01.28.09 Dean Klock addresses Economic Growth: When and How?
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Economic Growth: When and How?
Downtown Rotary Club
January 28, 2009
David R. Klock, PhD
Dean and Wachovia Chair of Business
UAB School of Business
The issue today is not if the economy will return to growth. In some modest way, that will happen. I will briefly outline my thoughts on when and how. However, the critical issue for discussion today is not just recovery---the more serious issue is how we gain sustainable long-term economic growth. We must simultaneously stop the pain for way too many fine folks and also resolve key institutional issues that created excessive risk in our systems. Sustainable long-term growth will be critical to the most essential and required systematic change---the deleveraging of our economy.
While a new administration in Washington gives hope to many---we fail our leaders, we fail our community and we fail ourselves if we move from personal accountability to assigning hope to a single set of distant leaders. We must take our new President seriously when he calls for "a new era of responsibility". Some may see this as political rhetoric-but I see this as critical for sustainable economic growth. The key to sustainable growth is a "new era of personal responsibility" focused on outreach and a commitment to education----education in four key domains.
But first, let me provide my promised brief answer on when and how we re-gain economic growth. We will see modest growth by early to mid 2010, with the capital markets leading the way in a modest way by late 2009. Unprecedented funding and stimulus is being thrown at the problem-and I do mean "thrown" as in try any solution that will give hope to those in real pain and has hope of creating new jobs. We are in the necessary stage of complex problem resolution defined by legendary management guru Peter Drucker as "do it-fix it". The cost in terms of long-term national debt is staggering, but the cost of doing nothing would be far worse.
We will likely see a return to the original goal of the TARP funding ---to establish a previously used concept of a "bad bank" to move "toxic assets" out of the banking system and to facilitate an improved level of lending. However, any real expansion of lending will be modest and based on a return to traditional core standards of conservative risk management. We are now seeing some market clearing activities in real estate-likely resulting from capitulation of sellers to new market clearing prices. For example, in the especially hard-hit Florida markets, the resale of single-family homes increased 27% in December 2008 compared to December 2007. Stability in housing prices is coming in the next 12 to 18 months---a key factor in individual confidence and the perception of real individual wealth.
Now we return to my key question for today. How will we gain sustainable long-term growth? Without sustained growth, the current required massive expansion of national debt will overwhelm the economy. This is the area of most significant risk-if we fail here, the nation is facing severe long-term financial disruptions.
In my biased view, I propose four factors necessary for creating sustainable economic growth:
- (1) Education at K to 12 . This is where our children can and must learn three key things: the basic skills of reading, writing, and math needed to survive in a global economy, the personal joy of thinking about problems and their solutions, and the real benefits of deferred gratification. It is in K to 12 that we create the critical environment for success---where our youth learn that skills matter and that those skills are critical for personal and community success. What is our role here? We must be willing to personally contribute in many ways to communicate to young folks the real personal benefits of the sacrifices needed for success at the K-12 level. Get involved in a school system-make a difference with your time and especially your encouragement of teachers-the heroes of the struggle to help our youth.
- (2) Education at the University Level. At a University, we take basic skills and critical thinking to the next level---the level needed to maintain a highly competitive work force and to nurture future business, professional, and community leaders. At UAB we are also the door to opportunity for what I call "students of opportunity"---those first generation college students and/or those students coming from families with very modest incomes. They come to UAB as their place to create an expanded set of opportunities for success. They come to UAB confused and uncertain about their future, and leave with market skills and the confidence to compete.
UAB is also the place for creation of great teachers----they come to UAB's School of Education and return to the K-12 system. In the last decade, over half the recipients of the teacher of the year award in Alabama have come from UAB. Great education at the University level is essential to great education at the K-12 level.
In today's challenging economic environment, the value proposition of places like UAB is essential for many families under severe financial stress. Our tuition is materially lower than the national average of state institutions and a fraction of the cost at private schools. Despite our modest relative cost-many "students of opportunity" are unable to pay $5,000 per year. For many of us, still blessed with great jobs and liquid assets, we must support "students of opportunity"-to help these young folks move to positions where they participate in stimulating economic and personal growth. Even in these times of budget cuts at UAB, I am proud to tell you that the School of Business has created a new scholarship program for 20 additional diverse students of opportunity who will join us in fall term.
Great Universities go beyond creating employees that drive economic growth. The teacher-scholars at great Universities also generate life-changing research that fuels new ventures and/or stimulates the essential creativity needed to restore growth and vitality at established businesses and institutions of care.
- (3) Continuing Education and Retraining. This time of intense uncertainty has hammered home that material change is the one constant of our economic life. Change is certain! We can complain--or we can learn the things we need to move on with change. A significant portion of our population will need retraining to gain or refine the skills needed for the new industries and the new economic growth that inevitably follows all recessions. This is a focus at UAB-with significant growth of returning students expected in fields like accounting, industrial distribution, engineering, education, and nursing/healthcare professions. Returning students often have expanded family responsibilities and material needs for financial aid. They are typically very motivated and especially worthy of financial support from folks like you and me who are blessed with resources. Prosperity will come to those communities that recognize this need and build the infrastructure and support systems for continuing education.
- (4) Education on Personal Responsibility. We need to stop the blame game. Do I blame the government? Do I blame big business? Do I blame the system of education? There must be some other person or group to blame-lets find them and punish them and then there will be justice and no further problems. In creating our financial distress, many folks did act in ignorance, negligence, and/or greed. Individuals and institutions will be found accountable and pay a steep price, while others will quietly slip into history. However, we need to look carefully in the mirror and accept personal responsibility for our failures. We failed to ask difficult questions of our leaders and ourselves. We especially failed as a country and as individuals to say--, "I do not understand this 'stuff' and we need to stop the train until I learn."
Every day, and in many creative ways, we need to individually and collectively educate all young folks on how to take responsibility for running their personal finances. Help them to know that it is more important to make a difference for someone -- than it is to accumulate the most things of transient value. Tomorrow morning---wake up knowing that your help and caring service can make a difference in many real lives. Go find a place to be a servant leader and start a change process.
by Lori Wood
on 1/28/2009 1:55:00 PM