In the new year, let’s increase trust and create more inclusive growth
2016 has led to a crisis of trust, says EY Global Chairman & CEO Mark Weinberger. We need to respond by creating more inclusive growth
Last year was a tough one for the global economy. In 2016 we had to weather more than a few political and economic crises and, as we enter 2017, it’s clear that uncertainty is at an all-time high, even as some economic improvement appears to be taking hold. But if we hope to make any progress in this new year – politically, economically or socially – then we have to address the systemic crisis that lurked beneath last year’s problems: a lack of trust in institutions.
On both sides of the Atlantic, millions of people have made it clear that they no longer believe business and government are looking out for their interests. Business and government have added to this disenchantment by castigating each other in recent elections and constantly pointing the finger at each other for our economic problems. In doing so, we’ve further confused and confounded the population, eroding trust to record lows. In the face of this, as more and more people are left out and left behind by globalization and technological disruption, it’s no wonder populist movements are reshaping our world.
It’s safe to say that we’ve heard this message loud and clear, so now the question is, how can we respond?
Business and government can restore trust and prosperity, but neither can succeed alone
First, we need to recognize that we all have a part to play in the solution and that starts by looking at where we’ve each fallen short. On the political side, we’ve seen a myriad of well-intended policies that increased the cost of opening businesses and hiring people, along with nationalist policies that made it harder for global businesses to operate supply chains around the world. All of this has increased costs and inhibited investment. On the other hand, businesses focused on improving quarterly profits have cut back on capital expenditures and investments in innovation that create long-term value and benefit the broader economy.
We can all do better, but, to end this cycle and get the job creation and growth that benefits everyone, business and government need to work together. Governments need to change many of the existing policies that hold us back, including reducing the red tape involved in opening businesses and obtaining certifications, as well as stopping unnecessary costs for businesses that hamper their ability to hire and invest. Businesses need to make a broad commitment to focus on all their stakeholders – employees, supply chains, communities and customers – and not just short-term profit.
Not only do we need to individually achieve these objectives; we need to partner together. We’ve seen that in America, where businesses have partnered with local governments and universities to build innovation hubs that create jobs, train workers and drive growth. We’ve seen it in Germany, where business and government work together to ensure apprenticeships offer a path to prosperity. That’s why I personally – along with many of my CEO colleagues – serve on boards and government advisory committees around the world, working to offer counsel to governments as they work to attract investment and propel economic growth. I’ve learned that to do any of that work, you need a baseline of trust. Without it, success is nearly impossible.
Once the broader population sees and believes our joint commitment to achieve inclusive growth, trust will be restored.
Address the hard truths of disruption and job displacement
However, before we can regain the public’s trust, we also have to be honest about some hard truths of globalization and disruption.
The fact is, we’re not going back to the middle of the 20th century. The global economy is changing fast and today’s businesses – large and small – rely on global supply chains and global markets. If business turns away from the global community, we’ll just get less efficiency and economic growth and an increased risk to global security. Instead, we need to find a way to keep trading and growing together.
At the same time, we should support those who are being left behind and that means acknowledging that some parts of our economy are never going to be the same. For example, the vast majority of lost manufacturing jobs will never return. More than 85% of recent job losses in America were not caused by outsourcing or trade, they were the result of technological innovations that made the manufacturing process more efficient. In fact, compared to three decades ago, today American manufacturers produce twice as much with only a third of the workforce.
This is why the movement toward inclusive growth is so important: in the past decade, the top 1% of earners have seen a disproportionate amount of wealth accumulation. That’s not sustainable. Since economic growth is largely driven by consumption, if we expanded income and opportunities to the broader population, we’d see far more robust global economic growth. It’s imperative that business and government work together to speed up the rate of inclusive growth and improve economic security for a broader population, even as the global economy continues to change.
For instance, we can help train displaced workers for new jobs that are in demand. Manufacturing jobs are disappearing, but middle-skill jobs, which require additional training or credentials but not a Bachelor’s degree, are not. In the next seven years, 16 million of these jobs – like electricians, dental hygienists, teaching assistants and a long list of others – will become available in the United States alone. These are the jobs that will make the economy work for everyone, but only if workers have access to the training programmes they need.
In response, business could make a big push to invest more in apprenticeships and training. This would help displaced workers find success in today’s economy, while building the workforce of the future. In addition, businesses can work with high schools and vocational programmes to create public-private partnerships for job training. These programmes are a public service and good for business: for every dollar that a company spends on apprenticeships, they can earn nearly a dollar and a half in returns.
Of course, training is just one of the many solutions we need. Above all, we need to get beyond the distrust that exists between business and government. We’re going to have to get along, because ultimately we need each other. Business needs government to put strong, pro-growth policies in place; and government needs business to create new jobs and to invest and drive that growth. When we trust each other and demonstrate the results, we will regain the trust of our stakeholders and constituents.
So this year, let’s put partnership first. We still have solutions to search for – and the devil will always be in the detail – but real leadership and inclusiveness means figuring out those details together.
This article was originally published by the World Economic Forum, January 2017, under the headline "Business has been part of the problem. Now it must be part of the solution".