the purview of the Federal Reserve, but that assessment also carries flaws. Others may argue that this function is in some way carried out by some other governmental faction, such as Congress. Regardless, even if one were to assume it is being carried out by some unit, the results of such a function appear nebulous and lacking. If one were to perform proper strategic planning, the metrics utilized would have long ago alerted of unattended problems. What is really needed is a dedicated unit that is expressly and totally devoted to strategic planning issues as to the future economic viability and success of this country. As well, it could serve as an economic advisory (and/or oversight) to various other parts of the government – including judicial and legislative, state and local.
The reason such an economic advisory function is needed is obvious when one looks at some of the policies that are enacted within various governmental structures. Many of the policies, while they may provide some value as far as advancing the “societal good,” are inherently economically counterproductive. It seems as if these policy decisions do not fully take into consideration the overall economic ramifications. There exist innumerable examples of these types of decisions; and their aggregate negative effect on the nation’s well-being (and strategic position) should not be underestimated.
This new economic-focused Strategic Planning function needs to exist so that policy decisions, regardless of their origins, are not made in a vacuum. Additionally, this entity would insure that “quick fixes” (fast, easy, and often politically palatable decisions3 that serve to exacerbate aggregate problems over time, not solve them) are avoided. The United States appears to be at the point where poor future decisions will have an outsized marginal effect on an “all things considered” basis.
An example of one such “suboptimal” decision is H.R. 1586, the legislation to tax certain bonuses paid to TARP recipients. As of this writing, this legislation has already passed the House by a wide margin. It was proposed as a result of the recent public furor over large aggregate bonuses being paid to AIG employees, despite AIG’s exceedingly poor business performance and tremendous degree of government assistance received. As the public outraged swelled, Congress sought to quell the uproar by introducing legislation that would generally tax the bonuses at 90%, since other legal avenues of “taking back” the bonuses seemed unavailable. The problem with this idea is that it appears to be an “end run” around a solid contractual obligation between AIG and its employees. This is disconcerting from a legal standpoint if this type of “end run” behavior is attempted any time Congress or any other government entity feels that such an “end run” is warranted. There are other examples of this type of legal “end run” being played out on the national and state levels. The problematical issue of these “end runs” is how businesses perceive this type of action from an overall business perspective. This type of behavior encroaches upon the perceived stability and fairness of our legal system, which of course is exceedingly important to businesses. Any perceived degradation of a stable and “proper” legal system adds to the “brownfield” environment, because it adds to future uncertainty in a negative fashion. Economic opportunities are viewed less appealingly by businesses.
Other outgrowths of inappropriately enacted policies abound. In some cases, decisions that are being made are plainly flawed – but they have to be made because “there is no other choice.” This may be viewed as a sort of conundrum – consciously making the “wrong choice” because it is the only choice that can be made. An example of this is that many states are raising taxes in order to balance budgets – despite the long-held (and intuitive) belief that taxes should not be raised during a recession. While raising these taxes is ostensibly the only action that can be done to balance budgets, the decision carries many harmful effects that are often not fully considered or heeded.
Thus it is imperative to enact an economic strategic planning function, in order to insure that an economic “greenfield” environment is being actively pursued, as opposed to creating an economic “brownfield.” As aforementioned, the “greenfield” is an attractive, self-sustaining, “virtuous cycle” whereas the “brownfield” is an unattractive, destructive, “vicious cycle.” Of particular importance is the avoidance of a “toxic brownfield” - an environment that is permanently impaired and has little hope (for a variety of reasons) of being rejuvenated, regardless of whatever further action is undertaken.
While it is pleasing to think of America’s future as one that will be much more prosperous than that of today, it is overly optimistic to believe such a future can be attained if proper policies are not enacted. To believe that America’s future is destined to be prosperous, regardless of policies enacted and the resulting economic environment (“greenfield” v. “brownfield”), would be a display of cavalier imperiousness. Proper policy has to be enacted, administered and intelligently monitored in order to successfully navigate the future.
1 of course, the same question is applicable to any country or region
2 of note, President Obama on March 24, 2009: “What we said was that over the last decade, the average worker, the average family have seen their wages and incomes flat. Even at times where supposedly we were in the middle of an economic boom, as a practical matter their incomes didn’t go up.”
3 of course, there is nothing inherently wrong with fast, easy, and politically palatable decisions, assuming they are inherently theoretically and practically correct