In Search of the Economic Lessons of 2011

Excellence in execution is the essence of quality. But when marketplace conditions differ from what executives expect, achieving superior performance is especially difficult. It requires recalibrating to meet new circumstances while keeping an eye on the original targets.  This was not easy in 2011.

I’ve just returned from a week in Davos at the World Economic Forum meeting where 2011 was widely discussed.  Even with the benefit of the rear-view mirror, 2011 remains a year of complexity and uncertainty. From the rise of social movements in the Middle East and the chorus of populist dissent in the United States and Europe, to the destabilization of sovereign debt markets and the wrangling over new global banking regulations, it was a challenging year, full of twists and turns.

Now, 2012 may bring more of the same; most of the issues and trends that beset us during 2011 retain their potency. Maintaining quality will remain a crucial test. Business leaders therefore need to think about what we’ve been through and draw some lessons for this year’s agenda.

Balance-sheet recession: These are tricky times for companies and for American consumers. People are spending tentatively, and there are higher levels of volatility and uncertainty in everything from commodity prices to the stock market, with little overall gain. Fortune 500 companies have adopted a cautious attitude with their funds, building reserves for the opportunities they hope for in the future. Technological advances are altering the commercial landscape and endangering established business models. Some stalwarts couldn’t survive the turmoil. For the balance-sheet recession to truly show signs of abating, companies and investors alike need to be reassured that, even if the short term is uncertain, there is long-term potential in the American marketplace.

Temporary fixes don’t work: To achieve long-term growth, we need long-term solutions.  It's true that the lack of consensus in government reflects the diversity of opinions in the country at large; to some extent it’s unfair to portray the problem as focusing exclusively on elected officials. Nevertheless, we need leadership that gets us through today’s impasse. We need to seek ways to make our government operate in a fashion that enables it to more effectively deal with the fundamental issues that threaten our long-term prosperity.

We have to challenge our health policies, social security programs, and military budgets in light of the new realities of the world we live in. We need to reform the tax code to ensure that America is globally competitive and we need to streamline the process for startups and other small businesses to grow here. These steps will allow us to achieve quicker and long-term economic and job growth. A percentage point increase in GDP growth has a significant, long-term impact on the federal deficit and boosts household income. Putting some momentum into the recovery would certainly help consumers pay down their debt and feel confident in purchasing the new car or the new home they’ve been putting off.

Europe in crisis: Economists may remember 2011 as the year when the bloom came off the rose of European economic model. It’s not just the peripheral eurozone countries that are in trouble. It’s French and British banks that hold their paper, and stronger economies that are being called upon to prop up their weaker neighbors. Everywhere, the story is strikingly similar: from Greece to Ireland, and from Portugal to Italy, governments have agreed to financially unsustainable social welfare policies and public employee benefits resulting from aging populations, shrinking workforces, and declining tax bases, diminishing the appeal of their debt to investors.

Add to these challenges new banking regulations that demand larger capital reserves just when the eurozone needs more lending and spending, and it promises to be a tough year for the continent.

Emerging markets. Meanwhile, 2011 has put us on notice that the BRICS and other developing countries face economic, political, and social issues that could deflect their growth trajectories. Many companies have made these regions important elements of their growth strategies; we certainly have. But the fact that they hold enormous potential doesn’t mean emerging markets will be great performers year in and year out. As such, companies must be sure to keep an eye on their core business, maintaining quality in their products or services and flawlessly executing against strategic objectives.

Amid all these cautions and concerns, America has a terrific future. There’s enormous potential for growth in the area of energy; there are plentiful natural resources for us to use that can limit our dependence on precarious governments and foreign oil. 4G mobile broadband technology and cloud computing can transform America’s relationship to information exchange and storage, and help our country and businesses create whole new fields of industry.

The United States remains one of the most desirable places to live in the world, and that’s why our population is growing at a modest rate while other countries are seeing population slippage. We are attracting increasing numbers of immigrants from all over the world, who come to America to work and succeed. Immigrants have contributed to our entrepreneurial mindset and cultural innovation for centuries and enabled America to build new markets and industries. Immigrants have helped make the United States the greatest and most prosperous nation in the world. We should find thoughtful ways to welcome those willing to embrace our future with open arms and give them the opportunity to achieve.

I believe in America, and I believe that companies can help stimulate growth and make America even stronger. The business leaders who will win and prosper in 2012 and beyond are the ones who can recalibrate in the face of unexpected market conditions while remaining true to their core business and their strategic objectives.  They also are the leaders who will help create American jobs. I plan on being one of them, and I hope you will also.

Joe Echevarria is CEO of Deloitte LLP