Originally published by Frank Eliason on LinkedIn: Jamie Dimon States the United States is Truly an Exceptional Country...But...
Like him or not, JPMorgan Chase's CEO Jamie Dimon has never been one short on opinion! His annual letters to shareholders have become famous for optimism and his expression of his views. Long before he became CEO of Chase, I have been following Mr. Dimon. I started following him during his last few months at Citi. I have not always agreed with him, but he always inspired new thoughts. That is truly what a leader does. His letter to shareholders for 2017 is no exception. It runs 45 pages and provides keen insight into the world markets, potential shifts due to British exit from the EU and a look at the economic view of the United States. Typically, even when presenting negatives, Jamie has always had a sense of optimism, so I was surprised to read headlines that state that Jamie stated "something is wrong with the US." It is not exactly what was said so first let me provide clarification. On page 31 in his annual letter to shareholders, the title for the section is "Public Policy." The first part of this section states that at this moment the United States is truly exceptional and he outlines the following points:
- Strongest military in the world while at peace with our neighbors
- Plenty of food, water and energy to meet our needs
- Top universities and hospitals in the world
- Generally reliable rule of law and low corruption
- Government is the longest surviving democracy
- People of the US have a great work ethic and "can do" attitude
- Americans are among the most entrepreneurial and innovative people in the world
- The United States is home to many of the best, most vibrant businesses on the planet
- Transparent and best financial markets in the world
One could easily pick apart some of these. I would tend to debate number 5, although people take both sides of the issue (are we a democracy or a republic?), my personal view is we have to be careful stating democracy when, as we saw in the recent election, it is not fully about popular vote. We may have low corruption, but our politicians serving constituents or themselves? We can probably debate many of them. Of course these are not my reason for writing this. It is nice to see his optimistic side that I have been accustom too. His next line was unexpected, although one I agree with. The line is "But it is clear that something is wrong — and it’s holding us back." Ever since the Presidential election I wanted to see leaders begin to have these conversations. He begins the discussion with the fact that GDP growth has been at the slowest rate over the last decade or two compared to the 50 years prior. He then goes on to point out the reduction in middle class during that same time as well as the dramatic decline income for the lowest economic group. I did not notice any discussion of the highest income group, but as many have noted in recent years, the gap between the highest and lowest paid has been floating close to the highest margins in history. This is especially true of CEO's like Jamie Dimon and so many others.
At this point he starts to dwell into economic theory and discussion. Regardless of your understanding, it is well worth the read. Many economist believe we are now in a state of lower economic growth that will continue for the foreseeable future. There are several points made for this slowing economic growth:
- Trillions of debt from war waged over the past 16 years
- Government lending for education increased to over $900 Billion with many student struggling to pay due to the economic conditions (I have seen stats like this all the time but why do they always fail to talk about the rise of the cost of education as more money was available to lend?)
- Healthcare costs twice as much per person compared to most developed nations
- 40% of those receiving advanced degrees in fields such as science and math are foreigners with no means to stay in the US after their education
- Impact of minor criminal convictions making it difficult for this class to obtain work
- Limited availability for people to oTabtain mortgages under the current system
The report then looks at "unsettling" issues that impact economics in the US:
- Low participation in the workforce
- Education leaving many behind
- Lack of investment in infrastructure and planning
- Corporate tax system drive money overseas
- Government regulations
- Lack of economic growth has led to frustration among many Americans
I do not expect that everyone will agree on this complete list, but I wanted to share this because regardless of your political view or political party these are all issues that are important to us. I would suggest a few others:
- Business governance - Diversity has been a key topic for corporate boards but when I speak of diversity I am not just talking about color of skin or gender, but also socioeconomic status and thought process. Today our boards are filled with people similar to the CEO and not necessarily taking a view of the everyday person. It is one of the reasons for the CEO pay structure.
- Investment Transparency - Today there are numerous "legal" things done to manipulate the stock market, often hurting the smallest of investors. Examples are when a activist investor quietly buys a large position in a company. Then makes lots of noise causing many others to buy the stock driving up the price, at the same time they are bailing out of the stock
- Unfair Pricing - In non-competitive businesses we see unfair pricing all the time. This is a huge issue in the healthcare realm where companies that make drugs for smaller diseases, can take a drug that costs a few cents to make and charge hundreds or thousands of dollars. We have seen it with several drugs in recent years, as well as the recent EpiPen fiasco. We also have companies manipulating patent law protecting high priced drugs well after a patent expires. Sometime just by mixing it with another drug that has been around for a long time.
- Government - Today our representatives care more about special interests or those that fund their campaign than their own constituents. Slipping bills into other bills to provide breaks to these friends. These things are all legal but is it what the framers of the constitution intended? Even the other day at the federal level, the FCC relaxed a requirement of the Charter/Time Warner/Bright House mergers that would have required Charter to run cable to 2 million homes in an area that already had a cable provider. This is something they agreed to and should not have been removed without the company providing something in return. Our government regardless of party has not been working for us.
I can probably come up with a million other areas we can work on, including my own health insurance close to doubling in the last year and no other competitors offering personal health insurance in my area. The list goes on and on. If you would want to know what keeps me up at night it is the shifts in robotics and artificial intelligence. These technologies have the ability to disrupt most jobs in the US and abroad. In the spirit of length of this post, let me get back to Mr. Dimon's letter to shareholders.
He goes on to outline key things that need to change. The first key point is we need to work together regarding skills. I could not agree more. The answer here is not just government, but business and personal. He makes the case that we need more technical training at a younger ages. He utilized the example of a school in New York City that trains aviation. He recommends business partnerships to accomplish this. I could not agree more and it is good to see Mr. Dimon bringing this up. It will be interesting to watch the actions from Chase in this regard.
Next he discusses the needs for a "living wage" for the lowest wage earners. This is a concern for me as well and it is nice to see this being discussed by a CEO. He calls for the expansion and reform of the Earned Income Tax Credit (EITC) to help more lower wage earners and small businesses. He then goes on to discuss infrastructure improvements as well as regulatory changes. Many of the recommended changes are beneficial to Chase but there are many reasonable arguments. One that I feel both sides of the political debate would agree to is how regulations are created. In the past it was typically congress that created the rules and the interpretation was done by the government agencies, but in recent years it has shifted to where many agencies create the regulations based on their supervisory role. This causes a breakdown of the checks and balances.
Mr. Dimon, I have always viewed you as a true leader and this years letter continues to show that. We may not always agree on topics but you always present a great case for your views. It is something we can all learn from. I personally view the best days for the United States are ahead of us, but it will require all of us to work together, get past the current political divide, seek common ground and build solutions not for today but for the next 50 years or more. The world will change dramatically over the next 20 years. During that time we will have to make hard decisions, but if we are informed and work together we can find the best solutions for everyone.