America: This Decade and Beyond

Speaker Name: L. M. Baker, Jr.
Speaker Title: President and CEO
Speaker Company: Wachovia Corporation
Wachovia Corporation Website


L. M. Baker, Jr.In the period ahead, the economy should, barring an emergency or unexpected upheaval, behave predictably. It will not do any of the things influential people want it to do. The President will be unhappy. The Congress will blame predictable shortfalls on the President, or, even better, on some other President. They are always blaming something on somebody.


Some congressional leaders will attack the Federal Reserve for being too permissive or excessively restrictive. The intent of this is congressional control of monetary policy with justification stemming from their superb performance on the fiscal side.


Citizens will be apprehensive. They have voted and put themselves on the line, volunteering in the most wonderful tradition of American generosity, to belly up to the bar to make things better. If things are not better, they are going to be very angry. All of these things seem predictable.


The uncomfortable part of this unfolding story is the predictable lack of growth in the economy, underscored by a shortage of jobs. This is a serious problem because no one has spent much time in a straightforward way telling Americans what is really happening to them and their children. This is why they are going to be mad when they find out.


For a few moments, I would like to talk about the economy, the challenges faced, and offer a brief look at the future.


In the decade of the '80s, GNP grew at 2.8 percent. Extracting the nineteen-month recession ending in late 1982, the remaining seven years of the decade saw growth of 3.8 to 4 percent. Immediately following the 1982 recession were rebound growth quarters of 11, 6 and 8 percent. That performance will not be repeated in this century.


During the '80s -- a period of strong growth and prosperity to which citizens became easily accustomed -- inflation dropped steadily, the dollar weakened, interest rates declined, productivity rose, exports climbed, and jobs grew, principally in the service sector. Personal income and consumption increased. Throughout the decade, debt of consumers and corporations grew more than the economy.


Unemployment rebounded from 11 percent in January 1983 to 5 percent in 1989 and then receded to 7.5 percent in June 1992, before settling currently at 6.7 percent. Government spending grew at federal, state, and local levels, accompanied by increased borrowing to finance bureaucratic employment, growing entitlements, and medical support programs.


Defense spending as a percent of GDP decreased from 6.5 percent in 1986 to 5.3 percent in 1992. Net interest on federal debt grew from $52 billion at the beginning of the 1980s to $184 billion at the beginning of the 1990s. The government's interest bill for 1992 was $200 billion. Over the last ten years, entitlement programs, principally benefitting middle and upper-income people, grew from $340 billion in 1982 to $700 billion in 1992, a doubling.


The booming '80s set the stage for difficulty in present times by raising expectations of Americans to heights that could not be sustained. The adjustment recession of 1990 and 1991 was endured sullenly by the population which was, after three decades of high political promises, in no mood to compromise and not much inclined toward belt tightening. At eighteen months duration, the recession was long, but not as harsh as previous ones. Nonetheless, the downturn was persistent and gave ground stubbornly to weak recovery, extinguishing an incumbent president and sustaining the improbable birth of another.


The economy now continues to grow at a moderate but unsteady pace. General activity improved in early 1993, and spending by consumers and business stirred tentatively throughout the year. Housing rallied with drops in interest rates. Automobile sales moved jerkily to a higher plane. The consumer remained edgy, uncertain, and not inclined to spend foolishly as salaries continued under pressure. Back-to-school sales were disappointing. Christmas is looking grim.


The telltale footprint of present day consumers can be seen in debt markets. Individuals are refinancing homes in swarms when rates slide below resistance points. They are using the proceeds to pay off debt. Consumer borrowing peaked in 1990 and has moved laterally and down since that time. The massive liquidation of consumer and corporate debt is masking credit activity. All across America, loans are paying down.


Employment is not growing. Corporate restructurings of the '70s, '80s, and '90s were reactions to an expanding cost structure that put American manufactured products and services at disadvantage in global markets and at home. We have actually made strides in manufacturing competitiveness compared to most western democracies, and the restructuring and dismantling of expensive social programs is still ahead for them. At the same time, our economy still suffers from high costs. Young people want homes, cars, and families. They can't afford them.


Consumer income has moved up over time, but has been outstripped by rising costs. The imbalance remains as employment stalls and income flattens. Wage pressure is low as corporations, non-profits, and local, state, and national governments pare employment.


Corporate America is under siege. Notwithstanding success stories by the bundle, the corporate community is under attack by Congress, the Administration, regulators, community critics, environmentalists, and experts on governance. Nightly on television an industry pistol-whipping takes place. The brush used to apply the tar is broad. We are told that corporations should reduce prices, raise salaries and benefits, make more contributions, create more jobs, and pay more taxes to support growing government. Corporate employers, the only real source of future jobs for our country, are now asked to be primary agents of social change.


At the same time, missing from deliberation in the halls of government are realistic measures to encourage business investment, research, worker education, imaginative employment of technology, and the creation of jobs. Across this country, business managers are glancing furtively at machines, once considered too expensive, which now might replace workers. They think about temporary and part-time labor. They also think of Latin America and China where hungry people work hard to get ahead and where the monthly wage, with benefits, can be as low as $12.


Thus, the collective mood of consumers and business is guarded. Many folks on the eve of the President's tenth month are a little down. Promises have been made which may not be kept.


In the face of this sober scene, the economy will grow by 1.5 to 2 percent in 1993, inflation will moderate, and interest rates, on the best advice, could rise. I think they will fall and still predict short-term rates at 2 percent and long-term rates at 5 percent by 1995. Commodity prices will continue to bubble, and recessions will mount ominously in Western Europe and Japan.


The United States and its G7 partners suffer similar maladies. Economic growth for each is not as hoped. Europe and Japan have weak demographic growth, an aging population, rising socialism, fat entitlements, and government intervention in their economies. Each has high interest rates, weak real estate markets, too much debt, excess capacity, high-priced labor, and no new visible engines of economic growth.


In our country, four environmental factors are dampening influences on the economy. No quick fixes are available for these.


Fiscal policy has been highly stimulative even during strong growth periods of the '80s. High and rising levels of taxation, borrowing, spending, and regulation reduce saving and investment, discourage job growth, and suffocate private enterprise. The public sector now absorbs 36 percent of national income, much of this squandered on unproductive expenditures.


The significant burden of public and private debt hangs heavy on the back of a struggling economy. A significant portion of the nation's income must be used to pay back debt. This is a major cause of bad loans, business failures, slow credit growth, weak consumer spending, and deficient capital spending.


The demographic profile of our country limits GDP growth. A drop in the number of births in the '70s caused substantial reduction in the number of young adults working, earning salaries, starting families, having children, consuming and investing in the '90s. This is a major factor in slow automobile, housing, goods, and service sales.


Uniquely, we face a colossal winding down of defense spending and the slimming of an overweight service sector. Eighty percent of Americans are employed in services such as real estate, banking, finance, legal, retailing, and government. A steady stream of layoffs is continuing in manufacturing and services as restructuring reduces overcapacity and improves efficiency.


In the midst of profound economic and social transition in America and the world, banks are propelled toward uncertain waters. Phenomenal shifts are occurring in the habits, customs, and practices of corporate and individual customers. Credit risk management, regulatory response, social responsibility, and product and service delivery have additional complexity, risk, and uncertainty.


For banking, the reality of this decade, with its attendant challenges, demands fresh attention to critical issues affecting performance and the ability to grow and prosper. A rising sense of discipline and urgency will be necessary to maintain high performance.


It is often instructive and always entertaining to look at history in an attempt to understand and grip the future. In this hopeful spirit, a brief lesson follows.


The yoke of war had finally lifted and the streets and passageways rang with rejoicing. The forces of totalitarianism and darkness had been rolled back. They lay in disarray, weapons rusting, decayed and soon to be sold for scrap. Those they enslaved threw off shackles and reasserted the inalienable right of the human spirit to be free. Many who had never dared to dream, stepped tentatively forward into the sunlight.


Yet, the adjustment to peace was painful and difficult. Democracy is not the easiest governing. There was in the world a crisis of the old order. This precipitated deep and disturbing changes in the distribution of economic, social, and political power. Weakened foundations of traditional institutions sapped familiar senses of security, time and place.


The new world, shaken by economic upheaval, armed conflict, and the reckless awakening of citizens, found itself being shaped by new balances of power. The old were often not prepared to mediate the underlying tension and conflict. It fell to America to do that. Many of our citizens did not like this new role. They wanted to withdraw from the world stage and spend time on our own problems.


New countries were formed and regional, ethnic, religious, and nationalistic conflicts multiplied. Waves of immigrants were spawned. These victims of upheaval spilled across borders seeking safety, opportunity, freedom, and hope. Their children, the historic victims of conflict, suffered beyond the limits of human imagination.


Europe was in disarray, burdened overwhelmingly by the astonishing cost of rebuilding. While many were prosperous, many more were poor. The East was rife with adventure and turmoil. New alliances were being formed. Uncomfortable bedfellows eyed one another warily. Old family arguments flared anew. Disputes spanning centuries were remembered and aroused.


The world economy poised on the edge of movement. The view forward was cloudy, the sweep and power of what could come clear only to a precious few. Many of these were dreamers and prophets.


The forces of disinflation still gripped the economy. Jobs were scarce. There was excess capacity to be absorbed, machines with no work. Families were tentative and inclined to live within their means. Much rebuilding needed to be done.


Huge armies were being disbanded. Across the world, soldiers, sailors, and marines were being sent home. Some were not sure this was wise. They feared a threat from forces yet unseen. Veterans faced uncertain prospects at home.


Interest rates were low. While money was available, none was being borrowed. Starting a small business was risky stuff. Older Americans had good memories; they would save for another day.


Around the world, labor was abundant. The rising use of technology and the restructuring of "old-line" industry freed millions for new kinds of work. Most needed education and training. In the far reaches of the world, people were hungry and ambitious. American products were competitive on a global scale. After years of deprivation, people hungered for them.


A new democratic president was being tested. Elected on a platform of change, he faced hostile opposition to his proposed reforms. He was often locked in struggle with his own supporters. One of his first acts dealt with personal freedom. Many considered this a squandering of precious presidential power.


His foreign policies were unpopular. Troops were committed in places Americans did not wish to be. It was sobering and difficult work being the leader of the free world. The president was from a modest mid-America state. He grew up in small towns of America. Things were often simpler there.


These passages depict America in the fragile, uncertain times following World War II and the Great Depression. Across the globe, those who survived these terminal events were forever affected by them. And yet it was also in this time that social, economic, and political forces came together in an incredible recipe for growth. Favorable demographics, strong demand, abundant capital, ample labor, low interest rates, the rising use of technology, and startling advances in transportation, health care, and communication converged in this country to lay a foundation for the golden age of growth.


Outstanding corporations, universities, medical facilities, and communications capabilities were built. Diseases were defeated. Nobel prizes were won. There was peace. It was an exciting time in America. In the words of a good friend, Jake Viverette, a fine Episcopal priest and a returning war veteran in 1946, it was a time when "anything was possible in America. There was nothing which could not be done."


American veterans returned from the war with high resolve, energy, maturity, and money. They were ready for their chance at the world. After the depression and war, they were looking for good times.


The coalescence of human, economic, and technical strength propelled America to incredible achievements. Today, notwithstanding plenty of attendant problems, that combination and the spirit of this great country still inspire confidence. At the far reaches of the earth, people still look to these shores and say, "anything is possible in America."


I hope you have also perceived that these passages may depict America and the world today. The startling images of that golden, innocent time are present among us now. The view of them is not perfect. It is often clouded by our struggles to deal with problems at hand.


We are heavy laden with doubts about crime, drugs, family practices, education, and the economy. Our children are in trouble. Insufficiently educated and often lacking basic family care and parental love, they wander toward ignorance, poverty, and crime. The poorest Americans across our land are children.


It is easy and convenient to surrender to the predictable economy, the decline of governance, morals, and the poor state of America. This is wrong. Rising from these problems and challenges is hope for a renewed vision. In many ways, we are making solid progress with problems that plague our nation. Across this land citizens are joining hands in the streets to fight hopelessness and despair. Deep within many communities, America is on the move.


With all of our worries and burdens, this glimpse of the future at the dawn of a new century is full of dramatic hope for the political, economic, and spiritual advancement of mankind. Within this vision of tomorrow are the clues to many of the riddles of today's economic dilemma.


Americans today suffer from a crisis of confidence in our own ability to deal with the challenges of this complex world. Buffeting cross-currents are shaping and reforming the planet before our eyes. This change makes us uncomfortable. It makes us want to go back to our desk and read reports.


In the brief years ahead, 50 percent of the world's population will be free for the first time. A global passion for freedom and choice is sweeping like a great wind across our planet. It is the most dramatic event of our lifetime. America should lead the way in this crusade while tackling her problems at home.


The stage is set for an extended period of world economic growth, low inflation, low interest rates, high productivity, continuing revelations in technology, and gains in education, communications, and health care. It remains for us to determine the role we will play.


The downfall of totalitarianism around the world has produced a tidal wave of democratic capitalism. Citizens enslaved for decades are now or soon to be free. Their desire for life and its possible values inspires comparisons with our own "miracle of growth." Two and a half billion people live in China, India, and Indonesia, one-half of the world's population. In each country, there is today an overwhelming outburst of entrepreneurial activity.


Mexico has become our third largest trading partner. South America stirs, watching carefully the progress of NAFTA. In Eastern Europe, every day there are real signs of success. With all the misery and adjustment of emerging democracy, these people are now free.


Finally, in closing, I report the most frightening statistic, In the year 2000, there will be two billion teenagers in the world, more than one-third of the globe's population. These young people will be the first true citizens of the global society. Intelligent, eager, hardworking, and skilled in the intricacies of global communication, they will share a commonality of experience not limited to distinct cultures or geographic boundaries.


The influence of these "new world children," combined with the dramatic tide of democratic capitalism, should do for the world economy what this nation's baby boomers did for growth in the United States in the 1960s, '70s, and '80s. This combination will help propel worldwide economic growth skyward from its current 1 percent to 3 to 4 percent over time.


Armed with idealism and the energy of youth, these young citizens will oversee and resolve the transition from our current 150 nation states to the true global community. Their impact on culture and lifestyle will soar beyond the limits of our current imagination. They are conservative, ambitious, and highly principled.


For the United States to play a major role in the global world of tomorrow, we must regain confidence in ourselves and our economic system. It is a confidence well-earned through the years. Our democracy has survived war, recession, and depression. To many nations emerging from totalitarian domination and despair, we are still the ideal, still the hope of the world, and, with our many faults and frailties, still worthy of emulation.


Jake Viverette returned from the war and married his wife Flo. Like countless other veterans, he finished his education and started a family. In 1949, he went off for his first real job, teaching at a small college called Florida State. The school, formerly Florida State Teachers College, had only as he arrived gone co-educational.


In order to attract a fresh, growing new market -- men -- they decided they would have a football team. Jake writes, "It took a while of course, but you know as well I where the football team is today. My friends, always remember, anything is possible in America."