23 June 2009

Sustainability and the New Economic Order

I am not an expert in either macro or micro economics other than the fact that I studied both at university, and have managed budgets of several million dollars during my lifetime. What I do know well is the concept of sustainability learned from my work overseas on United States Agency for International Development activities. The concept of sustainability stipulates that any activity promulgated by a USAID funded project should, by definition, be sustainable once the USAID mission closes down funding for any particular project. I learned that my concept of sustainability and that of USAID can vary by 180 degrees. My first major lesson in sustainability came in Grenada. The United States decided to provide this poor Caribbean country with a large influx of aid following the “invasion” in October, 1983. It is likely that the United States spent nearly $100m trying to “rebuild” the country in what was our first, of many to come, exercises in “democracy building.” One of the myriad of activities was to build a new road around Grenada and two cross island roads to replace the wholly impassible roadways which had potholes filled with 55 gallon oil drums. Upon my arrival in Grenada, no car was able to drive faster than 10 miles an hour, and even the shortest of trips were painfully slow due to the lack of consistent road surface. Morris-Knudsen (MK), formerly a big player in international development, was hired to build the roadways. MK got to work on this task and the mess and mayhem created was beyond anyone’s imagination who had not worked, or lived, in a developing country. By the time of my arrival in Grenada, I was a seasoned professional when it came to understanding the ways of the developing world. I was not shocked by the roads given how bad the roads were in Asia from which I had only recently moved. I was, however, new to the USAID world and the concept of sustainable solutions. The building of the roads by MK provided me with a lifelong lesson which I like to share with people who are new to development. With the roads freshly completed, and the visit of Ronald Reagan completed, the stormy weather began, and the brand new roadwork was soon chipped away at an alarming rate. The reason you ask? MK had not taken any steps to divert the flow of water under the road into culverts or a sewer system. Within 6 months, the once pristine roads were in tatters. I asked someone at the USAID office why MK had neglected to build water diversion into the new road system and was told the following, “it was not part of their contract.” So MK had bid specifically on building approximately 125 miles of roads and its proposal was selected because it met the USAID specified criteria announced within the request for proposals (RFP) which did not include the diversion of water. MK was selected because they, most likely, provided the lowest cost proposal – no wonder. So there it was, an unsustainable solution staring everyone in the face, yet no move was made to adapt the project on the basis of knowing, without a doubt, that the roads were going to quickly erode away. And they did, rather quickly. Patches were applied, potholes became abundant, and the 55 gallon drums reappeared as the speed limits fell.

Why the lesson in sustainable solutions?

The American economy is in tatters, similar to the roads in Grenada. The Obama administration has gone to great lengths to “fix” the dikes which are springing leaks everywhere. The expression “too big to fail” has become a mantra in Washington, New York and other world capitals. From what I read in my econ classes, the key element which differentiates America from the rest of the world is free enterprise coupled with the chance of failure. It is the risk of failure which often drives people to success. My grandfather had a business which was very successful. His family, immigrants, came to America to build a life girded with a strong desire to succeed or risk failure. There was never the thought of the government coming to the rescue if he did fail. The same is true today with hundreds of thousands of small and medium sized businesses which may fail and will not receive any form of resuscitation. However, AIG, the largest insurance conglomerate in the world is too big to fail. For the past 10 years AIG took on riskier and riskier financial instruments in order to provide value to its shareholders. The U.S. government has stepped into the fray and become the modern day Sisyphus, providing billions, if not trillions of dollars to help companies which are “too big to fail.” While I consider myself a socialist, I am a fiscally conservative socialist who believes that it is not the role of the government to save private sector companies such as General Motors, Bank of America or Bear Stearns. In the world of international development, one must create a sustainable project or accept failure and realize that “all the king’s horsemen couldn’t put Humpty Dumpty together again.”

It is odd that USAID is constantly stressing sustainable solutions while the head of our government is supporting non-sustainable, batten-down-the-hatches and be-prepared-to-take-on-water solutions. What happens if these measures to stave off the economic failure of America do not succeed? What is the fallback plan? Would it not have been wiser to have allowed companies, who made stupid mistakes and risked it all on the bottom line, to fail? Would our economic institutions and business sector be stronger had we allowed these companies to fail? What is the price of failure? The unemployment rate would probably skyrocket beyond the present 10% level. Michigan and California would fall into whatever the equivalent of Chapter 11 is for a state, but, in the end, perhaps a few years from now, wouldn’t the American economic footing be better and more sustainable? I recognize that I say all of this at the risk of being called a conservative, but I am certainly not that. We are not building sustainable solutions. Are we, as a government, simply “buying" our way out of failure only to feel the full brunt at some point down the line? My concern is that Obama might become the Jimmy Carter of the 21st century. Jimmy Carter came into office when inflation and interest rates began to skyrocket. While he is one of the greatest statesmen of our time – he did bring together Sadat and Begin to create a peace accord which stands today between Egypt and Israel – he ignored the economy during his presidency and, as a result, gave us only 8 years of a democratic presidency during the last 28 years. If Obama is not on top of this economic crisis, and he is unable to make it over that last wave – think of The Perfect Storm and that very last wave which sank the Andrea Gail – and this will likely usher in conservative leadership for another three decades. I did not like Ronald Reagan at all, but he did say one thing which remains as true today during the presidential candidacy debates with Jimmy Carter – “It’s the economy!”

Americans have put up with two simultaneous wars and elected the first minority candidate to the presidency, a progressive who represents a real chance for change, but once the middle class of America fails economically they will vote for anyone who promises to get them out of the morass. While Obama inherited a nasty mess from George W. Bush who will likely go down in history as our worst president, he may be the next Jimmy Carter and some nameless Republican will ride in on a white horse to save the day.

I travel all over the world and the United States, and see a lot of roads with potholes which need fixing. Whoever resolves the financial crisis must remember to design and implement a water diversion solution.


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