WHAT'S BEEN THE SECRET OF AMERICA'S ECONOMIC SUCCESS?

What are the big, basic things that make economies grow?

ECONOMISTS AND POLITICIANS argue about degree and detail—and they surely do—but generally speaking:

• Encouraging competition

• Keeping taxes low, and

• A tight monetary policy

are the three drivers of economic growth.

HERE'S HOW THOSE POLICIES worked for America these past 25 years.

Encouraging competition.

When companies fiercely compete with one another, the result can be lower prices and more innovative products and services. Competition forces companies to constantly innovate—whether through new technology or business models or management processes—to keep ahead of rivals. And key to competition is keeping government regulation as light as possible while also keeping products safe and preventing harmful monopolies.

Starting in the 70s, many American industries were deregulated, including airlines, trucking, railroads, banking, electricity, and communications. This broke down concentrations of market power and unleashed innovation.

Deregulation and increased competition through global trade in many ways have created a more vibrant economy. (London, Paul. The Competition Solution. 2005.)

Established financial institutions such as big New York banks, the New York Stock Exchange, and insurance companies had to compete with junk bond financing, the Nasdaq stock market, and bigger regional banks. Southwest led the challenge to United and American Airlines. And, of course, Wal-Mart challenged locally powerful department and grocery stores.

Deregulation creates flexibility and flexibility clears the way for innovation.

Keeping taxes low.

While the Reagan tax cuts of the early 80s—dropping the top rate from 70 percent to 28 percent and indexing tax brackets for inflation—get much of the attention by economic historians, there was also the capital gains tax cut of 1978 that Jimmy Carter signed reluctantly and the 1997 capital gains tax cut signed by Bill Clinton.

Lowering tax rates does the opposite of what high taxes do, namely, discourage job formation, discourage savings and investment, and encourage tax avoidance and evasion.

As Clinton's Council of Economic Advisors stated in 1994, "It is undeniable that the sharp reduction in taxes in the 80s was a strong impetus to growth."

Tax increases appear to cause a very large, sustained, and highly significant negative impact on economic output. Tax cuts, on the other hand, cause very large and persistent positive effects on economic output. (Romer, David and Christina. White Paper. Univ. of California - Berkeley. 2007.)

All things being equal, lower taxes stimulate economic growth while higher taxes depress it.

A tight monetary policy.

Let's start with the opposite, a loose monetary policy. A loose monetary policy flirts with the prospect of inflation and the dangers it brings. Inflation is bad because it devalues the currency and causes prices to rise. Rising prices cut purchasing power and distort investment decisions. Individuals and businesses look for inflation shelters instead of investing capital where it can be most efficiently allocated.

Inflation seemed out of control heading into the 1980s, but deregulation and tighter monetary policy under Fed Reserve chairmen Paul Volcker and Alan Greenspan helped inflation fall from double-digit rates to today's two to three percent.

Low inflation brings price stability and the two are seen by many economists as essential for long-term growth.

By preventing inflation, a tight monetary policy avoids inflationary spikes that usually leads to recessions. A recession is the natural consequence of an economy wracked by inflation. It's as if inflation sickened the economy and the medicine is recession.

To repeat, a sound monetary policy keeps inflation in check and avoids the danger of a recession.

SUMMARY

There you have it! The big three secrets to America's economic prosperity for the past 25 years are:

• Deregulation that encouraged competition that fostered innovation that made American industry more productive,

• Low taxes that encouraged beneficial investment decisions back into the economy, and

• A tight monetary policy that kept inflation under control and avoided a recession that would have contracted the economy.

REFERENCE

• BusinessWeek. "What's Been the Secret of America's Economic Success?" Internet. November 2007

EFFECTIVE DISASTER RECOVERY & BUSINESS CONTINUITY

Best Practices


If I had to distill the best practices of an effective DR and BC program, it would boil down to a short list of four concepts. Each concept directs you to pursue a course of action that contributes to a successful Disaster Recovery (DR) & Business Continuity (BC) program.

These four concepts are:

• Work out a realistic vision of your organization’s survival objectives and develop your plan based on it. The key word is “realistic.” You need to know your organization's objectives are realistic because your plans need management's support.

• Review and regularly refine your plans. Be proactive. Your DR and BC plans are meant to be living documents. They’re useless if they sit on the shelf. Review the plan internally as well as through the eyes of experts. Unearth shortcomings. Cover the gaps. America’s leaders don’t think it’s a question of “if” but rather a question of “when” before terrorism strikes at our heartland again.

• Anticipate and adjust to your environment. Continuously. There are “big” changes like new regulations and new technologies and “small” changes like employee turnover and new phone numbers. Big or small, these changes must find their way into your plans.

• Practice for the real thing. There’s no substitute for going through the exercise. It’s probably not possible to exercise all or even most of the plan but that shouldn’t stop you from doing parts at a time. Seek senior-level sponsorship especially for this next piece. Exercise your plan with as little advance notice as possible. Disasters don’t usually announce themselves—they just happen, don’t they? Practice benefits you an important way. It exposes your plan’s flaws. Most of the time, you’ll find it’s the people that “betrays” you. Their apparent apathy is behind their lack of preparation. This reminds me of a fire drill years ago at our office on the umpteenth floor of a high-rise. Nobody took the drills seriously—even the “old-timers”—until building management hired a retired fire chief to conduct the drill. In gruff tones and with piercing eyes, he told us how quickly the flames would spread and why we would probably not burn to death. The smoke, he growled, would kill us first.

There you have it. Four common sense concepts:

1. Identify and fill in a realistic vision of your organization’s survival objectives. What are the goals and what will it take to achieve them?
2. Review and regularly refine your plans. Don’t wait for a disruptive event to update your plan. Be proactive.
3. Anticipate and adjust to your environment. Ensure senior management is involved. BC and DR are not IT concerns. They’re business concerns. IT just happens to be the one tasked with the program.
4. Practice for the real thing. Flush out your deficiencies. You can bet there’ll be many. Hire a fire chief and then begin a regular disaster awareness and training program.

Good luck!