As pundits continue to debate wether the US economy is emerging from recession, most are missing more important fundamental economic issues. Newsweek's recent article by Niall Ferguson, "Chimerica is Headed for Divorce", raises more relevant questions and serves as an interesting reflection on the consumer - producer relationship that has emerged between the US and China. Ferguson, the Harvard professor and author of The Ascent of Money , a book and PBS series, opines:
It's a bit like one of those marriages between a compulsive saver and a chronic spender. Such partnerships can work for a certain period of time, but eventually the penny-pincher gets disillusioned with the spendthrift. Every time Chinese officials express concern about U.S. fiscal or monetary policy, it reminds me of one of those domestic tiffs in which the saver says to the spender: "You maxed out on the credit cards once too often, honey."
Let's look at the numbers. China's holdings of U.S. Treasuries rose to $801.5 billion in May, an increase of 5 percent from $763.5 billion in April. Call it $40 billion a month. And let's imagine the Chinese do that every month through this fiscal year. That would be a credit line to the U.S. government of $480 billion. Given that the total deficit is forecast to be about $2 trillion, that means the Chinese may finance less than a quarter of -total federal-government borrowing—whereas a few years ago they were financing virtually the whole deficit.
Clearly the financing of US spending by the Chinese will be ending; its unsustainable and increasingly not in the best interest of the Chinese. Furthermore, the possibility of the US garnering political will to tackle its fiscal indulgences is unrealistic. What are the implications? In the long run the rise and fall of empires follows the rise and fall of their economies. Watch Niall below describe some of the implications of these macro trends as we enter a new age of geopolitical considerations. No reserve currency last forever as this historian points out and the implications for declines in US standards of living among other important considerations are worth careful thought. Long run, interest rates will rise, purchasing power will decline and inflation will emerge to resolve the disequilibrium that has been existing for some time.
Jim Collin's new book "How the Mighty Fall and Why Some Companies Never Give In" asks, "How do great companies fall? Can the decline be detected and avoided? How far can a company fall before doom becomes inevitable and unshakable? How can businesses reverse course?" Well his answers are straight forward and insightful, as so often Collins is.
Collins confronts these questions, offering hope that leaders can learn how to stave off decline and, if they find themselves falling, reverse their course. His research project requied more than four years and uncovered five stages of decline:
Stage 1: Hubris Born of Success
Stage 2: Undisciplined Pursuit of More
Stage 3: Denial of Risk and Peril
Stage 4: Grasping for Salvation
Stage 5: Capitulation to Irrelevance or Death
Decline, Collins concludes, is largely self-inflicted, and the path to recovery lies largely in each companies own hands. We are not controlled by circumstances, history, or defeats along the way.
What is most notable about the book is the meaning of the tag line: "And Why Some Companies Never Give In". For many never giving in means holding on to the status quo. Instead Collins urges leadership to be willing to kill failed business ideas even shuttering long time big operations; to evolve into entirely different activities a part from present operations; to be willing to embrace loss and temporarily lose freedoms; to be willing to form alliances with former adversaries. “Never give in” is not continuing the same things. It means identifying that success is falling down and getting up one more time without end. Businesses must be willing to change in a disciplined fashion in order to survive, and there are many examples in this excellent book.
Check out Collin's video below as he outlines the five stages to decline identified in the book.
With Competing for the Future, managers have seen how they can reshape their industries. Gary Hamel and C.K. Prahalad offer a masterful blueprint for what YOU must be doing today to occupy the competitive high ground of tomorrow. The key to future industry leadership is to develop an INDEPENDENT point of view about tomorrow's opportunities and build capabilities that exploit them. Authors Hamel and Prahalad reveal an entirely new definition of what it means to be strategic-and successful. Watch Prahalad's talk on Build a Bear and Pace makers as examples of creating value in the "experience" economy. Can we transform our businesses and industries ? We must because there are new fundamental dynamics around creating value that demand rethinking what we believe and how we do things.
The Centers for Disease Control and Prevention recently reported the direct annual medical costs of obesity in the U.S. at $147 billion - twice the amount since CDC first considered costs in 1998 and $50 billion more than is spent fighting cancer each year. Half of these estimated costs are currently paid by the government through Medicare and Medicaid. The largest increases in spending are attributable to obesity with $303.1 billion spent in 2006, nearly double the $166.7 billion spent in 2001. This unsustainable cost is truly breathtaking. In 1946, seven times as much was spent on food, beverages, and tobacco as on medical care. Fifty years later, more was spent on medical care than on food, beverages, and tobacco combined. Hence the current political debate on how to avoid our health care system bankrupting the U.S.
Fitness and wellness professionals know that three fourths of chronic disease costs relate to poor lifestyle choices. Regular exercise, avoidance of tobacco and an appropriate diet are at the heart of prevention. If quality lifestyle choices were adopted by all tomorrow we would immediately begin to get at the fundamental problem : in 2008 an average of $7,900 per person in the US or 17% of GDP was spent on “health care”. We need to impact the demand side of the equation.
Yet with all the prevention emphasis and dollars invested by various government and non-government agencies and organizations things have not improved , they’ve only gotten worse. Interestingly a solution that would make a significant impact to this complex challenge exists: with over 30,000 fitness facilities and tens of thousands of certified fitness professionals in the U.S., there is an industry prepared to train, motivate, support and measure outcomes for the obese and promote quality lifestyle choices. Basic physical examinations to measure weight, blood pressure, resting heart rate, cholesterol, and height could be combined with the application of wellness and fitness principals by for profit and not for profit professionals and facilities to impact a huge swath of the obese population. Adding inexpensive technologies like those offered by Polar or Fitlinxx, for example, would further enable individual participants and service provider professionals to track activity and outcomes via web based platforms.
There is some encouragement that this type of solution and thinking is gaining momentum. The Personal Health Investment Today Act (H.R. 2105) is an example of legislation that would enable allocation of medical savings accounts to fitness and wellness investments by individuals and the Healthy Workforce Act (H.R. 1897, S. 803) would amend the Internal Revenue Code to provide a credit for 50 percent of the costs employers would incur in implementing such wellness programs for their employees. These initiatives are designed to encourage reliance on the fitness industry to become a larger part of the solution.
Exercise is medicine as Robert Sallis, chair of Exercise is Medicine, pointed out in his recent letter to the American College of Sports Medicine. Dr. Sallis made an important distinction in his letter: prevention involves lifestyle changes not just diagnosis. He asks this about prevention, “Does it save money in the long run, or is it an expensive indulgence with too little benefit to justify the up-front cost? Answer: It depends. While many diagnostics, such as colonoscopies and mammograms, save lives and head off expensive treatment regimens, some may be unneeded. Sound medical judgment and appropriate guidelines are required. But, everyone can practice prevention in the form of healthy lifestyles, and it doesn’t cost a dime.” Sallis identified a key policy problem: the traditional medical “system” looks at and delivers prevention in the form of pharmaceuticals and procedures and not lifestyle design. The health care system is simply ill equipped to deliver basic wellness prevention affordably and cost effectively, while the fitness industry is prepared to: particularly the medical fitness industry.
In addition to the wellness solution that would enable people to benefit from the U.S. fitness industry, a new pricing mechanism for insurance coverage must be created to reward people who improve their health via lifestyle modifications while penalizing those who do not. A wellness program would also serve as a means to hold individuals to account for their choices and outcomes. Much like automobile insurance, there must be an allocation of costs to risk around fundamental measures. We must incentivize people to live healthy lives.
Putting the important matter of price and risk aside, the manner with which various organizations and constituents are “promoting” the “prevention” solution gives one pause and requires close evaluation. Consider this: today the total sums paid in the U.S. for memberships in health clubs is only around $20 Billion a year. That is less than one penny for every dollar spent in medical treatment. Therefore, one might certainly scratch their head at some proposals being considered under the flag of “prevention”. For example, a current draft Senate bill would provide up to $10 billion annually for a "prevention and public health investment fund"; largely infrastructure projects like bike paths, sidewalks, farmers' markets and other community interventions meant to curb the chronic and costly condition of obesity. Bike paths are great for communities, but when considering cost benefit is that what we need to be doing ? None of these funds requires demonstrated outcomes or is directed to a real wellness solution. These types of initiatives will not impact our problem and we need that impact to start now.
The annual direct cost to the government today for obesity is around $73 billion and its growing by over $14 billion a year. Couple the existing $10 billion in legislative proposals which will not deliver near term results and your talking about annual costs to the federal government of nearly $100 Billion a year. This is five times the revenues for the entire fitness industry. With approximately 50 Million obese adults that amounts to nearly $2,000 a year in direct government expenditures for each of these adults. The fitness industry would be a much better investment of these dollars to provide results that could make a huge, real and lasting impact.
As Noble Prize and free market economist Milton Friedman wrote in his 2001 paper How to Cure Health Care; “Our mixed system has many advantages in accessibility and quality of medical care, but it has produced a higher level of cost than would result from either wholly individual choice or wholly collective choice.” Milton was right, we spend too much. However, to do something about it we need to admit past attempts have failed and do the obvious. Prevention through lifestyle modifications that embrace fitness is essential and aligning the resources of the fitness industry to this strategy is a thoughtful solution that would work.
When coupled with risk reward paradigms in insurance, be it a single payer or the extant system, perhaps we could finally impact the problem we all want to change. If you are interested in supporting IHRSA's Campaign for a Healthier America and including exercise as prevention as part of health care reform, visit www.ihrsa.org/campaign.As the video below suggests, we've been having the same discussion for 40 years. Its time to do something about it.
Innovation is the solution to our most serious problems. We must do more with less in new ways . However, there are significant impediments to innovation as author and entrepreneur Sramana Mitra pointed out in her recent article an Innovation Conundrum. Much of this relates to the distortion of the relationship between risk and return.
Our capital system is a case in point: it compensates speculators disproportionately above creators. Compounded by significant risk-aversion, venture capitalists are acting like bankers, and Wall Street remains obsessed with quarterly results discouraging long term R&D. Hardly an environment for innovation. In distributing capital the middle men of Wall Street have been grossly over compensated for the service they provide - taking one group's money at one price and selling it to another group at a higher price. VC’s had been getting outrageous compensation in management fees, even when generating negative returns. As with many industries this is unsustainable because there is no value being generated. More importantly it drives away the opportunity for innovation because the need for immediate return and payment of middle men trumps the patience development requires and the rewards given to those who create it.
Eric Benhamou, former CEO of 3com recently commented that, “The preferred, risk-limited model of the venture capital industry will leave many important problems unsolved, many large-scale opportunities unaddressed and many radical innovators unfunded.” However, there is hope.
"A willingness to take intelligent risks and try something new is critical to both innovation and entrepreneurship. But the last decade has seen an increasing focus on short-term returns through risk taking without questioning or transparency to even understand the real level of risk. As a result, we replaced the foundation for real economic growth with the illusion of prosperity," writes Judy Estrin, a long-time entrepreneur and author of Closing the Innovation Gap. In the end a new system will emerge with the rewards of prestige and money increasingly going to the value creators, not the speculators. See Judy's brief outline of thinking about the Innovation Gap.
