Moving from Recession to Economic Contraction

Moving from Recession to Economic Contraction
Understanding the Social and Leadership Implications for the American Jewish Community

by Steven Windmueller, Ph.D.

We are experiencing a paradigm shift where given assumptions and set practices that we have come to understand and appreciate in our lives seem to be under assault or even unraveling. From our belief in government to our understanding of the nature of community, we are facing a reconfiguration of the order and meaning of many core elements in our lives.

Harvard economist Kenneth Rogoff suggests that America is experiencing its “Second Great Contraction” (the first involved the Great Depression). In such an economic setting, output, employment, debt, housing prices, and equity can take four or more years to recover. He wrote recently: “The difference between ‘contractions’ and ‘recessions’ is that the former last much longer and requires a different medicine to cure the economy.” Rogoff sees the fiscal crisis today as more reflective of the Depression than a traditional recessionary cycle. This school of economic thought holds to the view that government must find an alternative solution than simply introducing short-term stimulus spending.

Its proponents suggest that as a society we are experiencing a reordering of our core social fabric and structure. The economic outcomes and new social realities will alter our thinking about such ideas as “work”, “membership” and “community”.

Implications for our Community:

If this is indeed a national “contraction” rather than a recession, then both our financial strategies and institutional planning will need to reflect a different and distinct course of action. Indeed these outcomes will have a profound impact on how our synagogues, agencies and organizations will operate in this lengthy period of this transition, and beyond.

What are the implications for communities such as our own? The economic contraction that we are likely to experience will involve these ten elements:

  1. Employment: As 80% of institutional budgets are related to personnel, there will be the need for further downsizing and the freezing of non-essential positions, along with a decline in job creation. For those entering the work force, in the near term, fewer positions will be available. In turn, we can expect employers to continue to downsize positions, reduce salaries and contain benefits. Work itself will take on a whole different definition as a result of these fundamental economic changes, as we will see the retooling and restructuring of the American workforce.
  2. Revenue: As the market undergoes further adjustment, donors will once again recalibrate their discretionary giving and foundations will reprioritize their options, resulting in a loss of revenues for institutions.
  3. Investments: Earnings on investments will show mixed results, while interest rates in the near term will remain low. These fiscal realities will have a direct impact on anticipated income and the corresponding need to reduce or hold operational expenditures.
  4. Membership: Just as the corporate sector is reporting a decline in new purchases and business seems unwilling to expand its investments, there will be a corollary decline in new memberships and institutions will face a more difficult time in maintaining existing members due to financial pressures.
  5. Operational Costs: The cost of doing business will rise as there are increasing signs of an inflationary spiral. Rising expenses will add further pressure on already stripped-down budgets.
  6. Mergers and Acquisitions: In this current environment, specific conversations and actions related to mergers and collaborative ventures will re-emerge. At all moments in time, collaboration is at best difficult, but when dealing with these emerging financial complexities, the value of collective action and the promotion of institutional partnerships would suggest that we embrace this option.
  7. Government Support: There will be fewer federal and state dollars available for entitlement programs and other social service delivery resources.
  8. Capital Expenditures: There will be noticeable delays in launching new capital campaigns, the expansion of services and programs, and the growth of institutional activities. Just as the corporate sector is reluctant to expand its base of operations, many nonprofits are reporting the curtailment of new initiatives at this time.
  9. Retirement and Transition: The anticipated transition of a number of senior managers and institutional leaders may be delayed again as a result of the decline of the financial markets and the resulting loss of pension benefits.
  10. Scarcity Factor: Organizations will once again need to retool around “doing more with less”. Increased consumer pressures will demand more of our social service and human resource institutions to deliver vital programs, especially to those most vulnerable, in a period of diminishing resources.

Five issues will impact the management of our institutions:

  1. How will we lead and continue to inspire and motivate in this period of contraction and reformulation?
  2. What will we emphasize by way of programs and services, in other words what audiences are we seeking to serve in an environment where such choices are critical?
  3. In what ways will we work with other institutions and the communal system to ensure that core services are provided and basic needs met?
  4. In this uncertain setting, how will we engage, motivate and organize our staff? In what ways ought we to be retooling and training our professionals to operate in this environment?
  5. How do we sustain the commitment and loyalty of our key stakeholders, our donors, clients, board, and community partners?

During such an uncertain period, it is likely that institutions will face some of the same structural and policy challenges that were addressed at the outset of the 2008-09 fiscal crises. Managing and directing institutions in this transitory period will require a new form of leadership intelligence, where nimbleness and strategic creativity may be critical in managing assets, building board support, and sustaining donor engagement and support.

In such periods of transition, institutional debates over mission and focus are more pronounced. At this juncture, some management advocates will argue that organizations ought to extend their core functions, even if it might undermine the basic fiscal well-being of the agency in the short term as a means of capturing a broader segment of the market share. Possibly a wiser course involves reaffirming one’s core mission and maintaining central functions. Branding one’s product or services in these difficult times allows an organization the opportunity to enhance its credibility and visibility.

The impact on our community will be profound as this economic cycle is likely to see the reconfiguration of institutional operations. In some cases, we will be witnessing the closure of certain organizations and the merger of others. In the final analysis those organizations with significant financial reserves and endowments and a supportive membership base are more likely to succeed and survive in this present period. Institutions with a strong leadership bench will likewise exhibit the necessary staying power to offset internal tensions, to more effectively manage financial pressures and complex policy choices, and to ensure board and staff commitment to the core elements of the enterprise. Beyond the presence of financial resource benefits, nothing would seem more critical in this setting than to have in place a quality leadership team that understands the value of effective and sustained communications with its key constituencies. Keeping board members, staff, donors and other stakeholders committed to the challenges at hand remains the central priority for the senior professional staff.

Moving Beyond:

There are as well some external threats or challenges that have emerged in the course of these recent financial uncertainties. Two related themes are introduced below:

An Assault on the Collective Model:

As a people who are committed to the concept of community with its myriad of symbols and actions associated with shared action and collective obligation, how do as Jews respond to the push toward individualism and separatism that seems to have captured both the public square and the marketplace at this time?

For those in government and beyond who are opting to separate and de-couple longstanding arrangements and connections around federated systems and national movements, a second take might well be in order. How else can a society or a religious community deliver core services, address common needs, or engage the talent and resources of our very best and brightest to most effectively meet our social and communal challenges?

Beyond our commitment to encourage a sense of wholeness and unity at a time of division and distrust within our national psyche, we as religious community must advance the notion of compromise and connection. Our tradition speaks to the value of promoting and defining a course of action amidst a house divided. Consensus and compromise must trump ideology and dissent. Judaism bears witness to the process of deliberation and negotiation over the politics of rejection.

Our Stake in the American Story:

We are heavily invested as a community in this nation, as we have thrived in this environment. In prior times of general social discord, structural disarray, and economic dislocation, minorities including our own people have experienced the effects of such a crisis, as it can foster intolerance and violence.

As some core social and political assumptions begin to unwind, we could encounter a dangerous shift within the public square. Historically, when facing a vacuum of leadership and the absence of a shared vision, social systems are weakened, which allows for individuals and selected groups to emerge, often from the periphery, to target institutions and leaders for their failure to foster solutions or to place blame on particular constituencies as the cause for such loss of confidence and direction.

Historically, as a community, we were dependent on American democracy to preserve and protect our status and that of our fellow citizens, promote our interests and those of others while always advancing those social and political causes that uniquely reflect the distinctiveness that represents the United States.

In this moment where our nation has seen its governance system falter and its economic infrastructure struggle amidst global competition, the Jewish community will need to promote the values of collective engagement in an effort to reframe the American democratic model.

As Jews, we have encountered significant periods of transition over the course of our history. Clearly, these events and trends have a universal quality to them, but they would seem to hold as well some particular meaning for our community.

As a people, who are invested in the collective, maybe we can both promote for ourselves and for the greater good a sense of the value of shared obligations. Our entire culture is framed around the significance and centrality of community. We are invested in national and communal systems that thrive on the basis of integrative engagement. In turn, we speak a language that references such ideals as collective responsibility.

Dr. Steven Windmueller is the Rabbi Alfred Gottschalk Emeritus Professor of Jewish Communal Service at the Jack H. Skirball Campus in Los Angeles of Hebrew Union College-Jewish Institute of Religion. This essay is a part of larger study on the intersection of the American economy with American Judaism that Dr. Windmueller is pursuing. Additional publications of Steven Windmueller are available on thewindreport.