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Reflecting On The Economic Challenges Of 2009

2009 was an interesting year. I left my consulting job in the spring after finally deciding to return to business school and law school. And what timing! The financial crisis had just struck and the fear of recession left all of the business world scrambling. At the same Barack Obama had just made political and legal history with his historic presidential election. I was pretty excited at the chance to study these economic and political events, especially since I’d be enrolling in a JD-MBA program. But it became hard to remain so excited as I watched layoffs, bankruptcies, and unemployment begin to take over.

Ever since the past summer, I’ve tried to keep up with the news, chat with my classmates, and solicit perspectives from industry professionals trying figure out exactly what’s going on. To be honest, I’m still not 100% certain, maybe not even 50% certain of everything that’s happening, as I’m by no means an expert on economic or labor issues. But I suspect that one’s viewpoint is pretty correlated to their experiences in the labor market, and sometimes it can be hard to see outside of that perspective.

For example, I had a discussion with a classmate from the investment banking industry (economics defines this as skilled labor) during the first week of class. We were discussing how recruiting was supposed to be down 40% – 50% this year, and his perspective was that everyone should really embrace the situation. That hard times create new opportunities, give new learning experiences, and spawn new ideas and companies.

In a second conversation, I talked with a family member who works in a position that earns an hourly wage (economics defines this as unskilled labor) and his employer had cut back his hours. Because of his situation, he empathized a lot more with those who were unemployed, and he suspects that the recovery will be a longer and a more difficult process, and that speeding it up requires a more of a collaborative effort to help people to find jobs. I think both perspectives are pretty valid.

But whether or not you agree with either perspective, the common denominator is that we are in pretty tough times now and that recovery will depend both on a collaborative effort and a willingness to consider new opportunities to solve the problem. Until now, MBAs have been contributing to the recovery mostly by forecasting unemployment rates, analyzing spending patterns, and predicting the market turnaround. And JDs have been looking at similar issues, but focusing on finding ways to use their technical skills with the law and policy skills to create change.

My opinion–for what it’s worth–is that given certain structural problems in the modern economy, many of these financial and legal tactics, while useful, may ultimately prove to do nothing more than to cover the wound, rather than address the bigger cultural issues that in recent history have influenced our levels of consumption, debt, and greed.

If business and law schools want to continue to play a role in the recovery, they should reflect on how these issues fit into the country’s top priorities. Over the last few decades, MBAs have flocked to the finance industry and law school graduates to corporate law (a field that works directly with the finance industry) both lured by six-figure salaries that are 3x (and more) the average wage. In return, these smart graduates have worked in roles that emphasize getting things done over learning, charge excessive rates for services, and structure deals to maximize profit. And because there was so much profit, other industries looked up to the industry and soon followed suit.

This mentality eventually made its way into the mortgage industry, and needless to say, as soon as its companies began to offer credit, Americans began to borrow. A lot. They applied for new lines of credit, bought new homes and cars, and got big screen TVs and went on vacations. Unfortunately, this era of growth was in some respects artificial. In the end, people overextended themselves financially, and eventually found themselves in too deep once the economy slowed.

In November, the media and administration became optimistic again and claimed that we were rebounding from the crisis and that jobs would be back in no time. I’m not so sure I agree. From my perspective, it seems as though there are far too many people out of work now, and the average length of unemployment is closing in on a year in some locations, a number will stay on the rise given the decreasing number of jobs.

One thing I’ve learned in the past two years watching much of this unfold is that one of the most important resource a company has in the long-term is still its people. And that resource needs to be prioritized right alongside profitability. This is true especially in challenging times because even when profits and the stock market are down, the stock of a company’s employees can be up. People can collaborate to come up with new ideas, they help a company adjust, adapt and change with the markets, they learn and implement new technology and promote innovation, and they can work together to accomplish more than their individual capabilities.

Unfortunately, the majority of Americans aren’t afforded the training or education to fine tune their management or critical thinking skills, so they end up in lower paying jobs, can’t save their money, remain in deep debt, and can’t positively impact the economy, while only a minority of Americans at the top thrive. Not only is this socially troubling but many also argue that in the long run it may also economically less productive.

This is certainly the view of the Obama administration, which is why the president wants to focus more on education and training and make decisions based on longer-term public investment. In his view, the economy does best when all Americans have the chance to increase in skill and contribute to the market. Many people agree with him ideologically but many also object because of the costs and the up front time investment.

Obama is also working with companies to adjust compensation plans to make them more fair and to reduce layoffs in the workforce, both of which are controversial with economists. Maybe his strategy stems from the idealism or aversion to risk that comes along with being trained as a lawyer. Or perhaps it’s easier for him to think that broadly since he’s not feeling the pressure of a collapsing industry on his shoulders. Perhaps it’s also because his shareholders are comprised of the broader population, and not financial investors, so his policy incentives are different. Who knows? But the interesting part to me is that both the policy (JD) and economic (MBA) perspectives seem critical in analyzing economic recovery.

And so both MBAs and JDs can play a major role in helping save the economy. As MBAs continue to look for profitable deals, invest in companies, and architect executive pay plans, they are also called to leverage profits to create jobs, use investments to steer innovation, and think more broadly about human capital and not just executives. Similarly, lawyers also have dual obligations. And instead of simply relying on facts and mitigation of risk to make decisions, lawyers must think more critically about the issues. They need to weigh the economic issues with the resulting social issues, think about how those issues affect a broader range of people, anticipate a wider range of possible outcomes, and then balance risk with those outcomes to come up with new policy plans.

Easier said than done? Perhaps. Brokering a balance between profit and social value, when there are diverse points of view and competing agendas is rarely easy. To lead America down that path requires leaders who are not afraid of change and who deeply believe that social values are just as important as economic value. I suspect that given our economy, more people will be open to change and aware of social values than ever before.

Personally, the recession has certainly forced me to reflect on change. Having old colleagues, friends, and family members directly affected by the market has made me more empathetic to those still in the workforce, especially those who don’t have education as a buffer.

Society should also take time to do some reflecting. And perhaps in 2010, society will decide that instead of focusing so much on pricing strategies and stock market gains, it will also start to focus on creating opportunities for education, promoting generosity in the midst of competition, and maximizing human potential, and not just profits. And in the end, perhaps these will pave the way for recovery to a more stable economy.

Business schools and law schools should welcome the opportunity to be at the forefront of this change.

Tags: About Me, Labor Economics, Labor/Employment, Leadership/ Management