Thursday, November 2, 2017

Six Political Questions for Engineers to Think About

Provided below are six political questions that engineers and engineering organizations should be thinking about.

Question 1 – Polls and political commentators have highlighted that this is the most politically divided the country has been since the Civil War and Reconstruction.  Assuming this is true – how should the engineering communities be thinking strategically about this political divide?

The graphic on the cover page is from the Federal Reserve Bank of Philadelphia annual Partisan Conflict Index.  The index was developed by an economist with the bank.  We have had periods of high partisanship (e.g., 1911/12 and current) and low periods (e.g., World War II).  Our current historic high level of partisanship started in the mid-1960s – the start of the Vietnam War, the start of broad social/cultural change, and drastic changes on the global economic landscape.  Our political paralysis has produced an era of legislative gridlock at the national level (and in many state capitals) marked by government of executive action and orders.

Our current climate of extreme partisanship is linked to three issues – economic anxiety in the middle class, broad social/cultural/technological changes, and fringe elements on both the left and right becoming the new middle during primary election seasons.  When economic growth slows (economic growth is a demanding master – the more you have, the more you need), society loses pace and it becomes much harder to finesse our historic political differences.  Looking at the 2016 presidential results, 49% of all voters felt their lives had gotten worse over the past 50 years, while 49% felt the lives of the next generation would be worse.  The election also highlighted the political divide between rural and urban voters.  Our global economy takes the best and brightest from our small towns and plugs them into the global economy.  Globalization has produced an environment of “The Left Behinds” and “The Cosmopolitans” – global cities surrounded by rural communities of resentment.  How engineering organizations position themselves in cities (blue) and the surrounding communities (red) will be important.

This negatively has a profound impact on our industry and business (our souring mood is more about the psychology of dashed expectations rather than the decline in material comforts).  When people lose faith in the future and have long painful memories of the past, they are less likely to invest in the present.  Government infrastructure spending during the second quarter of 2017 fell to 1.4% of GDP, the lowest share on record.  According to Thomson Reuters, investment by municipalities in the first seven months of this year, at $50.7 billion, was nearly 20% below the same period in 2016.  Not long ago optimists were expecting an infrastructure spending boom.  Are we still optimistic?  Engineering is faced with addressing a difficult question – Have we hit rock bottom in terms of infrastructure investment where bipartisanship spending is around the corner or have we tipped over into political, economic, and societal decline?

Question 2 – Growing global populism (i.e., support for ordinary people and suspicion of “elite” individuals and institutions – where the unequal benefits of globalization has produced the “Left Behinds” vs. the Global Cosmopolitans) has produced a political dynamic focusing on challenges and opportunities within individual countries.  The strongest social glue is economic growth and the current populist insurgency is partly fueled by the deep problems of middle class income and wealth stagnation.  As we look inward as a country and society, what opportunities and challenges does this produce for engineering organizations?

Growing populism in the United States stems from a middle class that is falling further behind upper-income households financially.  The gaps in income and wealth between middle- and upper-income households widened substantially in the past three to four decades.  Although incomes are generally higher than in 1970, all households experienced a lengthy period of decline in the 21st century thanks to the 2001 recession and the Great Recession of 2007-09.  The greatest loss was felt by lower-income households, whose median income fell 9% from 2000 to 2014, followed by a 4% loss for middle-income households and a 3% loss for upper-income households.  Populism is rooted in a simple idea – persistent economic disappointment demands a new political narrative.  We have entered an era in which societal disappointment and anxiety is shaping a new global political narrative in the developed world.

Populism takes many different regional forms across the various engineering service areas.  Nationalism and isolationism sentiments could shift money and resources into domestic problems and challenges – including increased investment in infrastructure.   If we do enter the era of “reshoring” or de-globalization and shorter supply chains, the critically of infrastructure will change.  If more focus is placed on domestic capabilities, domestic markets, and domestic consumption – do you really want additional investment in ports and globalized infrastructure?  A populist revolution could produce many positive opportunities for civil engineers.  It could also produce new risks and challenges.

Question 3 – Globalization has produced societal and regional winners and losers.  A current national political theme is the desire to ensure that the large majority of Americans once again benefit from global trade and changing technology, rather than see both as a continual threat to their economic activity.  Politically shifting winds seem to be changing the dynamics of globalization – the old economic and trade architecture put in place after the Second World War is now showing severe signs of subsidence.  How should engineering think strategically about new sets of winners and losers in a post-peak-globalization period?

The United States has been the primary cheerleader for the benefits of globalization (i.e., the global flow of goods, services, ideas, money, and people) over the last 70 years.  The global search for cheap labor pools has been an important aspect of globalization – but the combination of enhanced capital mobility and faster and cheaper information flows changed the nature of international economic development.  Technology has created our current globalized economy – and technology is also a threat to globalization.

Replacing cheap labor with robots may provide us with even cheaper goods and services, but it may also lead to a collapse of global supply chains and, with it, a reversal of late twentieth-century style globalization.  “Reshoring” – thanks to increased automation and robotics – may lead to the rebuilding of manufacturing in terms of production but not jobs.  Satisfying the middle class in terms of reshoring your grandparents manufacturing job is a political impossibility.

The U.S. recently pulled out of the TPP (Trans Pacific Partnership).  The Trump administration starts renegotiation of NAFTA this week.  The president has promised to bring jobs to the U.S. by rewriting NAFTA, but his pledge is clashing with the realities of global commerce and supply chains.  The era of post-peak globalization is going to produce new winners and losers – and this will impact engineers.  Is a manufacturing win for Indiana a logistics and trade loss for Texas in terms of NAFTA modifications?  How should we be thinking about regions and communities given the uncertainties and changes in our globalized economy?  How will all of this impact foreign investment in the U.S.?  The truth is that any form of globalization will inevitably require some form of compromise between the advantages of openness and the benefits of sovereignty.  The political debate over this compromise appears to be intensifying. 

Question 4 – Mayors appear to be the new political kings/queens – leaders in new and different ways of thinking regarding economic development, innovation, and infrastructure investment.  If our national and state political leaders continue the path of lukewarm performance, how should engineers react in the Age of the Mayor King/Queen?

In the book, The Metropolitan Revolution, the authors point out the top 100 metropolitan areas in the U.S. occupy 12% of the land mass, two-thirds of the population (with forecasted growth to 75%), and responsible for 75% of the gross domestic product.  The Metropolitan Revolution is a reminder of politics as a positive force for societal advancement.  The book profiled several regions and cities that looked at how we develop and manage cities.  The profiles show common themes – pragmatism over partisanship, innovation clustering, regional collaboration, respect for compromise, regional/global networks, clarity of focus, diversity as a strength and not a divider, and economic growth driven by the knowledge economy.  What distinguishes world class cities from national governments is the agility to find innovative solutions and to put them into practice.  In terms of change management, agility, pragmatism, closeness to the actual problems, and new ways of thinking, cities and regions will be seen as filling in the performance gaps left by state and federal partisanship paralysis. 

The limits of what cities can and cannot do politically will be tested – especially in the context of blue cities in red states.   From the Dallas Morning News on August 13, 2017:

“GOP leaders have made the Democratic mayors of Texas’ largest cities (Dallas, Houston, San Antonio and Austin, respectively), along with other local officials, the poster boys for an all-out legislative assault on local control.  Republican lawmakers have filed legislation that would prevent local governments from making decisions that have long been left to the elected officials closest to the voters.”

Question 5 – Technological determinism seems to predict self-driving cars and robot medical doctors just around the corner.  Studies have indicated 80 million U.S. workers are at risk from automation/AI job loss.  Given that technology and politics appear to be on a collision course as job displacement grows, how should engineers think about this strategically?

Disruptive technology, such as self-driving cars and trucks, can also create new winners and losers.  The politics of technological winners and losers can be equally unpredictably disruptive.  In the case of trucking, some 3.5 million people (mostly white male with a high school degree or lower – the most common job title in 29 states) are employed as professional truck drivers – 8.7 million total employed in the trucking/logistics industry segment – roughly 1 in 15 U.S. workers.  Teamster union membership is 1.9 million.  The trucking industry currently has a shortage of 111,000 drivers.  In many respects, the politics and regulatory framework for self-driving trucks and the elimination of millions of trucking jobs boils down to a race between the technological hare and political/regulatory/societal tortoise.  Job loss associated with automation in the manufacturing sector happened behind closed doors and locked gates – trucking job loss is going to happen on the open road and will be much more visible to the public and politicians. 

Technological determinism is always a risky business – technology revolutions, such as the robotic/AI revolution, always take longer than predicted, but arrive faster than anticipated.  Humanity has gone through various economic stages – from agricultural to industry to services.  We have been able to move generations through the various stages – from the farm to the factory to the engineering consulting or construction firm.  Replacing vast numbers of people with non-humans has the potential to produce a new stage or class – the Economically Useless Class.  If robotics and AI develop as predicted, the economic pressure on the middle class will be relentless.  How society manages our next economic stage transition will be important politically to watch.

Question 6 – Politics over the next 10 years could be a roller coaster of unpredictability and change.  How should we think strategically about this new and different era and what new strategic planning steps should be institutionalized that allow all engineering organizations to be more agile during this era?

Political risk analysis needs to be shaped by three elements – surprise, anxiety, and disappointment.  Surprise will take many forms.  The U.S. will be minority white in 2049.  We currently have more Spanish speaking citizens than Spain.  We have never faced a demographic change like this in our history.  Time magazine owner Henry Luce coined the term “American Century” in a February 17, 1941 editorial in Life magazine.  We are 76 years into the American Century.  What is next?  By 2050, China’s economy will be twice the size of the U.S. and larger than all the Western economies combined.  China celebrates the 100th anniversary of the PRC in 2049.  Are we at the end of the American Century and the start of the Chinese Century and how does this impact engineering?  We are walking down a different path for the first time in U.S. history.  How will we handle the politics of surprise?

Anxiety hangs over many segments of the middle class.  The distributional consequences of globalization and technology have left voters who might traditionally have voted for centrist parties opting instead to support populists who claim to be more in touch with voters’ concerns.  For many people, the institutions and ideas of globalization are part of the problem, not part of the solution (globalization lifts all boats – but some set lower in the water due to the weight of the additional money)?  How does middle class economic and cultural anxiety play out politically in the coming years?

Finally, the political risk of disappointment.  Although living standards in the West continue to rise on average, the pace of increase is much slower than expected and for some there has been no progress whatsoever.  Rising debt levels are too high, and, in time, some promises societies have made to themselves – on retirement benefits, pensions, health care, and education – will have to be abandoned.  Finding a political narrative to explain this looming disappointment will not be easy. 

People are disappointed with the demand side of our government institutions, but some of the problem rests with the supply side.  Founding father James Madison was concerned that citizens of the U.S. would be simultaneously too involved and too ignorant in the democratic process (Churchill thought that the best argument against democracy was a five minute conversation with the average voter).  Polarization and apathy – the unstoppable force and the easily movable object shape our current political terrain.  Madison highlighted our democratic process is an asymmetric equation that could easily turn politics into a running circus. 

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