Where do we need to go and how do we get there...

As we shift from a consumer-driven economy to one that looks outside of ourselves, what businesses sell and how and where they do business is also subject to change. This paradigm shift will impact all sectors of our economy: services, manufacturing and commodities. According to the latest issue of The Economist, sales to traditional markets have risen 20% since the end of 2007 but they have also risen 51% to Latin America and a whopping 53% to China which by the way, is now America’s third-largest market after Canada and Mexico.

Over the past four decades, the American service sector has far outpaced America’s manufacturers consistently today making up 30% of our country’s exports. Within that sector however, the share held by lower-value tourism and travel has slipped, while royalties and so-called private services—such as scientific, engineering and other consulting, and of course financial services—have advanced. Exports of these kinds of services, especially to countries such as Brazil, India and China nearly doubled between 2006 and 2010 and continue to grow exponentially

We all are cognizant, I think, that the biggest driver of this phenomenon has been the almost unbelievable advances America has produced in the development of digital technology, which facilitates an effortless sale of many American services globally. Michael Mandel of The Progressive Policy Institute, a think tank, thinks that there are well over 300,000 people employed making applications, games and other technology for smart devices such as Apple’s iPhone and for Facebook. Zynga, one of the largest manufacturers of online games and mobile entertainment applications, recorded $1.1 billion in revenue in 2011, largely from the sales of virtual goods in its games. A third of this came from players who live outside of America!

It was only four or five years ago that American manufacturing was crashing and burning. It had shed jobs almost continuously from 1998 through 2010, first because of outsourcing to places like Central America and China, then because of collapsing sales of hard goods such as cars, appliances, furniture and of course houses during the ever increasing recession.

Car sales have rebounded nicely—particularly for American carmakers that were saved from imminent doom by the Obama presidency—and house sales are at last beginning to crawl off the bottom. In addition, a falling dollar and restricted pay scales in America have combined with rising wages in China to make outsourcing less attractive. Some American companies have even brought jobs back home creating a positive scenario in which American manufacturing employment has risen steadily for the past two years. This is not all positive however since part of the adjustment that American business has made to the recession is to demand that employees who survive lay offs do more without additional compensation and the American worker has made the collective decision that a low-paying job is better than no job.

Getting back to being positive however, Ethan Allen, a company based in Connecticut that makes and sells upmarket furniture, was deeply battered by the recession, closing several stores and factories and eliminating 1,500 jobs. It has since sought to remake itself as “a vertically integrated interior-design company,” says Farooq Kathwari, the company’s CEO. Allen has added back 800 jobs, including 200 interior decorators who help customers choose furniture, which is then made to order in small production runs at its six American and two overseas factories.

Traditionally, America’s largest companies, such as Boeing and Caterpillar, have dominated exports. Small companies struggle with the reality that distribution; regulation and language barriers can be overwhelming in foreign countries. Consequently, the federal Export-Import Bank has stepped up, providing technical assistance and some funding to small business America helping them to sell goods and services globally. According to the Census Bureau, 293,000 companies exported goods and services in 2006 up 19% from 2006. What is even more interesting is that small companies with fewer than 500 employees accounted for 34% of American exports in 2010, up from 29% in 2006.

Listening to this morning’s various Sunday news roundtables, a new charge against President Obama seems to be gaining prominence within the Republican campaign message and that is that some 70% of the 2008 stimulus was spent on foreign companies.

A decade ago Air Tractor sold almost all of its crop-dusting and fire-fighting aircraft in the United States, leaving it vulnerable both to the American business cycle and weather. Today, helped by federal financing, (not funding) it has increased foreign sales to about half its total. Air Tractor employment has more than doubled and from its home base in Olney, Texas (population 3,285), Air Tractor this year will sell 40 aircraft, a fifth of its annual total, to Brazil, which needs bigger crop-dusters to expand its own grain sales internationally. “If we can do it in a town that has three stop lights and one Dairy Queen, it can be done by anyone” says David Ickert, American Tractor’s CFO.

All of this however, is just the beginning. Even as the results of what I have said above begin to have a real impact on the American economy, our recovery still leaves many challenges un-addressed. Primarily because of technology and as one of the consequences of an increasing reliance on technology, the companies leading the recovery pay higher wages but do not employ many people. Consequently, they have a minimal impact on American unemployment, while aggravating the difference between America’s poor, America’s dwindling middle class and America’s wealthy. Fortunately, this is still a bright light in an otherwise dark room and can become the basis for a more balanced and sustainable basis for growth than what America had before—and a far better platform for prosperity than an unreformed and increasingly stubborn Europe.

So, how can our next president continue to help our struggling but real recovery? First, behave more practically and less politically. Not pushing the American economy over the much feared “fiscal cliff” would be a start: instead settle on a credible long-term deficit reduction plan that includes both an elimination of tax breaks for the rich who show an ever-increasing inclination to hoard their wealth while refraining from creating jobs to increasing smart federal investments in American education and growth industries. The more Americans that are prepared to work in viable careers, the more taxpayers we produce, reducing greatly the number of Americans who depend on the government for support.

Second, the next president should finally take steps to repair America’s crumbling infrastructure. Even the most productive recoveries cannot help an economy thrive with dilapidated roads and the world ‘s most expensive health care system. A focus on just these two issues, as a start, will begin the process of an America recovery in a manner we can all live with.