What if the United States were a Business?
March 24, 2011
Healthy financials and compelling growth prospects are key to success for businesses (and countries). So if the U.S. federal government were a business, how would public shareholders view it? This is what a new report from the venture capital firm Kleiner Perkins Caufield & Byers (KPCB) examines.
The report isolates and reviews key expense and revenue drivers. On the expense side, KPCB examines the major entitlement programs (Medicare, Medicaid and Social Security) as well as defense and other major discretionary programs. On the revenue side, the focus is on gross domestic product (GDP) growth (driven by labor productivity and employment in the long run) and tax policies.
- Cash flow: While recession depressed fiscal year 2008 to fiscal year 2010 results, cash flow has been negative for nine consecutive years ($4.8 trillion, cumulative), with no end to losses in sight. Negative cash flow implies that the country can't afford the services it is providing to "customers."
- Balance sheet: Net worth is negative and deteriorating.
- Off-balance sheet liabilities: Off-balance sheet liabilities of at least $31 trillion (primarily unfunded Medicare and Social Security obligations) amount to nearly $3 for every $1 of debt on the books. Just as unfunded corporate pensions and other postemployment benefits weigh on public corporations, unfunded entitlements, overtime, may increase the country's cost of capital.
Publicly traded companies with similar financial trends would be pressed by shareholders to pursue a turnaround. The good news: the United States' underlying asset base and entrepreneurial culture are strong. The financial trends can shift toward a positive direction, but both "management" and "shareholders" will need collective focus, willpower, commitment and sacrifice, says KPCB.
Source: Mary Meeker, "A Basic Summary of America's Financial Statements," Kleiner Perkins Caufield & Byers, February 2011.
Browse more articles on Tax and Spending Issues