The protesters marched on the highway, despondent about rapid inflation.  They shut down the thoroughfare for hours. 1000 miles away, protesters flocked the capital and drove the legislators to safe haven in neighboring territories.

These were fundamentalists in Tunisia or Libya; they were students in California and state workers in Wisconsin.

The impetus for civil unrest in the Middle East is that of the “lost generation” of unemployed misdirected youth.  In some regions of the world, unemployment is 40% or more.  In the U.S. , it is not just the young that face underemployment but generations of workers whose skills have become irrelevant.  The U.S. has the western world’s widest income distribution. The Top 10% make 6 times that of the bottom 10%, compared to 4.2 X for Great Britain and 2.8 X for Sweden[i].  The labor market has hollowed, as wages earned by shop floor workers have actually declined (when adjusted for inflation) over the last two decades.

The labor imbalance in the U.S. has far reaching implications, not only for the unemployed but for our economy as a whole.  The inability of low wage earners to consume is a strain on U.S. growth.

While there is plenty of banter about the need for jobs, there is no systematic solution in place for retraining American workers such as displaced auto and steel workers. President Obama has called on U.S. business leaders to: “generate ideas for creating jobs, sustaining the economic recovery and making America more competitive”[ii].

Of course the notion of “creating jobs” is a little too convenient. Jobs are created when there is a need for them, and Americans get the jobs when they offer the most value. The problem is not that there are not enough jobs; it is that the cost-benefit for the employer often tips towards off-shoring.  If our workers do not offer enough value in the form of specialized knowledge, ability to use technology, etc., jobs will continue to be shipped overseas.

This is not a protectionist rant, and my comments aren’t intended to incite a riot on free trade, or China manipulating currency, etc. I am focused on what we can control.  What our nation needs is a retraining effort. The money we are spending on unemployment and other services would be better spent invested in people so that they can acquire new skill sets that are relevant in an ever changing world.

The question is who will lead, and who will pick up the bill?  To prepare our workers for the future will require collaboration across business and government. Tax and other incentives need to be in place to encourage the retooling of America. So as GE Chairman Jeffery Immelt and the rest of the White House Council of Economic Affairs weighs in on jobs, I hope they emphasize that we need to create opportunities for workers, and provide them will the skill sets required to compete.

Otherwise, the marches may extend to Washington D.C. and a state capital near you.

[ii] Obama wants business world’s best ideas on jobs USA Today

Just because the economy is treading water, doesn’t mean your business has to.

History suggests that the stock market performs best under a Democratic President and a Republican Congress. Investors like predictability. If this scenario becomes a reality it will yield little in the way of new legislation.

The market has generally been a leading indicator, and many have been waiting for our economy to switch gears. But our economy appears stuck in a vicious cycle.  Lackluster GNP growth translates into little job creation.  The combination of unemployment and underemployment (thought to be close to 20%) is creating downward pressure on any potential housing recovery.

Kiplinger’s (October 8^th) predicts a housing double dip, with prices declining as much as 3% next year.  With housing starts at soft 600,000-700,000 units, massive shadow industries such as construction, and building materials, will remain depressed.

The wild card in world economics is currency fluctuations as governments continue to manipulate their currencies and provide subsidies on various products and raw materials. China, who now possesses about $1 Trillion in U.S. debt, is only raising their influence within the U.S. economy.  If the dollar were to crash and raw materials or energy prices rise (most are imports), hyper-inflation could become a reality quickly.

So we are likely in for much of the same.  I maintain what I have been saying for 2 years, there is more downside risk than upside risk, but the greatest probability is that growth remains positive but sluggish.  Stronger companies who planned for a downturn and have sufficient cash, and/or those with strong value propositions will continue to be profitable.  Those stuck in a wave of commoditization that has marginalized their business will tread water. The weak will go away.  Those industries that have not yet consolidated are ripe for M&A activity.

Some executives got fat and lazy in the extraordinary run of the last two decades, knowing they could pass on a 4% price increase ever year and generate 10% on the bottom line. The economics of the day require us to view the world differently. The problems are not cyclical, they are permanent.

It all comes down to the same formula that works in times of boom or bust. Companies need to find a sweet spot, a narrow range in which they can provide value to the marketplace.  Customers are fickle and professional buying organizations more frugal; often requiring a Request for Proposal (RFP) process, for even the most mundane (one bid we heard of included toilet paper).

The downturn has only reinforced that to maintain a sweet spot the marketer may have to be narrower than in the past. The world has become hyper-competitive, and if anything competitors from emerging markets are becoming stronger. Most businesses do not have a cost problem, they have a revenue problem. Don’t rest on your laurels, become completely consumed with improving your offer; every day.