The Great Stagnation: Why Hasn’t Recent Technology Created More Jobs?

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Why is it that the American economic recovery is moving so slowly and new job creation is low? PBS NewsHour Economics Correspondent Paul Solman takes a critical look at whether America is experiencing an innovation lull, as George Mason University economist Tyler Cowen claims in his new book, The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will(Eventually) Feel Better. Solman spoke with Cowen and to those who say he couldn’t be more wrong – that the nation is brimming with new innovations that will advance our quality of life.

Cowen claims we’ve picked all the ‘low-hanging fruit’ and that current innovations do not produce the same kind of new jobs, advancements and efficiencies in our everyday lives as, say, the washing machine or stove. “This is our central economic problem today,” he said.

Not so, counters MIT’s Andrew McAfee, Erik Brynjolfsson and others, who insist that the advancements in innovation and technology are making big contributions to markets, businesses, and job functions. “If anything, the rate of change is not slowing down,” Brynjolfsson told Solman. “It’s increasing.”

Economists’ Ties to the Financial Sector

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The Financial Crisis of 2008 shook the very foundations of the global economy. In this PBS Newshour video, Business and Economics Correspondent Paul Solman talks to Charles Ferguson, director of the Academy Award winning documentary, Inside Job, a film that raises concerns about conflicts of interest for economists in academics and their work within the financial sector. Solman goes on to explore how this film is influencing some leading economic thinkers today.

Click here to access a full transcript and mp3 audio file of this video.

Business Complexity has Grown Significantly Since the Financial Crisis

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New research confirms the financial crisis has significantly exacerbated business complexity. A recently released survey reveals that 86 percent of firms face increasing complexity in their operating environment or organizational structure over the past three years.

In the survey for the report titled, The Complexity Challenge: How businesses are bearing up, only 22 percent of senior executives think their organizations are well prepared to confront complexity in the future. More than one in four of them describe their firm as ‘complex and chaotic.’ The most prominent reason for the spiraling complexity is the greater expectations of customers. Complexity stemming from globalization or technology rank much lower in the list of causes.

The report also explains the wide range of measures companies are adopting to tackle the complexity; from cutting down management layers to simplifying product portfolios and processes. “It is clear from the research that complexity has become a constraint and a risk for firms,” says Abhik Sen, editor of the report. “Our study shows that some of the most successful companies today are the ones that are tackling this challenge head on by simplifying their organizations or business practices.”

Other key findings in the report include:

  • The single biggest cause of complexity is greater expectations on the part of customers. Increasing customer demands for more choice in the quality and range of products and services are providing the biggest impetus to complexity. The second most cited cause of complexity in the survey is regulation.
  • Complexity is exposing firms to new and more dangerous risks. Complexity has significantly increased the risk exposure of nearly one in five firms. The majority of survey respondents say complexity is affecting the ability of their firms to change business processes and is hindering the introduction of new products and services.
  • Businesses are focusing on technological solutions to tackle complexity. Simplifying information technology systems seems to be the most popular way to tackle complexity in business, along with efforts to simplify or consolidate product and service portfolios. As a source of complexity, though, technology comes in only at seventh place in the survey.
  • A majority of firms have an organizational structure that is adding to complexity. Nearly three in five survey respondents say that the organizational structure of their firms is exacerbating complexity. Almost half (47%) say it is difficult to work out who is responsible for what at their companies and 39 percent say that, as a result of the lack of transparency, there is considerable duplication of effort.

Click here to get your copy of The Complexity Challenge.

About the Research

The complexity challenge: how businesses are bearing up is an Economist Intelligence Unit (EIU) report commissioned by the Royal Bank of Scotland. The research is based on a worldwide survey conducted by the EIU in October-November 2010 of 300 senior executives from a wide range of industries. Approximately half the respondents represent firms with $500M USD or more in annual global revenue. Over half the respondents are C-level or equivalent and the others are directors or senior managers. A minimum of 125 respondents are from the finance function and a minimum of 125 represent functions other than finance. The Economist Intelligence Unit bears sole responsibility for the content of the report.

About the Economist Intelligence Unit

The Economist Intelligence Unit is the world’s leading resource for economic and business research, forecasting and analysis. It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946. EIU products include its flagship Country Reports service, providing political and economic analysis for 195 countries, and a portfolio of subscription-based data and forecasting services. The company also undertakes bespoke research and analysis projects on individual markets and business sectors. More information is available at www.eiu.com.

Healthcare Mergers: An Emerging Crisis

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Advocates of the president’s health care reform package have expressed alarm over a wave of mergers spurred by the new law.

Johns Hopkins Medicine, for instance, is snapping up hospitals in the Washington, D.C.-area, a move it describes as “driven largely by health care reform, which demands an integrated regional network.”

Johns Hopkins is not alone. Many established actors in the health care industry – including insurers, brokers and providers – are searching for ways to increase their market clout.

That’s bad news for ordinary patients, who will be forced to pay ever more for their care as the level of competition in the health care marketplace dwindles.

It’s easy to see why competition drives down costs. When insurers or health care providers have to battle one another to attract customers, they must differentiate themselves by charging lower prices or providing better service.

But if an insurer dominates a marketplace, it can raise prices and lower service standards with impunity.

Many insurers and providers are already taking steps to limit competition. Consider ‘most favored nation’ (MFN) clauses, which insurers use to prohibit hospitals or doctors from charging competitors less. Insurers claim that these discounts are necessary to help them secure the best possible deal.

Unfortunately, it’s the “best possible deal” for the insurer — not ordinary patients. The ‘low’ prices included in these MFN clauses are often based on artificially high price quotes from the provider. In some cases, insurers have actually agreed to increase what they’ll pay so long as other insurers are forced to pay even more.

Patients, of course, lose. The favored insurer passes along artificial cost increases directly to their customers, while disadvantaged competitors have to charge even higher premiums to continue offering access to offending providers. Many insurers simply exit a market once a rival negotiates an MFN.

Such an exit can be disastrous. According to an American Medical Association study, two or fewer health insurers control more than 70 percent of the market in 24 states. And if a competitor is foolhardy enough to try to work around an MFN, then the dominant insurer can simply force its rival out of the market.

A case in point is TheraMatrix, a small Michigan company. In 2005, TheraMatrix contracted with Ford Motor Co. to provide physical therapy services to its employees. TheraMatrix cut Ford’s costs by nearly half – saving the company millions of dollars. Last year, Ford expanded the program to cover 390,000 employees and retirees nationwide.

Everyone was happy – except Blue Cross Blue Shield of Michigan (BCBSM), which handled the administrative side of Ford’s insurance plan.

As TheraMatrix added other automakers to its customer base, BCBSM dropped the company from its medical provider network, which covers most Michiganians. BCBSM also threatened to revoke its other customers’ hospital discounts if they carved out their physical therapy benefits and contracted with TheraMatrix to provide them.

Blue Cross wrote that TheraMatrix’s operations were “competitive and damaging not only to BCBSM’s financial interests, but also to its business relationships.”

In other words, BCBSM would not allow its customers to shop around for better deals. And it would try to bully TheraMatrix out of business.

Such anti-competitive behavior harms employers and patients alike. Further consolidation of insurers and providers could make things worse.

Over the last 10 years, employer-provided health insurance premiums have more than doubled. Premiums for the most popular employer-provided plans are projected to increase by another 10 percent next year.

If businesses are to stop runaway medical costs, they’ll have to take control of their benefits. They can do so with the help of a new business strategy: ‘Healthcare Performance Management’ (HPM).

HPM uses powerful software to show companies where their health plan dollars are going, and where opportunities for savings exist.

For instance, HPM analysis of employee medical and prescription claims data might show that a company is spending too much on brand-name prescription drugs and that alternatives like generics could help it save millions.

Unsurprisingly, insurers don’t want to share this data with businesses. After all, if a company can’t pinpoint exactly how it’s spending its health dollars, it will be less likely to question premium hikes. Nor will it be able to find efficiencies, as Ford did, by cutting the insurer middleman out of the equation.

In many parts of the country, big health insurers have enjoyed virtual monopolies. Unburdened by real competition, they’ve abused their powers while businesses and their employees footed the bill.

HPM empowers businesses to inject competition into the healthcare marketplace and fight back against decades of cost increases. Employers should take advantage.

Additional Information

In addition to the invaluable insights George shares in this StrategyDriven Editorial Perspective article are the resources accessible from his website, www.HPMInstitute.org.   George can be reached at [email protected].

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About the Author

George Pantos is Executive Director of the Healthcare Performance Management Institute, a research and education organization dedicated to promoting the use of business technology and management principles that deliver better and more cost-effective healthcare benefits for employers who provide health insurance coverage for employees and their dependents. To read George’s full biography, click here.

StrategyDriven Editorial Perspective – Hiring Uncertainties

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The extension of Bush-era tax breaks, healthcare reform and an increase in the rate of hiring in November suggests that the economy is gaining momentum. Unfortunately, few expect a change in the 9.6 percent unemployment rate. Yet despite this constant, many economists are optimistic about the Nation’s hiring forecast.

Two pillars of the economy – jobs and consumer spending – appear to be on the upswing. Factories are producing, auto sales are rising and new businesses pop up daily. Also, applications for initial unemployment benefits hit a two year low in November and 151,000 new jobs were created.

Job creation does not necessarily correlate with lowering the unemployment rate. According to analysts, the economy would need to consistently add 200,000-300,000 jobs a month to make a noticeable dent in the unemployment rate. Despite the job creation shortfall, the economy is moving in the right direction. Economists predict that the United States economy will grow at a three percent pace in the October-December quarter, up from a two and a half percent growth rate in the July-September quarter.

Will the steady increase in the economy translate into a positive hiring forecast? The results are mixed. The increase in private sector jobs suggests that retail and factory jobs will continue to climb. The same cannot be said for small businesses, mainly due to uncertain tax future many businesses face.

The issue at the heart of this uncertainty involves limited access to capital at a time when banks are reluctant to lend. Taxes further hinder these businesses’ ability to produce. If a business owner has to pay higher taxes on net earnings, the business is much less available to do other things needed to contribute to the economy such as hire employees, buy equipment and expand. Many small business owners seek long term tax strategies rather than year-by-year decisions that make planning for the future of their business impossible.

Recent healthcare reform is also adding to economic uncertainty for small businesses. Many of the provisions of the sweeping health-care bill passed by the House of Representatives in March won’t kick in until 2014, however these provisions spell big changes for small businesses.

By no later than 2014, states will have to set up Small Business Health Options Programs, or “SHOP Exchanges,” where small businesses will be able to pool together to buy insurance. Businesses with more than 50 employees will be required to either offer healthcare coverage or pay a penalty of $750 a year per full-time worker. Part-time employees would be counted toward the 50-employee minimum on pro-rated basis based on hours worked, bringing more small businesses into the group required to provide coverage.

This clearly effects hiring as many small businesses have been able to exclude part time employees from healthcare benefits and from its total number of employees. However, the proposed reforms could help spur entrepreneurial activity by increasing the incentives for talented Americans to launch their own companies, and could increase the pool of workers willing to work at small firms. Further, successful reform would reduce the phenomenon of ‘job lock,’ in which workers are reluctant to leave a job with employer-sponsored health insurance out of fear that they will not be able to find affordable coverage.

As both the future of business tax as well as healthcare reform are uncertain, the countries hiring forecast is foggy. However, both private sector jobs and consumer spending have risen creating an optimistic attitude among economic analysts for our country’s economic future. New healthcare laws also suggest a possible increase in entrepreneurial activity, thus creating more jobs, hopefully creating a positive hiring trend.

About the Author

As CEO of MyCorporation Business Services, Inc. (www.MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for all consumers. With experience in the field of corporate and intellectual property law, Deborah provides insightful commentary on the benefits, barriers and who should consider incorporation and trademark registration.

Deborah joined MyCorporation in 2003 after serving as outside general counsel for 5 years. She received her Juris Doctor and Masters in Business Administration degrees from Pepperdine University and is a member of the American Bar Association.

Deborah served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the area of corporate and intellectual property law. Because of her extensive knowledge, Deborah has long served as a speaker and panelist on legal issues affecting new to the world and growing businesses.