As the US along with who knows what other segments of the global economy - China? Europe? Japan? Russia? Brazil? India…-- enter into this excessive debt driven slump it may be a good occasion to ponder where we might be when we come out at the other end. Economic downturns typically function much like a ratchet and pawl: as the economy grows and innovation advances the pressure for institutional change increases while the success of the status quo resists such change. With the downturn that Mother, Necessity, comes into play and everyone scrambles to find a secure position, even governments get into the act, and expansion, when it comes, builds on a new set of assumptions: the more troubling the downturn, the more pervasive the change.
A few of the forces that have been building which are likely to shape the next recovery:
Globalization
Example: A multi polar production and consumption economy with viable markets everywhere and instant communications. Since WWII the US has played the role of consumer of last resort. The US consumed more of everything than anybody else and was thus the epicenter of economic activity. If you could sell it here you could sell it anywhere. US corporations were dominant, US culture was dominant, US standards were dominant, US finance was dominant. Sure, there were exceptions, lots of them, but that was it, they were exceptions. Over the last 15 years globalization has been condemned by kids in the street as Americanization. As the world recovers from the current downturn the marginal role of the US in the global economy will become painfully obvious. After decades of surviving by keeping an eye on the US, businesses and consumers everywhere will find the competitive threats and big money opportunities coming from all directions at once. Minding ones business will become a multicultural, multi-tasking nightmare. The end of dollar dominance and accelerating financial risk
After a generation of purchasing power stability the US political economy and financial system have ODed in an orgy of debt to the point that Havana cabbies will no longer accept the dollar in payment and African immigrants in the US are now sending food back to relatives since their US currency is now of little help. The problem is that there really is no viable alternative. Neither Euro nor Yen denominated financial instruments exist in sufficient volume to fill the role in the global economy so long played by the dollar. With out a readily available understudy financial improvisation will dominate the post downturn recovery which means greatly increased financial risk and uncertainty. The rise of the Moneyed Class
From 1917 to 1989, Socialism of one form or another was a real threat to the very rich. After keeping a low profile for most of the 20th Century the very rich have once more come into their own. Marginal tax rates have plummeted everywhere. In Red China to be rich is glorious. It is not just that opulence is in; it is the more fundamental fact that the rich now move and act without fear. The power that comes with wealth is now executed without shame, and the centers of wealth and power are now multi-national and global. The confidence and assurance with which wealth will act to secure its ends and objectives will be unapologetic in both business and political matters. A return to the Classical paradigm
A surplus of Labor, a surplus of Capital, a shortage of Land. The Infosys/Freidman Flat-Earth paradigm tells us that labor anywhere in the world with access to the Internet can now be arbitraged against labor anywhere else. As a result there is now a global surplus of college graduates and factory workers. At the same time investment capital, no longer tightly controlled by a few financial centers, is now distributed globally and in the control of a wide mix of individuals, corporations and sovereign powers all seeking a secure and profitable return. What is in short supply is land in the classical sense: basic raw materials, from energy to food to water to clean air and a viable climate. In short, the recovery will be a Malthusian world.The demise of Intellectual property rights
For much of the 20th Century intellect and its products were in short supply. From pharmaceuticals to popular music, from software to brand names a mix of limited talent, tightly controlled production and distribution and strong political patronage created a brief period in history during which artists, intellectuals and scientists could amass great wealth. The global economy has now entered an era of surplus talents, multi polar, Flat-Earth, production and internet distribution and a shift of wealth and political power to patrons with little interest in intellectuals or their property.
As these forces come to dominate business decision making, clear identification and tight control of the value creating process will be the key to success. Extraneous activities will be off loaded as commodities. However, distinguishing value creation and preservation from commoditization will be neither obvious nor easy and past conventions will prove to be unreliable guides to future profitability.
