‘Woe Is Us’: U.S. Growth Scenarios for Dynamism — or Decay
The vitriolic public discourse in this presidential election season puts the United States at the crossroads of critical economic and political choices that will drive the direction of the economy for decades. Those choices will mean “the difference between stability and prosperity, on the one hand, and decline and uncertainty on the other” as the U. S. approaches its 250th birthday in 2026, according to this opinion piece. The co-authors are: Paul A. Laudicina, partner, chairman emeritus of A.T. Kearney and chairman of the firm’s Global Business Policy Council (GBPC), a forum of CEOs and thought leaders focused on assessing global strategic opportunities and risk management; and Erik R. Peterson, a partner at A.T. Kearney and managing director of the firm’s GBPC.
The 2016 Presidential Election and the Hunt for Authentic Strategy
Woe is us. We are entering the presidential election year in the United States, and when it comes to genuine strategic insight and policy recommendations the vast majority of the statements and positions of the various candidates are at best threadbare. Insults and sweeping generalizations have dragged down the quality of discourse. Spurred by the 24/7 media, sensationalism has bested genuine innovation. Fact has become fiction. And hearsay and innuendo have suddenly become credible and appear to be beyond reproach.
“Reality politics” has arrived in full force. Perhaps all this should inspire us to revisit Bertrand Russell’s wise observation 80 years ago: “The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt” (Russell, Mortals and Others –1931-35).
Worse, however, is that the content from most of our would-be presidents is focused almost exclusively on the issues of the day. It is political ADHD — the equivalent of issue ambulance-chasing with a view to capitalizing on the latest news cycle. It amounts to strategic planning by triage.
This would be noxious under any set of circumstances, but it is especially toxic in the context of the United States in the year 2016. In place of the current parochial debate, what is badly needed is inspirational insight — and not the diet of transparent pandering, restatements of the obvious, unsubstantiated stories, and meaningless generalizations that we are now being force fed. What is needed is a vision of the United States to come — a vision informed by concrete measures and goals in the longer term.
“If we chose to spend that $5.1 trillion on education, we could fund four-year college tuitions with room and board for 213 million students or pre-school for all American children through 2058.”
The stakes are tremendous. There have been many points of American history during which key political decisions would foreordain the path of the country for decades to come, and we believe that we have reached one of them now. Why? Because the country stands at a number of simultaneous inflection points in its development that will mean the difference between stability and prosperity, on the one hand, and decline and uncertainty, on the other.
Americans have entered into a Dickensian “best of times…worst of times” environment with the country facing both inspiring possibilities and sobering truths — very few of which have surfaced during the campaign. Decisions taken by the next president over the course of his or her first term — 2017-2021 — will largely condition what the country will look like in the years well after their presidency.
Our private think tank, A.T. Kearney’s Global Business Policy Council, has devoted months to doing a careful assessment of the potential outcomes for the United States out to 2026 — when the country will mark its 250th anniversary (Sestercentennial). The goal of the effort — what we call “America@250” — is to provoke discussion and debate in the country on the strategic implications of decisions in the present. We have drawn on multiple inputs: a thorough review of the major drivers and indicators of long-term U.S. economic performance as well as other metrics of national competitiveness; ongoing discussions with leading business and government officials, a series of focus groups with Americans across the country, and the development of customized scenarios informed by econometric analysis.
Light or Dark?
These efforts have brought us to the overarching conclusion that the United States faces the potential for either very bright or equally dark futures just a decade from now. America@250 has a future defined by ever wider standard deviation — marked by either greater opportunity or greater threat.
On the positive side of the ledger, America is uniquely well-endowed: the sheer size of its economy; a dynamic innovation economy delivering remarkable technological progress; strong demographic growth; a world-class higher education system; a disproportionate share of the world’s most successful businesses; an entrepreneurial spirit that is the envy of the rest of the world; the strongest military bar none; and plentiful natural resources including world-leading energy production. Considered together, these strengths point to inspiring possibilities for the country’s future.
“… That income inequality at its highest level since the 1920s raise concerns about the future of the American workforce and social relations.”
However, there are also some sobering truths that leaders must acknowledge. After sky-high unemployment during the Great Recession, the United States continues to face a serious skills gap with serious implications for its future workforce. The country’s tax system — recognized by all as a debacle — continues to distort incentives. The condition of America’s physical infrastructure continues to deteriorate, with the American Society of Civil Engineers consistently giving it a D grade.
We are only beginning to understand the compounding effects of climate change, but among the many likely negative outcomes, leading scientists put the likelihood at higher than 80% of a once-a-millennium “mega-drought” affecting vast swaths of the country later this century. Low scores on reading, math and science for K-12 students relative to other high-income economies and the fact that income inequality at its highest level since the 1920s raise concerns about the future of the American workforce and social relations. And political polarization is an urgent and seemingly intractable challenge.
Maximizing America’s advantages and overcoming the growing challenges will require political will and consensus at a time when both are in short supply. Perhaps the most worrying statistic is the incredibly low levels of confidence that Americans have in the core institutions of government. Gallup’s monthly poll on Congressional job approval ratings has largely remained below 20% since 2011, falling to just 11% in November 2015. This negative sentiment extends to the rest of the federal government, as well. Only 38% of Americans had a “great deal” or “fair amount” of trust in the federal government on domestic issues as of September 2015 — the lowest level ever recorded. This reflects a more-or-less steady downward trend that began in 2002.
“The high-growth scenario would yield income per capita over $69,000 in 2026, but only about $54,500 in the lowest-growth scenario.”
And American voters have chosen to accelerate what they characterize as a destructive trend of hyper-partisanship and lack of political cooperation between the parties. The Pew Research Center describes today’s new era of intolerance well: “To be sure, disliking the other party is nothing new in politics. But today, these sentiments are broader and deeper than in the recent past.”
So which way will our country go, and what is truly at stake? Just how much could we gain or lose in the span of a decade? Our research centers on four plausible visions of America’s future in 2026, based on the way in which two key uncertainties will play out over the coming decade: economic performance and national alignment. Our four scenarios for what we call America@250 are:
So Gallantly Streaming: America is lifted to new heights by a renewed spirit of bipartisanship, shared purpose, breathtaking technological advances, and a diversified, vibrant economy.
Twilight’s Last Gleaming: America is in deep decline, paralyzed by political polarization, low economic growth, infrastructure degradation, declining education and healthcare and eroding global competitiveness.
The Perilous Fight: Technological innovation powers pockets of the American economy, but widening income inequality and scarcity of opportunity tear at the fabric of society.
Dawn’s Early Light: Politically awakened Millennials reshape American policy, slashing defense spending and increasing investments in education and human services. Millennial consumers pursue a less materialistic American Dream, slowing economic growth.
The econometric model we have built to translate the qualitative assumptions underlying our scenarios — technological disruption increasing unemployment, for example — allows us to project GDP growth through 2026. Based on this modeling, we can forecast circumstances that would lead to higher average annual economic growth through 2026 (3.4% in “So Gallantly Streaming and 3.0% in “The Perilous Fight”) over the baseline projection of 2.6%, as well as two alternative futures with lower average growth (2.1% in “Dawn’s Early Light” and 1.4% in “Twilight’s Last Gleaming”).
The modeling output of our lowest growth scenario (“Twilight’s Last Gleaming”) against our highest growth scenario (“So Gallantly Streaming”) was nothing short of stunning. The high growth scenario would yield income per capita over $69,000 in 2026, but only about $54,500 in the lowest growth scenario (compared to about $50,000 today). That difference in growth by 2026, could mean a difference in U.S. GDP of $5.1 trillion annually — an economy of $24 trillion versus one of $18.9 trillion.
The real gains or losses for American businesses and citizens implicit in these two possible outcomes will have profound impact on the sustainability of U.S. government finances, Americans’ quality of life, and U.S. national competitiveness. For instance, $5.1 trillion could buy 17.5 million U.S. homes or all necessary U.S. infrastructure repairs with $2 billion to spare. If we chose to spend that $5.1 trillion on education, we could fund four-year college tuitions with room and board for 213 million students or pre-school for all American children through 2058. Alternatively, if we prioritized scientific spending, $5.1 trillion could increase the annual National Cancer Institute budget 1,000 times over or fund 51 manned missions to Mars.
The stakes therefore are astronomically high for America@250. Will the next president and the new Congress work together to address America’s challenges while capitalizing on its strengths? Which of the four America@250 visions will the country start to move toward during the next administration?
It is incumbent upon U.S. business leaders and all Americans to challenge this year’s crowd of presidential candidates to clearly articulate their vision for the United States in 2026 and beyond and how their proposed policies would make that vision a reality.
We are living in truly historic times. The decisions we make today will have the same immense impact on the legacy we leave our children and grandchildren as the decisions taken by previous generations have had on their successors. Active, informed dialogue about these stakes will help lead our nation to make the kind of long-term, strategic choices in these times of sobering truths to unleash a future of inspiring possibilities.