For Forward magazine, 2009
After the Fall
Once the economy stabilizes, a different landscape will create new winners and losers.
“The future is ever a misted landscape.” — Robinson Jeffers, U.S. poet
“The future is made of the same stuff as the present.” — Simone Weil, French philosopher
If the decaying orbit of the world’s economy were occurring solely in the stock market, it might be referred to as a “correction.” The difference is this correction’s scope is massive and seems to spare virtually no one and no industry.
In a “Great Recession for Dummies,” a thumbnail back story of the current economic situation could be detailed this way: A surge in housing prices led to far more real estate agents and mortgage banks and more houses being constructed. People tapped into their home equity and bought cars and went shopping. This led to many more car dealerships being opened, and many more cars and shopping malls being built.
Consumers who had not so much as glanced at The Wall Street Journal before e-traded from their computers at home. Financial services developed new products for handling these robust financial dealings, and the sector boomed, hiring brokers, derivatives traders, lawyers and other professionals. They leased large amounts of commercial office space in major markets.
Other countries exported more stuff to credit-borrowing-happy U.S. consumers, which created too much capacity in China, Malaysia, South Korea and Vietnam. Emerging nations bought U.S. Treasury notes.
Then the price of homes began to drop, starting in August 2006. One year later, French-based BNP Paribas Bank announced it would stop the redemption of a trio of its investment funds connected to subprime mortgage securities, saying the underlying collateral couldn’t be valued.
Other financial houses followed suit. Financial markets took notice. Confidence faltered. The economy compressed, and many business sectors and consumers realized their own wealth had been “illusory,” as President Barack Obama said.
It all fell down.
After the U.S. economy suffered what Harvard economist Kenneth Rogoff compared to a heart attack, the effects continue to spread, pandemic, throughout the body of the world’s nervous system. Even lowly landfills suffer, bereft of supply, as companies and consumers stop buying, and learn to keep and reuse, repair rather than replace.
As corporations shuck product lines and employees in near-historic numbers, businesses shutter their doors and families tighten their belts even more, economists—the new rock stars—permeate airwaves, print columns and the blogosphere to address the question: When will we return to normal? But those “normal” days of sleep-filled nights and anxiety-free days, of healthy bottom-line projections and planned retirement may not be coming back, at least not for everyone. As Ray Davis, president and chief executive officer of Umpqua Holdings, Oregon’s largest home-based bank, proclaimed in BusinessWeek magazine, “There is no more normal.”
What we may be facing, once the economy stabilizes, in the next few quarters, years or longer, will be what’s come to be called the “new normal.” That new state of things will take place on a changed landscape that will boast its own lineup of winners and losers, where some industries will have more and others will have to learn to accept that less is more.
Adjusted Attitudes, Frozen Vegetables
The phrase “new normal” first reached currency after a more physical attack, the terrorist assaults of Sept. 11, 2001. Reinhardt Duessel of the Center for the Study of Globalization and Cultural Difference at the Department of German, Tamkang University, Taiwan, in a January 2002 essay titled “The New Normal” labeled that event as “history splitting.” “It is, in fact, one of those moments in which history splits, and we define the world as ‘before’ and ‘after,’” he wrote.
Dr. Duessel was correct in that much of the long-lasting damage of those heinous 9/11 attacks were how they affected our psyche. And it is that same soul-affecting, history-splitting shock that shapes how we will respond and adapt to our current economic crisis. This Great Recession will alter our attitudes and personal philosophies just as the Great Depression shaped the core beliefs of that earlier generation.
Lots of people think so. Pulitzer Prize-winning historian David Kennedy reminded National Public Radio listeners this spring that regular vacations and retirement plans are post-Depression concepts. So is home ownership; in the new normal, more of us will be renters, fewer will be homeowners, and 90% of us will live in urban areas by 2025. “Americans’ willingness to spend will be even more discretionary” in the new normal, says John Silvia, chief economist for Wachovia, in Charlotte, North Carolina. We’ll still spend on entertainment, for example, he predicts, but many of us will be content to stay closer to home: “That is, more movie rentals, less Las Vegas. Less what they call aspiration spending.” Fewer, if any, upscale handbags, or eating out at high-ticket restaurants.
We’ll consume less. We’ll buy more frozen vegetables—cheaper than eating out, and longer lasting—and ice cream, as an entertainment experience, from the grocery store rather than from a specialty ice-cream shop (same reasons), suggests John Quelch, Harvard Business School marketing professor. In fact, the long-derided throw-away American culture will have seen its final days, as we’ll want everything to last longer; on the other side of the highway from those thinning landfills will be more services along the lines of Best Buy’s Geek Squads, tasked to gain more life from the durable goods we already.
“The example I like to use is of auto dealerships,” says John Challenger, chief executive officer of Chicago, Illinois-based global outplacement consulting organization Challenger, Gray and Christmas. “The front of the house is like a ghost town. In the back of the house, the repair shop, it’s boom time.”
Mike Duke, Wal-Mart CEO, validates that much of that is happening now, as he cites an uptick in sales of stay-at-home entertainment items such as flat-screen television sets and video game systems. Berkshire Hathaway CEO Warren Buffet, in a gosh, golly moment, concurs an attitude shift is taking shape: “People have really changed their habits like I haven’t seen.”
Today Shows the Future
Retail, as Duke indicates, will be one of the more visible industries to reflect a big change, with a number of businesses trying on the Zappos model. That Henderson, Nevada, online shoe retailer resolved the oft-expressed concern that customers won’t buy what they can’t easily exchange by offering an one-year-return policy, with free shipping. It’s the footwear version of Amazon.com, with large quantities of product and $70 million in annual revenue.
But psychologist and author Billie G. Blair, CEO of Change Strategists Inc. of Los Angeles, California, believes brick-and-mortar locations won’t be entirely supplanted by Web sites where you can view every model—of shoe, car, house, vacation destination—in every available size and color, what some have called a search-and-buy economy, without glimpsing a sales person. (An April 25 Speed Bump syndicated newspaper cartoon shows a woman, purse slung over her shoulder, say to her husband, “I’m going to the Internet. Need anything?”) On the contrary, shopping with friends and family “is a social part of our nature. Humans want to do human things,” Blair says. That also includes “feeling the cloth” when we shop.
Blair admits, though, she’s preparing her own next book to be electronic. Readers will be able to download the text directly to their digital book reader—without going to a physical bookstore.
Other fields will embrace that look-but-don’t-touch approach, to some extent, made possible by ever-advancing technology. So-called remote or distance learning began to gain acceptance in the early and mid-1990s for post-secondary education. The future will see that method push down to lower levels. Already Branson, Colorado, (population 100) boasts 850 students “attending” public elementary classes under its auspices, but all by computer, some from hundreds of miles away. Their teachers aren’t physically in Branson, either. No infrastructure costs, no building upkeep, no transportation expenses.
More use of evolving technology will move companies closer to their customers, not only in retail, but business-to-business also, as producers and suppliers allow their clients access to their inventory data base. Think: transparency. No matter what you buy—X number of tons of aluminum or so many feet of piping—the experience will be just like reading “the information on the side of a can of food,” Dr. Blair says. The buyer, in a closer business partnership, will expect more information about your product, in terms of quality and quantity on hand.
That also means, with end-marker users, supplier and producer all seeing what’s going on at each other’s facility, tighter rein can be held on what needs to be ordered, what products are ready in the warehouse. It could give new meaning to the philosophy of lean manufacturing.
But won’t permitting outsiders to see inside data leave the door open to competitors, too? Blair declares that a non-issue. “In the future, [companies] won’t have time to obsess about their competition. It’s a new managerial reality.” Moreover, generation X and millennials—the ones who’ll be running just about everything soon—love data, Blair says. They’ll see nothing wrong with sharing it.
Another reason is customers want that access. In a January interview with The McKinsey Quarterly, Google CEO Eric Schmidt argues that if companies don’t offer that transparency to their customers, “their competition will.”
Call it an example of the Law of Unintended Consequences: That all-access information, which allows your “partners” to examine your inventory, in turn will affect pricing, and across many industries, including metals, adds Challenger, of Challenger, Gray and Christmas. “It’ll be like Orbitz [online travel service] and airplane seats: As seats fill up, cost goes up on remaining seats. If some open up, that price may come down,” Challenger says. In the near future, “nothing may have an exact, set price.” The fluid price tag will be determined by time, quality and quantity.
That same un-set pricing will be applied to salaries, too. Employees with identical job titles won’t necessarily receive identical pay, even accounting for seniority and the like; workers who bring more value will reap higher wages. “We’re moving toward pay for performance,” Challenger says. Companies “now have better metrics to measure performance.”
Future Workers and Road Kill
Employees in the new normal will be OK with that, for a while. “It used to be, ‘Take this job and shove it.’ Now it’ll be, ‘Today I have a job and I think I’ll love it,’” says Roberta Matuson, president of Northampton, Massachusetts-based Human Resources Solutions and a former Monster.com human-resources expert. Those workers, she says, used to switch jobs as often as they changed shoes, but they’re learning to be less demanding. They won’t insist a corner office or a raise just yet, or ask to leave early for yoga class. “The recession forced them to grow up.”
This past spring (2009) some 1.5 million American graduates attempted to enter the work force, without the guarantee of a job let alone the huge signing bonuses that attracted their friends only a few years earlier, Matuson says. So those who do land jobs will be willing to put in extra hours on the job.
But all that seeming-compliance could give employers a false sense of security. “This recession will live in the minds of people for a long, long time,” she continues. They remember what happened to their family and friends who were downsized and, as economic conditions improve, these untrusting workers “will flee” and return to their job-hopping ways. All those lessons learned from books on how to attract and retain gen X and millennials with foosball tables in the breakroom and sunny-afternoon meetings outdoors will be for naught, Matuson says.
Moreover, when seeking new jobs—unlike during the Great Depression of the 1930s—they can research online to see how a company or whole industry treated past employees. For that reason, financial services positions in particular will not be popular, she predicts.
At the same time, American companies also will have to compete for those talented workers with emerging nations such as Vietnam and countries in Africa, management consultant Billie Blair forecasts. Moreover, students from China, Japan and India who came here to study, then stayed to work for U.S. companies, will begin to return to their homelands as those countries’ economies grow, and work for our competition.
This dwindling of workers will be a real challenge, as baby boomers retire (even if that retirement is delayed because of the recent damage done to their retirement plans and 401(k)s). Health issues in particular will force the boomers out or into other fields, as they age, and not only in those occupations requiring primarily physical labor; Matuson cites white-collar professions that require constant bending over, such as dentists.
So where will job seekers find positions in the new normal? The strongest field, no surprise here, will be in the broad area of health care and biotech, outplacement consultant John Challenger says. He points to the growing need for care givers, physical therapists and the like as science enables us to live longer than preceding generations, and as ongoing expansions in computer technology affect careers from medical recordkeeping to genome sequencing.
Other areas will include:
• Energy—Conservation fostered during the Great Recession will have lasting impact on our psyches, Challenger says, and as the country goes green, there will be more jobs in development of alternative energy, nuclear power, clean coal, fuel cell batteries and natural gas, among other related fields. We’ll also see conservation-related occupations in connection with retrofitting existing buildings. Again, reuse rather than buy new.
• Education—Teachers will be needed for science, mathematics and engineering, so the United States can compete with Brazil, China, India and South Korea where such skills have been paramount.
Teachers also will be required for what has become life-long learning. Not only are more degree-holders returning to school for that second degree to repurpose themselves, knowledge is changing—and will continue to change—at a very fast rate, and professionals need to keep up. “Doctors are still going to school after [age] 45, for example,” to stay abreast of new developments in their fields, Challenger notes.
Erick Peterson, senior vice president for the Center for Strategic and International Studies in Washington, D.C., sees the consequences for not staying ahead of the learning curve as fatal: “Our knowledge sets are becoming more perishable; we’ll need to be constantly retooling ourselves. [Otherwise] we’ll become road kill.”
People entering the work force today for the first time will go through more than a dozen careers before age 38, so they’ll need to be able to relearn quickly, constantly and consistently. “It will become an art to learn how to relearn,” Peterson says. Those who are the most agile at learning, at assimilating that ever-new knowledge, will succeed. After all, they won’t just need to be faster than proverbial slowest gazelle being chased by lion, he says. They’ll need to be faster than the entire pack so they can lead.
• International—U.S. companies can be at the center of the ever-flattening world in a number of ways—by sending its specially trained employees overseas to build relationships and facilities, find raw materials and hire workers, Challenger says. America, many of whose citizens’ parents or grandparents were born elsewhere and who possess knowledge of those other cultures and languages, is well positioned to develop these business ambassadors, he adds.
What about those hot-shot financial sector jobs, the ones Roberta Matuson claims millennials will shun, once the economy is rosier? The entire financial sector likely will shrink—maybe by as much as 50% of its current size in overall U.S. corporate profits—and it will be more heavily regulated, nationally and internationally, says Michael Lind, senior fellow and policy director for the New American Foundation’s Economic Growth Program in Washington, D.C. That would mean fewer jobs across the board, even if America does move toward the Canadian model of tightly regulated national banks, as touted by Paul Volcker, former Fed chairman and now influential Obama adviser.
Where does all this leave metals distributors and producers and manufacturing overall? Will America still be a manufacturing world leader in this new era? President Obama told The New York Times Magazine in May he doubts the United States will “return to an economy in which manufacturing is as large a percentage as it was back in the 1940s … because of automation and technological advances.”
There certainly won’t be a strong future in mass-produced exports, such as textiles, says Wachovia’s chief economist, John Silvia. We’ll lead instead in more high-value-added, computer-assisted, customized products. In other words, in the kinds of value-added work metals service centers have developed.
U.S. companies are better at quality control and computer-assisted work than those in other nations. “Our high-skilled workers are blue-collar only in that they don’t wear ties to work,” Silvia says.
In becoming more specialized, the United States joins China, France and Germany, among other large nations, to ensure certain manufacturing sectors are protected. Under the Obama administration, auto and aerospace in this country will not be allowed to fail, contends the New American Foundation’s Lind.
One unintended and unfortunate consequence of this, Lind quickly points out, could be a glut of subsidized manufactured goods in the marketplace, similar to the overproduction seen in 20th century agriculture—one result when a country tries to out-produce a rival. (A diversified portfolio, in investments for people and nations, is always best, he reasons.)
In any case, along with that, global manufacturers will reclaim many jobs for North American shores as costs go up overseas due to their improving economies. “We’ll be producing more,” Blair forecasts.
The United States has other advantages: As with China and India, America is continental, but it’s also more diversified; different U.S. regions have their own industries. So while an oil bust can hurt Texas and Oklahoma, or an auto downturn can damage manufacturing in Michigan and Ohio, the United States has resilence
The New Abnormal
So once we reach this stabilized economy in this new normal, what will we be like? How will we have changed? As we’ve read, economists tell us we won’t revert to our old disposable ways, we won’t be as inclined to buy today with the hope of paying for it tomorrow. Though Americans are famous for their amnesia, the serious buffeting from this current economic storm has forced us rethink our lives, Harvard’s Kenneth Rogoff says.
Not that Americans are certain of what’s to come. A Time magazine survey this spring found 57% of respondents believe the American Dream will be more difficult to attain. Meanwhile, 56%—almost the same number—think this nation’s best days are still to come.
For business and it leaders, the future won’t be simpler. “… Due to the nature of technology, [companies are] going to have to become more complex,” Google’s Eric Schmidt told The McKinsey Quarterly.
To cope with this complex new world, we’ll need less of a New Normal and more of a New Abnormal, says Erik Peterson of the Center for Strategic and International Studies. “These structural shifts out of the current volatility will affect at least a generation …. We can’t just put a Band-Aid on the current framework,” he says. As director of the Seven Revolutions Initiative, Peterson has been involved in predicting significant global trends through the year 2025, and, going forward, he wonders if we can build a stable framework for private sectors. He questions if our leaders are up to the challenges of this future.
A potential role model for our future might be a leader from our not-too-distant past: Sears, Roebuck and Co.’s Robert E. Wood, whose favorite bedtime reading material reportedly was the Statistical Abstract of the United States, the U.S. Census Bureau’s annual tracking of economic and social patterns. From his study, Wood, a World War I brigadier general and acting Quartermaster General of the Army who became Sears chairman in 1939, correctly predicted not only a post-World War II shift from rural to urban living in America but also the expansion of road networks. He saw that those developments would lead to a change from dispersed shopping to big department stores in cities and suburbs. He also sensed a pent-up consumer demand.
Wood’s assumptions led to a buildup in 1946 of Sears stores in and around urban areas—the largest expansion in merchandising history at that time. His projections were golden, and those new stores resulted in a doubling of sales for Sears in the years after WWII. Sears’s major competitor, Montgomery Ward, whose executives expected a post-war depression, saw its market share shrink to 10%.
The new normal will be faster, pushed by new expectations and technological complexity; that’s Moore’s Law in action, in which progress develops exponentially. Those best equipped to succeed in it will be need to be able to do more than react quickly. After all, innovative ideas come about during times of reflection, not while the Sword of Damocles hangs from above.
Like Robert E. Wood, they will need to see the future, too.