Ron Johnson

From Daily Planet Staff Reports

The current trend in the government’s economic policy will result, at best, in high inflation far into the future and, at worst, the bursting of another asset bubble, decimating the U.S. economy beyond recognition. In either case, Americans need to respond now by being bold and creative.

The aforementioned is the view of economist Ron Johnson, who addressed a gathering of about 60 businesspeople Jan. 26 at the Renaissance Asheville Hotel.

Johnson, dean of the College of Business at Western Carolina University, spoke on “Pathway to the New Economy” during a program hosted by the Blue Ridge Entrepreneurial Council, part of regional development group Advantage West.

Also speaking was marketing expert David Kemper, who addressed “Strategies for Success in 2010.” Kemper is president of KemperStrategy Inc., an Asheville-based consulting firm. A story on Kemper’s address appears elsewhere on this page.

Each man spoke for about 30 minutes in a program that was billed as focusing on what entrepreneurs can do to “surf among the sharks.” Specifically, the speakers addressed what businesses can do to capitalize on available opportunities in the economic climate in the coming year. They also fielded several questions from the gathering after their presentations. (The Q&A story appears at the end of this article.)

“I’m here to tell you, don’t wait for Godot,” Johnson said. “Godot isn’t going to come” and, therefore, nobody should resort to suicide, as in the Samuel Beckett play “Waiting for Godot,” “The government is the government ... I don’t know if they’re like the Hatfields and McCoys or what.”

Johnson focused on three topics, including his assessment that the U.S. is experiencing an economic recovery, which he termed unsustainable in the long term based on government policies; challenges that remain; and what he termed “options for the path we’re on.”

He said the housing bubble “led to the longest and steepest recession since the Great Depression. Johnson showed a chart that included, at the end, “a little dip going up — that’s the recovery.”

Johnson said, “A lot of things are missing” in the recovery numbers and he would be addressing “how we can fill in the pothole.”

He said a number of outward, or leading, indicators — “all up” – show the economy is improving, including personal consumption, expenditures and consumer confidence.

The models suggest a 3 percent-plus growth rate will keep us from a loss of jobs,” Johnson said. “I expect us to be able hit that. But 3 percent GNP growth won’t be enough to put a dent in our unemployment rate. You need something north of 4 percent GNP” to cut joblessness.

Next, he showed a chart that indicates capital spending less cash flow is negative, meaning “people are hoarding rather than investing (their money) in business.”

“This will only turn up when we get to that 4 percent” GDP rate, Johnson said.

While the government could take some actions to encourage business investment, the best policy, in his view, would be to set a steady course its economic policies to eliminate uncertainty among entrepreneurs.

“Unemployment is a challenge ... It’s a real deep-rooted probem ... Current government policies, right now, are highly inflationary.”

Among the crises that America faces are over jobs skills, inflation, government debt and management policies and uncertainties, Johnson said.

As for “options for the path that we’re on,” these include, what he termed “the best near-term option;” stagflation, which is “better than a bubble;” and a bubble, which he called the “worst of all options.”

He added, “If we hit that next bubble, it’s over. I’ll be planting my Victory Garden.”

He said bubbles “get bigger and bigger till they take us out ... The only good news (regarding bubble fears) is China. Last week, China slammed on the brakes” on its economy to avoid worries about a bubble bursting there.

(Specifically, Johnson was referring to China’s show of concern over rising inflation pressure. In response, China has in recent weeks moved to withdraw liquidity from the financial system. In recent days, state-owned banks have been instructed to temporarily suspend lending.)

“Inflation is a tax,” Johnson said. “Now, we can get on a different path” to avoid inflation, stagflation and a bubble, but this is the path we’re on and this will affect everyone — for-profits and nonprofits.”

To that end, he said opportunities for the future include being built to compete and an ability to move to the next level.

Built to compete means providing high value to the customer, he said. He also said that approach involves examining a balance sheet from an entrepreneur’s viewpoint, emphasizing assets in place and growth assets versus that of an accountants. He quickly added that both approaches are valuable and necessary.

As for the idea of moving-to-the-next level, he said, an entrepreneur must “approach the market differently than built-to-last companies. You’ve got to be a built-to-compete company. It involves a set of core practices. I serve my client well and, as a result, I get paid.”

In summary, Johnson said, “We’re in an economic recovery, but I say to you, don’t wait for Godot and commit suicide when he doesn’t show up. Instead, build and create for the future.”

In a question-and-answer period afterward, a woman said she “had to ask” about the reference to “built to compete — what do you mean?”

“What problem are you trying to solve?” Johnson said is what the reference addresses. “We have to stop looking backwards. We live in a world of complexity. Nobody has the intellectual capacity to solve any problem alone. You have to be willing to collaborate. Talk with you competitors ... Leadership is about change,” as opposed to good managers, “who manage stability.”

Attendee Dan Barron asked Kemper if there is “anything in particular you feel nonprofits should consider, especially in these times?”

“Sustainability — it’s really a for-profit model,” Kemper replied. “Nonprofits have to look at different revenue streams.”

What’s more, Kemper said the reference to “nonprofits” is a misnomer, asserting that a more accurate reference would be “it’s not-for-tax.”

He added, “Everybody in the country needs to move toward the built-to-compete” model.

A man asked the speakers for their thoughts on the trend in many local communities, including Asheville, for private groups to issue their own currencies, competing with that of the government.

“There are lots of examples in Scotland,” Johnson said. “Just like every other cash, you have to have faith that everybody’s not printing out (excess) cash.”

Further, he said, “It’s a way, basically, to get out of the tax system. It can become an underground economy.