Part 3 – Finding the Money and Optimizing Assets*
Bill Knudsen saw the opportunity in 1940 for new orders—and new profits: If he and his fellow industrialists could transform existing supply chains and product lines to meet the demand for arms, munitions, ships, planes, and trucks generated during the second global conflict in the century, he knew it would be good for American companies. He also knew it was the way we could win World War II.
But Knudsen also saw two things others had missed. First, he saw the need for a massive infusion of money to fund company retooling efforts, and he saw a way to access that necessary capital with the passage of the universal income tax. And importantly, Knudsen identified a number of stranded assets that were available to be utilized and optimized that together would provide the building blocks of his audacious strategy. Specifically, remnants of the Great Depression included excess factory equipment and capacity as well as a huge labor pool on which to draw. All the pieces were in place.
In The New Grand Strategy, authors Mykleby, Doherty, and Makower crystalize Knudsen’s “prosperity formula,” as Demand + Capital – Stranded Assets = New Growth Scenario. Part 2 of this blog series overviewed the book’s description of huge near-term demand that exists today. Equally compelling is the availability of more than adequate capital as well as a new set of assets to be optimized.
Unlike Knudsen’s need to rely on public-sector capital, idle private-sector capital sits today at an all-time high. Specifically, recent estimates by The Federal Reserve place the amount of cash on the balance sheets of non-financial U.S. companies as exceeding $3.5 trillion. In addition, $10 trillion in private equity and hedge fund is available and seeking growth opportunities. The authors also point to the accessibility of funds associated with the largest transfer of wealth in history of the world as $17 trillion is passed from the WWII generation to baby boomers and $30 trillion is transferred from boomers to millennials. Importantly, investors are also increasing their focus on sustainability. The so-called sustainable and responsible investment segment now has $13.5 trillion under management globally, according to the World Economic Forum. In short, necessary capital is not only available, it’s plentiful.
Less abundant are ideas around how to deal with the challenging issue of “stranded assets.” For many innovative and bold business leaders, the challenge is often to help others think differently. Opportunities do indeed exist, however, and many are presented in the book. Today, perhaps the biggest opportunity for transformational thinking is in the area of hydrocarbons, a.k.a. oil and gas.
The International Energy Agency estimates that to stay within two degrees Celsius of atmospheric warming, the global economy will have to avoid emitting the carbon from 80 percent of the world’s proven oil and gas reserves. Many environmentalists believe the only option is to write off this estimated $20 trillion stranded asset. The authors of The New Grand Strategy see things differently. They posit that instead of burning hydrocarbons, we can build with them. This shift will reduce the amount of lumber, cement, aluminum, and steel used, substituting them with advanced, petro-based materials with superior characteristics. The good news is several oil and chemical companies are already preparing for a future in which advanced materials are a larger part of their business.
As was the case for Bill Knudsen, unskilled labor is another stranded asset yearning to be optimized. And like hydrocarbons, solutions require bold and innovative thinking. As we restore our manufacturing base, we can serve a significant percentage of the workers currently un- or underemployed, without waiting on Washington to act. Companies could concentrate initial investments in places where the opportunities for construction, manufacturing, and food processing jobs are greatest and where real estate processes are affordable. This profile matches the many interior cities in America, with their legacy manufacturing capacity and expansive agricultural belts.
Taken together, the availability of capital and the ability to optimize assets thoughtfully will enable business realize a new market demand estimated at $1.3 trillion, consistent with full-spectrum sustainability.
The book outlines current success stories in which alignment of business, social, and environmental priorities is generating triple bottom-line returns (for people, profit, planet) today. Companies ranging from Apple and Blackrock to Google, Target, and Tesla are demonstrating the path forward. Many more examples are offered.
The final blog will both make the case that the world needs the next set of Bill Knudsens to step up, and offer a specific recommendation as to how.
- Part 1 – Introduction
- Part 2 – The Prosperity Formula and Three Pools of Demand
- Part 4 – A Business Plan for America
In summary, this blog series is intended to prompt readers to fully explore The New Grand Strategy, a book I believe to be one of the most important books of our time.
*All content in this blog series is adapted from The New Grand Strategy: Restoring America’s Prosperity, Security, and Sustainability in the 21st Century with permission from authors Mark Mykleby, Patrick Doherty, and Joel Makower. Mr. Mykleby and Mr. Doherty currently serve as co-directors at the Strategic Innovation Lab (SIL) at Case Western Reserve University, as part of The Fowler Center for Business as an Agent of World Benefit. Full disclosure: I proudly serve as a strategic advisor to the SIL.