Government hostility considered #1 risk by business leaders
BY MORRIS R. BESCHLOSS
PVF and economic analyst emeritus
As we intensify our contact with business leaders throughout the U.S. to gain a more comprehensive outlook for 2010, we are struck by the intense hostility against pending Administration initiatives.
Of the dozens with whom we’ve talked lately, the fear of increasing anti-business antagonism by the U.S. government is acting as an obstacle to accelerating capital expenditures, building of inventories or hiring additional employees.
In an almost unanimous inhibition, keeping them from capitalizing on a recovery that seems to be finding its footing, these businesses are afraid that the government will pull the rug out from under them. In addition to universal healthcare, cap-and-trade, renewable energy and card check, these business owners and executives feel they are totally defenseless against tax surcharges, or precipitous government action that may keep them from terminating employees, or forcing them to increase benefits arbitrarily.
This has become a primary reason why employers are concentrating on productivity, achieved by reducing labor content. The traditional American risk tolerance for expenditures in anticipation of a business upsurge is not happening. The current formula seems to be sufficiency to meet current needs, and wait for further developments.
As long as the business community, as well as most consumers, see an out-of-control budget deficit, and an unsustainable bloated debt, they view the future with apprehension. They will continue a strictly defensive strategy to maintain the status quo— profitability and survival.
If this attitude continues to become increasingly more pervasive, even a demand pickup will only be met by a minimal reaction on the part of the American business community, guaranteeing a lack of economic growth.
Until the current Administration can convince the business, professional and industrial community that it is not out to do them in, don’t expect the machinery of growth to get out of low gear.
IEA warns of 2020 oil peak
For years, oil industry experts have taken controversial positions as to when oil demand will outstrip available supplies. Although the oil bulls seemed to have taken the upper hand by mid-2008 when the price per barrel of oil reached $147, this conjecture was reversed by February 2009 when demand collapse brought that price down to $31 per barrel.
However, both these extremes proved illusory, reflecting the volatility of oil derivative usage long-term, rather than the balance between new discoveries and worldwide exploitation.
After the global economic crash accompanied the financial meltdown, the oil bears seemed in the ascendancy. Daniel Yergin, spokesman for the prestigious Cambridge Energy Research Associates, has predicted that the elevation of oil prices will stimulate alternative energy development, drastically reducing the dependence on oil.
On the other hand, the Paris-based International Energy Agency, which is considered the ultimate arbiter of the energy industry’s future, came to a long-awaited conclusion. For the first time ever, the IEA’s chief economist Fatih Birol pegs the year 2020 as the tipping point of demand easily outstripping the finding of new reserves. Between 1960 and 1989, the world discovered twice the amount it produced. But since that time, new oil discoveries have been only half of production.
Even today, with China, India and other developing nations accelerating oil usage, the demand/supply gap is quickly widening.
A fallacy supported by unreasonable advocacy is that oil will become unnecessary as prices go through the roof. But rational observers believe that even the ascendance of wind, geothermal, solar and nuclear will not replace fossil fuels to a significant degree.
It’s very likely that the price of oil will again supersede $100 per barrel in 2010, as the world economy returns to a higher gear. Even by mid-century, it’s likely that renewable fuels will be supplemental, with oil and gas still the major source for empowering the transportation sector’s combustion engines.
Keep an eye open for the expansion of natural gas usage, which is exclusively available in the U.S., through improved technology and imports from Canada.
Its price per million Btu is now in the $5.50 range, double from just two months ago. A colder-than-expected winter is primarily responsible.
High tech employment is America’s road to future development
It’s widely recognized today that double digit unemployment is the major obstacle standing in the way of a solid economic recovery.
When recognizing those working part-time, giving up looking for work, or flooding into the workforce after high school and/or college graduation, plus immigrants, almost 20% of America’s employable workforce of near 160 million is now outside those capable of full-time jobs.
According to employment expert Ed Gordon, who recently addressed Federal Reserve Board executives at the Chicago Federal Reserve Board district headquarters on this subject, the answer lies in upgrading the capability of those job seekers, whose previous work spot no longer exists.
“When considering the implosion of the automotive and housing sectors, as well as steel and metal fabrication industries, new jobs must be created to lower the unacceptable double digit unemployment rate that the U.S. may be facing permanently if such remedial upgrading isn’t actively pursued by a combined government/business alliance,” asserts Gordon.
Ironically, thousands of businesses in this country have aggressively opted for automation, mechanization, and the latest high tech capability in order to maintain profitability, or even downright survival.
This has resulted in shedding many thousands of personnel, adding to the swelling unemployment rolls. Gordon believes that the Administration is naive in believing that the economic recovery alone will absorb those now unemployed. “Only exports offer substantial growth opportunities at this time,” the acknowledged personnel expert concludes.
He further states that two million jobs in the U.S. alone are available for those with the necessary skills: “Only a major effort to upgrade the skills of those available for such training will put a dent in the employment crisis the nation is now facing.”
It seems obvious that the Administration is tone-deaf to this advice, even with the knowledge that maintenance of current unemployment levels could prove disastrous to the party in power.
To stay up to date with my twice daily blogging, be sure to log on to my hyperlink at www.theworldreport.org and then click on ‘Morrie’s page,” announced in the middle of the World Report website. Your recommendation for my blog, as well as the individual columns will be much appreciated.
Morris R. Beschloss, a 54-year veteran of the pipe, valves and fittings industry, serves as PVF and economic analyst emeritus for The Wholesaler.