Is America Broken?

Many of us shook our heads recently as we read about all of the flight cancellations by American Airlines, and saw the pictures of the thousands of travelers stranded in airports in never-ending queues, as officials and employees scrambled to patch things together.  It was such a mess.  It's the type of thing that Americans might expect to encounter while on vacation in some under-developed tropical island resort, but in the US?  No way. And as I read the news accounts, the overwhelming sense I came away with is that the system is broken, and simply doesn't "work" anymore.  The airlines, the FAA, Congress, nobody seemed to know what they were doing.  

And so I got to thinking about all the other aspects of American national life which no longer seem to work:

How about our financial system? Are we still the "gold standard" for the rest of the world?  The sub-prime fiasco lay to rest any notions about that. The people who were supposed to be minding the shop—the regulators—didn’t even fully comprehend what was taking place in the markets they were supposed to oversee, and the Wall Street “Masters of the Universe” got in so far over their heads, they didn’t realize that the whole shell game was over until it imploded.

And this is the stuff—sophisticated financial instruments and orderly financial markets—that we are supposed to do better than anyone else in the world.  Is it any wonder that more and more international companies are heading to London or Hong Kong for their IPOs?  Two thousand and six was the year that the United States finally surrendered its crown as the world’s leading market for IPOs, falling behind both Britain and China. The “deal value” of China's three largest exchanges (Shenzhen, Shanghai, and Hong Kong) totaled almost $53 billion in 2006. This topped Britain's $48.3 billion and the combined $45.8 billion brought in by the NYSE and NASDAQ in the US.

Examining market share paints an even grimmer picture for the US. In 2000, US market share was 48.5%.  By 2005 that figure had slipped to 23.9%, and by 2006 it had dropped further to 17.6%, a harrowing drop in only 6 years.

In 2005, out of the 24 biggest international IPOs, incredibly only 1 was done in New York.  And the colossal $21.9 billion listing of Industrial and Commercial Bank of China—one of the largest IPOs ever—took place not in New York, but in Hong Kong and Shanghai.

As recently as the 1990’s, international companies regarded a US listing as some kind of imprimatur of stature or legitimacy, but based on the number of  companies now flocking to London, Hong Kong, or elsewhere, it’s clear that this aura has been cracked.  In the view of Alec Young, global equity market strategist at Standard & Poor's:  “the NYSE just isn't the de facto choice anymore."

These new, on-the-ground market realities are plainly visible in both the balance sheets and structure of the big US investment houses.  In 2007, for the first time in its 138 year history, Goldman Sachs’ international revenues matched its US revenues, with stronger growth taking place in virtually all of its businesses outside the US.  Not surprisingly, these new market realities are reflected in corporate structure and staffing patterns.  Twenty five years ago, Goldman Sachs had barely 50 employees in London. Today that number is over 6500 and rising.  Will the last one in New York please turn out the lights?

And it is not just volume of business that has shifted to London.  Of equal, if not greater importance is the fact that London is also challenging US for world leadership as a center for financial innovation.  Highly sophisticated London hedge funds are proliferating, and London has already overtaken New York as the world’s center for over-the-counter derivatives.

The center of the global financial universe is shifting from New York, and in fact, by many definitions, this shift has already occurred.  We are moving inevitably towards a  multi-polar financial world, where US preeminence is being ceded not only to the “big boys” in Britain and China, but also to smaller, up and coming bourses in places like Brazil, India, and Russia, all of which have been experiencing dramatic gains in IPO activity.

On top of this, the position of the US dollar as the world's reserve currency has never been as threatened as it is today.  The value of the greenback is failing through the floor, and Americans traveling in Europe actually “feel” poor!  These economic realities are so pronounced, they have seeped into the popular culture.  When American rap stars such as Jay-Z appear in videos flashing a large roll of Euros, rather than the normally de rigueur wad of dollars, you don’t need a PhD in Economics to know something is afoot.

Take a breath and switch gears away from the financial system and look at more basic aspects of American life.  Hurricane Katrina not only destroyed large swathes of New Orleans, it also destroyed our collective notion that American citizens on American soil are safe from the type of fatal systemic failures  that we watched unfold on our TV screens.  As we sat with our eyes glued to CNN, the questions everyone asked were:  how could this be happening in America?  Where is the government?  We've always had a certain baseline confidence in the capability of our government to protect us from this type of a total catastrophic breakdown.

Yet the lack of preparation and execution were staggering, despite the myriad of warnings that were received.  As Katrina approached, the National Weather Service issued a warning which declared that "most of the area will be uninhabitable for weeks ... perhaps longer," "at least one half of well-constructed homes will have roof and wall failure," "power outages will last for weeks," and "water shortages will make human suffering incredible by modern standards.”

Human suffering incredible by modern standards—that is about as clear and accurate a forewarning of Katrina’s wrath that could possibly have been received, yet somehow our government was still caught flat-footed.

It was quite a sobering comeuppance for Americans to watch other Americans die as the result of a lack of preparation and degree of governmental incompetence we normally associate with dysfunctional failed states.  Contrary to the words of his boss, “Brownie” was not doing a “heckuva job”, and neither, it seems, are many other leaders in positions of responsibility for the safety and health of the American people.

Less dramatic, but no less disturbing is the ongoing string of health concerns which now seem to arise on a regular basis over the safety of several US food products.  In recent months we’ve seen the largest beef recall in US history.  A California slaughterhouse has been forced to recall over 143 million pounds of beef, including 37 million pounds that went to school lunch programs.  In commenting on this recall, the US Secretary of Agriculture conceded that “…the cattle did not receive complete and proper inspection…”  To those who watched the horrifying footage on the evening news of workers using forklifts to drag, push, and dump cattle too sick to stand into the slaughterhouse, these comments hardly conveyed the magnitude and scope of the breakdown.  Although shocking, it perhaps should not be—in recent years, budgets have been cut in the regulatory and inspection systems and top jobs have gone to industry favorites.

The lapses and deficiencies in US safety standards have not one unnoticed by our trading partners.  Japan, along with over 60 other countries, began restricting US beef imports in 2003 after the discovery of US cattle infected with BSE, or Mad Cow Disease.  Korea has only recently reinstated US beef imports after pressuring the US into strengthening its controls on feed to reduce the chances of infection.  In the words of one Washington-based advocacy group, “it’s taken our trading partners to force them [the beef industry] into doing the right thing”.

Who would have imagined dozens of our trading partners needing to ban US beef because of concerns that our safety codes and practices—which we were always lead to believe were the best in the world—are not up to snuff?  
What about the nation’s backbone—our network of roads, bridges and tunnels?  The development of the interstate highway system was one of the bright successes of the post-war years, and set the benchmark for the rest of the world.  But the bridge collapse in Minnesota was only the most recent and graphic example of the serious decay of our infrastructure.  The American Society of Civil Engineers reports that $1.7 trillion is required merely to stabilize the condition of our core infrastructure.  According to the Bureau of Transportation, 26% of the road brides in the US today are “structurally deficient and/or functionally obsolete”.  And lest anyone think that the Minnesota bridge collapse was some kind of an isolated fluke, there are 756 other bridges in the country of the same vintage and design as the 40 year old I-35W bride that collapsed in Minneapolis.  The alarms bells have been ringing louder and louder, but with the financial drain created by our global military commitments, along with the political imperative to provide lower and lower taxes, who is going to talk about financing the repair of our infrastructure?

Pull off the highway and into an airport.  To put it bluntly, far too many of our airports are decrepit, antiquated dumps, especially when compared to the remarkably efficient and aesthetically pleasing airports that so many of Asia’s capitals now boast.  Fly from the gleaming, efficient, and modern airport in Kuala Lumpur to JFK, and then ask yourself:  which is the developing country?  According to Skytrax, which conducts the largest independent survey of worldwide airport standards and is often referred to as the Zagat of air travel, not a single US airport managed to crack the list of top 20 airports in the world.   Not one.  Hong Kong, Seoul/Incheon, and Singapore occupied the top three slots.

Does the US fare any better when we consider IT infrastructure? Visit Korea or an increasing number of other countries around the world, switch on your mobile phone, and you'll see how far behind the US has fallen.  Your call will not be dropped anywhere in Korea – through tunnels, bridges, around mountains, anywhere.  But how many Americans can say the same thing about the cell phone coverage during their morning commute?  And if we regard internet access as critical indicator of IT sophistication and economic competitiveness, then the statistics there are no more comforting.  According to the International Telecommunications Union and the Organization for Economic Cooperation and Development, the US has been steadily dropping in the worldwide ranking of Broadband internet penetration, and now lags behind countries such as Estonia in that department.

But if all these other aspects of American life are sputtering, at least we can say that the integrity of our governance system and electoral process is beyond reproach, right?  Oops…I guess we can't say that anymore after the fiasco of the 2000 presidential election, the Florida recount, and to a lesser extent the painful spasms the Democratic Party is currently experiencing in its nominating process over the Florida and Michigan primaries. When our democratic electoral system no longer seems to work, what's left?  Perhaps we can request advice from Kenya or Zimbabwe.

Well, even if we have experienced a few glitches in our ability to vote and count votes, at least we are still the shinning city on the hill in terms of moral issues, right?  Well, scratch that…Guantanamo Bay is still open, the pictures from Abu Ghraib are still seared into everyone's collective memories, and the Attorney General won't even say if he thinks water boarding is torture!  Here is a suggestion:  we should take every US official who does not believe that water boarding is torture, and subject them to it. That might provide a fresh perspective.

Instead of being viewed as the world's greatest hope, as has been the case historically, the US is now viewed as one of the biggest threat.  That is a remarkable and shocking trajectory to traverse, especially in such a short time frame.  And thanks to the Patriot Act, it is not only "enemy combatants" in Gitmo who are having their fundamental civil liberties violated; it is also rank and file US citizens. The majority of US citizens (to say nothing of the US legislators who approved it) have no idea of the unprecedented degree of invasiveness that has been granted to the US government under the Patriot Act.  Transparency and freedom? Are we still world leaders?

So where does all this leave us?  Our technological sophistication, financial acumen, and global economic clout have slipped badly.  We have to aspire to catch up to Estonia in broadband penetration.  Our roads and bridges are decayed to dangerous levels, our airports are disaster zones, and our health and safety standards have dropped to the point where our trading partners must reject US food products.  Our ability to inspire through moral leadership is in tatters.  We even have to worry about the integrity of our electoral system, and the ability of our government to provide basic protection from catastrophes.  And to add insult to injury, we’re not even the best baseball players anymore!  (Japan won last year’s inaugural world baseball tournament).

If the US can no longer lay claim to world leadership in these various areas, then what are we good at?  The moral compass seems to have been discarded, and far too many people in positions of leadership in both government and business simply don’t seem to know what they are doing.  And so we are left to wonder: Is America broken?