According to the late historian Stephen Ambrose, two people were largely responsible for winning World War II. The first was the supreme commander of allied forces, General Dwight Eisenhower. It is hard to argue with that selection. The second individual given that lofty accolade was a man named Andrew Higgins, who built the transport boats used in the Normandy invasion in 1944. It was, as Ambrose explains, the amazing industrial might of the U.S. that overwhelmed the axis forces and ultimately won the war.
This all began a few years prior when President Roosevelt made a crucial decision which changed the course of history. Long an opponent of big business, Roosevelt reached out to leaders in the business community to seek their help in mobilizing the U.S. economy for the war effort. In a Wall Street Journal article by Arthur Herman: "The FDR Lesson Obama Should Follow," the author explains the difficult decision Roosevelt was faced with -
Knudsen was soon in charge of overall industrial production for the war effort, and in this leadership role, he insisted that the corporate sector lead the way and that government interference be minimized. Knudsen's leadership and the willingness of President Roosevelt to change course paved the way for the U.S. to unleash its incredible industrial might, which ultimately turned the tide in the war. In fact, according to Herman, by 1943 the U.S. was producing more armaments for war than Germany, the Soviet Union, and Britain combined.
Today we are faced with a weak outlook in Europe and a slowdown in China, yet the U.S. manufacturing industry is doing surprisingly well, having grown about 5% in the first quarter of 2012. Moreover, there are several factors that bode well for this U.S. manufacturing resurgence to continue. First, higher energy and transportation costs, as well as escalating wage rates in emerging markets has narrowed the cost advantage of international competitors. Increasingly, U.S. companies are looking at domestic locations to expand manufacturing and production facilities. Second, the digitisation of manufacturing, which The Economist calls – "A Third Industrial Revolution" makes software and technological expertise much more important relative to cheap labor, which may dramatically alter the balance of power in global manufacturing and production. While the U. S. may never again dominate the global industrial economy like it did during and for decades after WWII, it does have the opportunity to lead again at a time when the world seems void of economic leadership.
A few questions... Can we find the right balance between government regulation and corporate entrepreneurship? History has shown that too much government intervention can strangle the creative energy of the private sector. Yet more recent history has shown that too little or perhaps ineffective regulation can have dire economic consequences as well. Is it possible to combine these opposing forces for our collective good, and for the collective good of the world? Sadly, in the midst of never-ending political rancour in this election year, it would appear to me that these forces are moving ever farther apart.
The rain in Spain... While Greece remains at the top of the list of concerns within the struggling European Union, there is increasing worry about Spain. Unemployment in Spain is about 25%, nearly three times the rate in the U.S. Roughly 50% of the youth in Spain are jobless, with few prospects. While people have long wondered whether the U.S. is "becoming the next Greece," they are now starting to ask whether we are "becoming the next Spain." Arthur C. Brooks, President of the American Enterprise Institute offers a few interesting differences between the U.S. and Spain, as well as ominous similarities in his Wall Street Journal article – "America and the Value of Earned Success."
According to Brooks, "...what set the United States apart from Spain was the difference between earned success and learned helplessness. Earned success means defining your future as you see fit and achieving that success on the basis of merit and hard work."
Conversely, learned helplessness, as Brooks explains, is how people end up feeling when rewards and punishments are not tied to merit. In a nutshell, excessive welfare spending and socialist policies in Spain have created a demoralizing sense of learned helplessness. Is that where the U.S. is going? I sincerely hope not.
Until the election, at the very least, we are stuck with these defining questions.
Michael Kayes, CFA