It's Middle America Stupid!

It’s Middle America Stupid!
By: Rene Velez Feb. 19th, 2009


Overtime I have come to realize that all of us have to some extent a disconnect on many matters. I have one when it comes to the Hip Hop fashions today’s kids wear. I just do not see the glamour or why its “cool” to wear pants that are falling off your waist. You can’t even walk down the street without your pants falling off, much less run for the bus. Why is it that making people look at your underwear as your pants hang on the shelf of your buttocks cute, or cool. If you’re going to do that hey, just cut out the patches of cloth and let the cheeks hang out altogether. At least the pants will fit. You know there was a movie made about a designer who did that when designer jeans were the fashion.

I realize some of this is generational. When I was a teen bell bottoms were in. Man, I would not be caught dead wearing straight leg pants. The bigger the bells the cooler those pants were. But at least I wasn’t baring my anatomy. I confess, my parents had the same expression on their faces as I do now about Hip Hop fashion.


Today’s Major Economic Disconnect

As I look at all these bailouts and the focus on American big business, the more I see that our leaders truly have a disconnect about the core of Americas economic engine. To paraphrase a Clintonite expression, “It’s Middle America Stupid”! I well realize the importance of our banking system, of our automotive industry, of capital liquidity. I realize the profound ripple effects that these bailouts and government programs have in terms of the potential positive ripple effects throughout our economy. However, I also see clearly that our government does not understand, nor do they seem to know how to reach the innovative powerhouse of middle class America and the multitude of small businesses that make up a significant portion of our economy. It’s Americas middle class families that make up a significant portion of our national economy, It’s the innovation and super-efficient small businesses that have created real value in an economy where manufacturing and many industrial jobs have gone to other countries. For all the money that you may put into American big business, a large part of that will wind up spent not in our country but to overseas companies that manufacture the component parts, if not the whole product, at cheaper labor rates than is available here in the states. My feeling is that a bigger bang for the buck can be achieved by investing in the small companies that manufacture products and provide services hear in the states than to Americas big businesses. It’s these smaller scale companies that manufacture just in time components, or odd lots, or special order items, or provide valuable hands on service, that make their cost affordable and effective compared to large corporations that can only exist through economies of scale and by outsourcing production to other countries with cheap labor.

The Tie in to the Disconnect Factor

So you might ask, why money doesn’t flow to these small and mid sized companies? I should make note that when I speak of small and midsized companies I am talking about companies with 10 to 200 employees with revenues of between $5 and $25 million dollars. Although many could be called small that are in the $100 million and under. I think there are several reasons. One thing that comes to mind is that these companies have small budgets. They exist and make money because they are generally private companies (non public companies) who’s owners earn a salary and make a living but may not have much left after all operating expenses. As a consequence they do not have lobbyist and political activists working for them. They are under the radar. These companies have small voices in terms of making political waves for the political leaders who oversee their geographic region. So to the extent their inequities do not receive any response, the likelihood that an elected official may face a negative nudge on votes come re-election is a minor risk for elected officials. Of course many elected officials seek out and do have members on their staff that assist them in attracting the largest amount of support for any favors that they may be able to dole out. You can well say that it’s a way of buying votes. Our political leaders are more inclined to be sensitive towards big business and to take votes and positions in their favor because of their campaign contribution and how they can swing votes than they are for small middle American and typically non public companies. So there is a redundant disconnect factor towards small business. This disconnect comes from the limited resources of the business and from elected officials lack of interest for small to medium sized businesses.

The Economy of Scale in a Bailout


Another issue with regards to bailing out Middle America is the cost. From a business perspective most people are not aware of the billions of dollars that are spent on marketing and corporate intelligence of figuring out markets, market niche’s or even what type of gadget a consumer would purchase at say Best Buy. In fact they even know that a certain color of packing is more attractive than another depending on whether the buyer is likely to be a man or a woman.

The potential cost of figuring out which small business is worthy of a bailout or an injection of capital is enormous. In fact so much so that it generally precludes the governments ability to approach a bailout to this sector of the economy. Wallstreet, venture capitalist and private equity firms spend billions of dollars in a given year simply to find, analyze and structure financing for small to medium sized businesses. This process is so involved that even when done correctly, even spending large sums of money and employing MBA’s, attorney’s, accountants and a host of other professionals there are many failures or at best low returns to make the effort not viable. To think or suggest the government could potentially take on this task and do it better than the number of firms that do this professionally is for the most part foolish.

In order for the government to address the economic downturn on the scale that is currently the case, the best and least costly not to mention the fastest way to institute programs and policy is by starting at the top of the food chain. So big business, with lobbyist and the political influence will and do have an upper hand to being bailed out despite their sins. Not that I think this is at all fair however, it may be the best our government is geared to do.


Conclusion

This situation and the inequity of government to be for the people speaks much towards how we are trying to resolve 21st century issues using 19th and 20th century strategies. At no time in the history of the United States has there existed such a mass of economic power that has been so important towards achieving the innovative and economic objectives of our nation as there are today via small to mid sized businesses. And yet government fails to be able to represent or to harness the great potential of this vital sector of our economy. Obama won the election because he represented change and everyone wants that change. Everyone knows change is needed. But how to come about that change still eludes us. In our current condition I don’t expect that this problem will be fixed. It is more likely that small to mid sized businesses will address and fix there own problems than government coming to their aid any time soon.

Why Aren't CPA's Part of the Economic Solution?

Why Aren’t CPA’s Part of the Economic Solution?
By: Rene Velez Feb 10th, 2009


The country is a buzz about the economic downturn of one of the greatest capitalist societies in the world. People’s confidence in the Corporate world is by recent accounts at an all time low. Government credibility and its effectiveness is in doubt. Despite our congress’ ability to bring about a stimulus package to our economic conundrum by pumping money into the system, their efforts are wrought with a vision of waste, lack of knowledge and leadership and of prudent exercise of judgment. We the people have made a direct connection with the influence and power of big business and that of the associated strings attached to our political leadership. The money has gone to the wealthy despite the dire straights of the common citizen. To add insult to injury, reports of corporations conferring dynastic compensation packages to executives, purchasing corporate jets and travel and entertainment junkets to luxury destinations leaves nothing less than a bitter pill in the mouths of Middle American families.

In Iran, fanatical Muslims are chanting death to America, and rejoice on our economic hard times. Shameful, especially in that we have in large part brought this recession upon ourselves through capitalistic greed. Even our allies look to us for a solution and have spoken out against unregulated and egregious capitalism.

Psychological Economics

To a degree any potential solution or combination of solutions must involve a mind altering jolt, to snap us out of the pessimism that prevails in today’s markets. Besides sound economic policy and true leadership nothing, could create the psychological catalyst to stimulate confidence and a renewed economy as the metrics of transparency. This economic situation requires the skillful salesmanship of a change agent that can back his/her rhetoric with proof by the numbers. I dare to say, nothing short of this will bring us out of the economic tailspin we are seeing. In the end the solution to any turnaround requires all involved to buy into the plan and become part of the solution.

To this end the accounting profession should be at the forefront of offering the systems, and metrics to show the American people and the world how well or badly, the government is performing on any taxpayer money it uses to leverage us out of this hole. The country needs to see, how many banks are saved, how many jobs are rescued, how many jobs are brought back in line, who is making money, what industries are being benefited, how much money is being put into service, how is the money being placed and who owns those companies that are getting the money. How much is each state, city and local government getting, what is the amount invested today and how will that help the state, city and the citizens into the future. Can a return on investment be calculated. What thought process and qualifying factors are being used to award government contracts and funds. No profession is better able to analyze, record, interpret and report these findings than the accounting profession. In a congress where some 90% of its members are attorneys, who may be well endowed in the nature of politics and the law, few understand accountability and how to present it in a fair manor. This is, in my opinion a major flaw to the American political system.



The Sidelined Profession of Accounting

I have for many years been very critical of how the accounting profession portrays the value they render to our great nation. We as a profession have failed to educate the average person of what we do and what our responsibility is to the public, even though “public” is the middle name of our designation. We have failed to take on congress and to gain our rightful place as watchdog of government spending. While we clearly perform many services, we do report many abuses, we do know the ins and outs of the inequities of government, we are hog tied and gagged by the power and influence of Corporate America and their partners in waste and deceit, our very own elected officials. We have a Government Accountability Office (GAO) that has a role to supervise, oversee, evaluate, establish rules and systems and to report its findings to all about government activities. Yet it is essentially powerless and toothless in its ability to enforce and enact change on those it reports on. The accounting profession has direct ties to the Securities and Exchange Commission (SEC) and is subject to the promulgated laws and rules when it performs audits of public companies, yet we lack the power and authority to command changes that would safe guard wealth and the economic security of this spectacular of all capitalist nations. Although we do by and large add great value to the capitalist system by fair and standardized reporting of those companies that trade in our capital markets, as well as on government activity, we are leashed to the ministerial tasks of our profession as opposed to establishing the forum for transparency and for internal controls that make for a better capitalistic system and democracy.

The theory of Laissez faire when implemented has created a glass wall to the accounting profession in that no one wants a meddling professional accountant putting obstacles and questioning the free market forces and the flow of capital. Certainly, many know that we are not well liked when we come calling for records and explanations during an audit. But asking the tough questions with a trained mind leaning towards skepticism is in fact, what brings about value to our economy as a whole. Yet, we have a professional obligation to a certain extent be regulators with a commanding authority. By no means should the profession interfere, but we should have, a commanding voice that has the power to compel investigations and analysis of industries and trends. This is part of our implied role as watchdog. We also need to have authority with teeth to bite back when abuses are demonstrated. To bring about legal action or law enforcement when it is demonstrated and reasonably understood that there is public risk in excess of reasonable reward. Essentially this is the “whistle blower” laws on steroids.

Think of what a difference that would of made in the banking industry and in having an opportunity to evaluate removal of the Glass-Steagall Act in light of today’s economic demise of both our banking system and our investment sectors. Think of the role a more authoritative accounting profession could of played in the analysis of overleveraged banks and in evaluating the lending process and the risk shifting of high risk mortgage pools.

The profession is so poorly weighted in its importance to twenty first century economics that we are doing the great capitalist society a great deal of harm. Here too is an example of a profession that has failed to evolve from the concepts of the industrial revolution to the needs our nation faces as a global economic power with long reaching implications for American interest throughout the world. If you don’t think so read the press these days and see how many countries blame the U.S. for shameful capitalist conduct.

The Tools vs. The System

By and large the theory, tools, metrics the required understanding to all those disciplines that make our economy work are there. What is lacking is the independent, funded working system and framework to oversee, analyze and debate and report issues in a master framework that strives to bring about effectiveness and efficiency of our capitalistic society and our global economic influence.

What the United States needs is a United States Economic Development Board of Governors that takes on the role of watchdog, information gathering and analysis of fundamental economic issues and promulgates required legislative initiatives by elected officials. These promulgated initiatives shall have the following requirements:

(1) Promote economic stability.
(2) Make for efficient capital markets.
(3) Provide for efficient and effective banking.
(4) Provide for fair and balanced international trade.
(5) Create systems and controls and reporting for a transparent government.
(6) Create public private partnerships for innovation and the improvement and development of the country’s infrastructure.
(7) Create an effective and efficient government spending system
(8) All promulgated initiatives to legislators should have clear and obtainable times frames for any required laws, bills and other executive orders. It shall also impose strict time frames for completion of the tasks and the spending involved.
(9) Create a system for national healthcare, funded by corporations and government.
(10) Create a system for a national retirement system funded by corporations, individuals and government.
(11) Create a system that allows federal, state and local tax credits for qualified volunteer services rendered by individuals and corporations.

I am sure there are more critical items we could add however, in essence we need to be able to address core issues that further our social and economic interests in order to maintain our economic well being.


The Success of Autocracies in the 21st Century


Two notable authors Fareed Zakkaria and Robert Kagan in their books “The Post American World” and in “The Return of History”, respectively, make brilliant commentaries of the rise of Autocratic governments such as China and Russia. These governments are a far cry from what our government is, what it will ever be, yet they have had great success in developing their economic might with dictatorship style of governess.

Not that I cater to this form of government, yet as of late I see some sense in the current talk of U.S. nationalization of industries. Of course only the current economic situation brings mention of this, worthy of presentation for a great democracy like the U.S. What I do think is the key driver to their economic success is not the form of government at all. It’s that their form of government brings about strict initiatives that are accomplished in record times. That concerted efforts and in effect prime directives initiated at the top, are acted upon and brought to fruition in Stalin type fashion is very admirable and deserves mention. At the most innovative companies this is a key form of governess. Our liberal democracy is expensive, wasteful, time consuming and generally ineffective and adversarial towards addressing social and economic issues in today’s 21st century global climate. To say this in other terms; our government can not and is not built for business. Every time we try we wind up with $10,000 coffee pots and $100,000 toilets. We need to find the way to incorporate the autocratic decision making and initiative based methods to steer social and economic based policy into our democratic way of government. We need to isolate our legislative process to how best to pass the laws required to manage our country and leave the initiatives, measurement and evaluation from concept to implementation to an independent body that injects and mandates the important drivers into our government.

With regards to autocracies, the fact of course that their government will not succeed because they are mistrusted and mal aligned to the interests of other countries is a topic of political struggle not one of economic benefit. I don’t agree with dictatorships yet we do and should find ways to co-exist with all sovereign nations.


Conclusion

For years we have made fancy talk about bringing business based approaches to government. That was great talk then. Today in light of the capitalistic greed and fiasco that surrounds us I am not too sure we want business in our government. But more to the point business ventures in government will never work because the focus and goal of our elected officials is skewed and opposed to the better interest of our nation. An initiative driven government in a democratic structure driven by an independent body as the way to "fast track" critical reforms is something we need to discuss and the accounting profession’s skill set together with an existing value system of honesty and integrity could be a powerful force in moving this country in the right direction. The question is who among us has the fortitude and desire to venture into such waters. Maybe, our new president should consider this structure and be ring master.