So I've been thinking about how this recession has been unfolding. Back in 2010 I felt that 2011 would be a critical year. I thought that the DOW would hit 12,000 by the end of 2010 or the first quarter of 2011 and that did happen. I thought the next leg up on the DOW would come from unemployment going down (and without that happening, we'd top out until it did).
Since 2011 I've been thinking a lot about what I think will happen in the coming future. I'm not an economist, but as a PR person it's in my DNA to think about macro trends (as they do influence the world of PR dramatically).
I've come to the conclusion that I think we've topped out in the stock market. I know, a shocking statement - how can we ever possibly 'top out' when stock prices are tied to profits (and as such destined to fluctuate up and down). Below I'm outlining the top 10 reasons I think we are going to be stuck in this recession for a very very long time to come, perhaps for the rest of our lives (hence creating a new norm as they say).
I feel so strongly about this that I'm soon going to be exiting the stock market and sitting on the side lines until my thesis is proved wrong.
The Top 10 Reasons I believe this recession will never end (with a short implications statement as to how all this impacts PR moving forward).
1. Crashes hurt for a long time
Crashes are great if you get in at the bottom. The only problem is that almost no one ever does unless by dumb luck. Most people cost average their investing over a long period of time. This means that most middle of the road, mutual fund investors, get hit hard by crashes and it takes a long time for them to recoup their investments (much less make profit or compounding profit).
If we look at the major crashes that have occurred (in '29 and '74) we see that it took 20 years and 10 years respectively for them to bounce back to the levels they were at prior to the crash.
When you step back and look at things, it's clear that crashes hurt for a long time after they happen. The crash of 2008, which was smaller than the one in 1974 (which took 10 years to recoup) has almost regained all of its losses.
While that might seem like a good thing, I think it's kind of scary. There's no reason for such a rebound (housing is depressed, lending is tight, national debt has risen, etc.). I won't go in to all the variables impacting currently stock market levels other than to say at the very least, what we are witnessing is out of character in comparison to past crashes.
So one has to allow for the possibility that things could easily get worse or stay as they are for a long time to come before a true growth cycle establishes itself once again. This variable is important in a recovery as 401k and RRSPs, which represent a huge component of people's personal net worth, are still at risk for never regaining their pre-2008 worth (ie. people will remain poorer than they were in 2008).
2. Until Debt do us Part
Everyone is in debt now a days. Nations are in debt over their heads, which weakens their currencies (which then weakens the value of everyone's savings and earnings - ie. it takes more dollars to buy what it use to take less dollars to buy). Students are graduating university with 30-60k of debt and are not able to get jobs (and the debt of university grows more every year). Tack their debt on to lower paying jobs (if they can find a job) and it's years before they dig themselves out of debt and are actually able to save or invest.
All of this use to be fine when there was still room for more debt (because as people took on more debt, they could buy things, fueling corporate profits - which is what was really at the heart of predatory lending, looking for some new way to squeeze more debt in to the system).
I think most would agree we've leveraged the shit (pardon the French) out of just about anyone that can be leveraged. So how much more growth can be fueled by debt? I think the answer is not much. Which suggests that the only way to increase profits further is through real growth that is attained using real profits and reinvestment of those profits. Yet where is this new, real growth going to come from - no one seems to know (which is not a good sign).
3. Lowest Common Denominator Thinking
One of the major shifts that suggests we are going to be stuck in a recession for a long time to come is what I call lowest common denominator thinking (LCDT). The typical prism through which decisions have been made in the West has been with regards to the middle class. Supply and demand was moderated by the concept that a middle class existence was the ultimate purpose behind our system of work (aka economy) and this concept regulated a general sense of morality that influenced decision making.
Employers and employees negotiated around the notion of people trying to attain a middle class existence and what was fair was judged in relation to this goal.
Today though we're seeing the emergence of LCDT. Instead of people asking how can we get MORE people living a middle class existence, we instead are watching various groups bicker over who is getting paid MORE than they should. Which really is a way of saying "Why do they get to keep their middle class existence and I don't?"
This is very typical. If food is scarce everyone watches everyone else's plate to make sure they aren't getting more than they deserve. That's really what's behind what is going on in Wisconsin - it's people outside the union setting arguing that if they can't have the benefits of the union, then they should take away those benefits from those who currently have them.
Whether unions are good or bad is a moot point, the point that matters is the phenomena of LCDT that is emerging. Break the unions and LCDT will still continue, next it will be cops, or doctors, or however else is seen to be benefiting through the system's protection while others are left out in the cold.
When in reality, if we were moving out of a recession, we'd be seeing the opposite... we'd be seeing people discussing ways of growing the middle class and expanding (ie. investing) in people to fuel future growth. That's not what we are seeing.
4. Eroded Trust
Trust has always underlined democracy and by association capitalism. The rule of law (which allows for trust to develop) is essential for an economy to grow. Without it people are encouraged to break the law as much as they can.
I think it's safe to say that people around the world have little to no trust in the greater powers that be that regulate the societies they live in. No one went to jail for predatory loans, no one went to jail for CDOs, no one went to jail over the BP oil spill, no one at the SEC has been in trouble yet for missing the Madoff scandal (much less the financial crisis), no one got in trouble for false intelligence regarding WMD that lead to the Iraq war, etc. - the only person I can think of that has gone to jail in the past 10 years has been Bernie Madoff (the irony being if Madoff had been a bank he'd probably have been bailed out instead of sent to jail).
Now, all those instances (and many more) are instances of accountability and the lack thereof. People aren't dumb, they recognize lack of accountability when they see it. And when they see it, they distrust the powers that allow it to occur.
The election of Obama was built on this notion... the hope of the people that he would restore accountability and as such a society of trust-based relationships and conduct (at least to the extent that people believed in the efficacy of the law).
Without trust people start taking guarded stances on all kinds of social and business issues, which is the opposite of growth-oriented thinking. If the system is rigged, then what's the point of trying to play the game? This type of thinking is the opposite of what underlies a growth oriented economy.
I think it's going to take at least another five years to begin to rebuild the trust that has eroded in the West. Obama has failed to make a dent in that mission, so repairs won't even begin until after the next Presidential election. Until trust regains some of its stature in the world it's hard to envision a growth cycle that doesn't ultimately turn out to be just another bubble in the making.
5.Anxiety
Fear can be a good thing... it spurs people to action (in spurts anyway). Anxiety (a low grade, consistent state of fear) however is usually a bad thing, as it paralyzes people.
It's totally normal to witness increased levels of anxiety during a recession (people's net worth falls, their job security erodes, they see friends and family suffering, etc.). However, we are now in year three of the recession and I'm not sensing an easing of anxiety out among the general public.
If anything, anxiety seems to have heightened as baby boomers inch closer to retirement without the financial ability to retire, as organizations still do not bring in new workers to help existing workers who are burning out from doing double duty the past three years, and as home prices continue to remain depressed in the US (with the threat of going perhaps another 25 per cent lower).
Anxiety creates stress and stress means less productive workers and less inventive entrepreneurs, all of which adds up to a society that is just treading water instead of swimming in a direction and making progress. Without a 'go get 'em' attitude out there it's hard to imagine what is going to drive economic growth beyond the levels it was at in 2008.
A society stuck in a state of anxiety is no different than a person suffering from anxiety, they are handcuffed from releasing their potential and instead exist always worrying about what could go wrong next and attempting to prepare for the worst (which often results in the worst happening).
6. Growth (innovation) versus Replacement Cycles
This is a giant variable behind my thesis that I think we may have come to the end of the line in terms of the stock market growing much beyond its current levels (keeping in mind that to me stock market growth is the exact same thing as economic growth, as one reflects the other).
If I look back on the growth of the stock market it is chalk full of innovation. Brand new things that never existed in the history of mankind. The list is endless: cars, computers, cell phones, televisions, laser eye surgery, endless prescription drugs, food with preservatives, planes, software applications, vitamins, movies, etc.
And while these things still drive our economy, they do so based on replacement cycles. We get better cell phones, different movies, better cars, etc., and we buy them when the previous version we had breaks or we get bored of it (hence we replace).
The problem with replacement cycles is that they occur in commoditized markets. Once a product has been around a while the manufacturing costs become more efficient and in conjunction with market competition, the product sells for less. While this is great for consumers (those who have the money), it's not great for profits or employment.
We've been living through an era of product expansion and innovation and its created enormous wealth. Yet, the past 10 years has been mostly about replacement cycles. Aside from Google, Facebook, Twitter and Amazon what other dramatic innovations have occurred? Not much comes to mind.
And what's on the horizon?
Smartphones? They are just mini computers - more of a form factor / convergence change than something brand new.
Solar panels? Yep, this would count, unfortunately it will be years before we see them at a cost anyone can afford readily (although it will be amazing to simply buy solar panels and get your energy from them and not have to pay an electricity bill every month).
Skype? Yep, it would definitely be a game changer if mass adoption occurred (good bye carriers around the world).
Light rail? Yep, pretty neat, although not implemented in many places.
The truth appears to be that the next twenty years are most likely going to be filled with replacement cycles and new features built on to existing technology.
While this should be fantastic for consumers (who will get more for less), it's horrible for the economy. This trend is what caused the financial bubble if you ask me. When product innovation could no longer drive the economy like it did in the 80s and 90s they had to figure a way to keep the economy growing and the easiest answer was sell more homes, hand out more debt to people and create more exotic financial instruments.
You know you've hit an innovation wall when newer versions of products are often no better than the older versions. The fact that Vista got trashed in comparison to Windows 95 is a great example. The company that arguably changed the world more than any other, Microsoft, doesn't know what to create next and stumbles to market with various attempts at new products that often fail (and yet no one dethrones them because, well, no one can really out innovate what they've already created).
Part of this stagnant innovation cycle we are in is the result of the stock market itself. Big companies don't make more money innovating (since innovation costs money to do and is a gamble) and actually serve shareholders better if they simply innovate a little bit at a time (just enough to get their consumers to toss out what they bought a couple years ago and buy the newer version).
So from business models to basic limitations in knowledge and creativity, innovation is no longer at the core of society. That explosive phase seems to have come to an end. And one must ask, without innovation thriving, where is the long-term upside in the stock market or in job creation?
Interesting to note also is that much of the innovation that does occur will actually supplant existing businesses (so Skype might end up destroying some of the big carriers for instance). While great for consumers, it's bad for employment (those big companies fire a lot of people when their profits get hurt - more people than the up-and-coming competitor can hire, who have built their business around a leaner, meaner operations and service delivery model).
Sure there will be innovations here and there, but I just don't see anything on the scale of what we've seen over the past 100 years. I just don't see any game changers on the horizon. And that's about as bad as it can get in terms of getting out of recession and in to a growing, healthy and robust economy.
7. The Shareholder model is breaking down
Perhaps one of the things that is surprising me the most is how many people today do not want to own stocks.
Stocks are really the only way to compound your money (without actually going out and buying another house or something). Everyone accepted this model before. You invest in companies that are growing and your investment appreciated, everyone wins.
The problem now though is that people are gaining a greater understanding of what being a shareholder means. It means that when you are invested in company X and they fire 10,000 people to boost the bottom line so that your shares don't go down in value, that you are party to 10,000 people losing their jobs (such an action was taken not necessarily because the money wasn't there to keep them employed, but because keeping them employed interfered with returns to shareholders).
I'm noticing that a lot of people just are not comfortable with this model anymore. They don't want to be a part of a system that they feel is hurting not only other people, but themselves as well.
Whether they are right or wrong to feel this way is a moot point, all that matters is that they do.
And this shift in sentiment wouldn't matter if they simply took their money and spent it (because that would simply mean that those still invested in the companies that were selling them things would reap the rewards of increased profits). The problem is that this shift in sentiment will most likely mean that they won't save for their future, which means their net worth will go down, and in the long-run their ability to purchase things (much less carry debt) will decline.
Corporations are built around innovating to increase profits to return to shareholders. If enough people opt out of the investing / shareholder model this will throw a giant wrench into the largest profit sharing model ever created and ultimately erode economic growth. You simply can't maintain a middle class if they aren't sharing in the profits created by businesses through investing.
And yet, I'm convinced that the recent crash has soured people on the stock market for a long time to come. Which means even if things do get better, there won't necessarily be buyers there willing to pay premiums for stock (breaking down the entire model upon which business currently operates).
8. Globalization
Globalization, to me anyway, is simply a giant averaging event. As other countries develop their own version of the middle class and can innovate the same as the West you simply expand your knowledge workforce by millions of people. While great for businesses and great for developing countries, this is bad for the average person in the West.
If someone in the US makes $100k and someone in the East does the exact same job for $30k, the moment their markets merge you'll get a salary for that profession of $50k or thereabouts. Well in truth, you might actually end up with a salary of $20k (if supply exceeds demand, then everyone losses and gets paid less, you don't even get an averaging of the salaries).
And this ties back in to innovation. What can the West do that no one else can do? It's only when you can do what others can't that you don't experience an averaging event (or commodification). At this point not much (entertainment seems to be the last stronghold right now). The advantage the West has so far has been democracy and rule of law, these two things have allowed entrepreneurship to flourish... attracting the best and brightest minds from around the world to America.
The question has to be whether this will continue for the next 30 years? I'm skeptical. I don't think people in other areas of the world are clamoring to reach America's shores like they once did. I think they are just as happy to go to Canada, Australia, Japan, Europe, etc. - in some cases they would prefer those places over America. Heck, a lot of them are simply over-throwing the dictators in their own homelands (why leave when you can reclaim your country?).
So if the West doesn't stay at the leading edge (from rule of law, to social norms, to education and innovation) then what we will see is an erosion of US companies and their ability to profit. Other stock markets may rise in value, but the traditional DOW, S&P and Nasdaq will top out and remain stagnant (as the majority of the companies that comprise these exchanges are based in the West).
This ultimate reflects the reality that the rest of the world won't need products coming out of the West, they will make their own products. At some point who knows, maybe Australia will become the new producer of flat screen televisions.
Point is that as globalization unfolds, while good for the rest of the world in theory, it's likely to be bad for the standard of living in the West as poorer countries start competing not just to make clothing but to do your accounting, investing, banking, and all the other white collar jobs that fuel the middle class.
9. Baby Boomer Costs
There's a tidal wave of baby boomers who will be moving from workers in the economy to dependents of the state / their families. And it won't just be the cost of health care and pensions that is levied on the system, it will also be a radical shift in spending patterns.
While taxes will probably increase to pay for caring for the elderly, the other issue will be a huge chunk of the population (baby boomers) drastically reduce their spending. Whether it be out of necessity (once they stop working they will have to live within the means of whatever retirement income they have) or the result of physical health (less mobility and health general leads to less spending activities).
So we're going to have a huge segment of the population who will continue to spend, but probably not like they did when they were working. Can Gen X, Y and beyond somehow make up for this impending drop in consumer spending and increase in health care costs? I don't see how they can.
It hasn't been an issue in the past because the baby boomer's parents were a smaller population than the baby boomers - it's not a big deal when you take a smaller group of consumers and replace them with a bigger group. But when you replace a big group with a smaller group you're in for trouble.
It's no surprise that we are seeing a lot of talk about extending the retirement age, because if the baby boomers leave the workforce on schedule, it's going to leave a giant crater in the consumer base, which will be bad for stocks. I suppose immigration could help offset the baby boomers, but until I see someone articulate that to be the case I'm not so sure.
10. Extremism
I know, talk about a vague variable to end this post on, but it had to be done.
What I mean by extremism is that since 2001 we are witnessing a world in which actions are more extreme than ever. Whether it be banks that are too big to fail, CEO compensation being of the charts, terrorists crashing planes in to buildings, politicians who take polarizing stances and say extreme things to get elected, politicians who take extreme actions (like deregulating industries that shouldn't be), man-made natural disasters or super bugs - extreme is the word to describe many aspects of the world today.
While the world has always been tumultuous, it's getting more so. I'd like to think that we'll revert back to calmer, more sane times, but it's hard to see how we are going to get there. Which is bad news for stocks, which are predicated on investors being able to approximate growth trends. The more volatility the less people want to invest (and the less companies want to invest and take risks that are essential to growth).
An uprising in Libya and gas goes through the roof. PIGS can't pay their debt and the Euro crashes. The list goes on and on.
No one knows what is around the corner, but it's safe to say whatever shoe drops next will be bigger and more extreme than the one before it. It is going to be very difficult for the markets or society to emerge from recession until the world calms down a bit (which likely won't happen for a while).
I should note, I was tempted to list 'inflation' as my #10 reason the recession will continue, but inflation isn't really a contributor so much as a symptom created by all the things listed above. It's the ultimate straw that breaks the camels back and erodes standard of living.
So there you have it. I've really wanted to be a bull looking out to the future. Yet, when it comes to this recession, I think we've essentially reached a new norm. In fact, I think it's quite possible that we are actually at the beginning stages of a slow deterioration in the standard of living in the West.
I certainly hope I'm wrong. There are still lots of things that could ultimately catalyze another growth cycle including:
- Global frameworks that put an end to wars once and for all
- Global frameworks designed around creating a world-wide middle class
- With a new generation running the world (aka post-baby boomers) new possibilities arise across all variables
- Technological innovation that no one sees coming (or that develop faster than expected)
- Shifts in cultural norms that create greater communities of support for people (which I think is the real interesting thing about social media)
- Re-emergence of pure democracy and the election of leaders that represent the will of the people (versus special interests)
So there are lots of things that could radically flip the world on its head and create an entirely new era of innovation and creative thinking, but based on how things are at the moment, I don't think we are going to see that any time soon and as such I think the stock market will reflect a society that is immobilized by a confluence of forces that prohibit growth as opposed to nurture it - in essence, we have reached a new norm.
As promised, I'll take a second to muse about what all this means to those practicing PR (or at least what I think it means).
* I think clearly crisis communications is going to grow in importance. The thing that will topple many organizations will be a crisis they didn't see coming and not having the appropriate responses in place when that time comes. Let's call a spade a spade, crisis communications today is poorly done in the best of circumstances (BP's crisis communications plan for an oil spill was an utter joke).
* I think social media will transform in to something we can't even imagine just yet. Tweets and blogs are nice, but the ultimate evolution for social media has to be a much richer medium. I think a lot of that evolution will come from the usability of video and audio editing software (which most people currently don't know how to use and which is cumbersome to use) and the advancements in video compression tools. When people can make polished, professional videos and post them easily and quickly to a hosted web site (ala Facebook) you'll start to see the real impact of social networking.
While we may be living in a new norm this facet of technology will continue to evolve because it will be driven by individuals just as much as by corporations. So don't expect the recession to impact social media (if anything, the low cost access of social media platforms will enhance the use of social media).
* Virtual interactions will become massively important if we don't enter another growth cycle. Travel is one of the biggest opex costs of doing business and technology will enable organizations to slash their travel budget in favor of virtual forms of communicating. Unlike face-to-face meetings where charm and charisma can carry you a long way, virtual meetings will require highly polished presentation materials to wow the people you are speaking with. I suspect a prolonged recession will bring back the emphasis of look and feel (and messaging) that has been lost over the past couple of years.
* Key opinion leaders will become ever more important - trust will be a commodity hard to attain and easy to lose (even more so than it already is). Organizations that manage stakeholders casually will quickly find their brand at the bottom of the pile as opinion leaders will be ever more cautious not to lend their own brand of trust to an organization they don't actually trust.
* PR as a profession will likely continue to grow as organizations find themselves dealing with tougher stakeholders. As life continues to be stressful, that stress plays itself out as people who are easily upset. So expect PR to go beyond simply communicating a message and to evolve in to managing expectations and stakeholder sentiment as well. Which I think will be a whole new area currently not defined within public relations (think of it as a mix of HR, customer service, marketing and public relations).
* Agencies will thrive. The bare bones reality is that most companies don't staff appropriately internally (and that won't change for a long time due to opex limitations). In conjunction, there are very few academically trained people in the PR profession. The result should be an increase in outsourcing to PR agencies and consultants. The increase will come as greater demands are placed on PR staff without the clearance to hire additional resources. The only resolution to this issue will be to outsource assistance.
So we'll see how it all shakes out. I hope I'm wrong and somehow we enter a growth phase and everyone gets back to the task of making the world a better place and the streets are filled with passion and excitement again. That would be a PR persons dream come true.
But I'm afraid the dark clouds of 2008 have lifted only momentarily and that we all must adapt to a new normal.
Since 2011 I've been thinking a lot about what I think will happen in the coming future. I'm not an economist, but as a PR person it's in my DNA to think about macro trends (as they do influence the world of PR dramatically).
I've come to the conclusion that I think we've topped out in the stock market. I know, a shocking statement - how can we ever possibly 'top out' when stock prices are tied to profits (and as such destined to fluctuate up and down). Below I'm outlining the top 10 reasons I think we are going to be stuck in this recession for a very very long time to come, perhaps for the rest of our lives (hence creating a new norm as they say).
I feel so strongly about this that I'm soon going to be exiting the stock market and sitting on the side lines until my thesis is proved wrong.
The Top 10 Reasons I believe this recession will never end (with a short implications statement as to how all this impacts PR moving forward).
1. Crashes hurt for a long time
Crashes are great if you get in at the bottom. The only problem is that almost no one ever does unless by dumb luck. Most people cost average their investing over a long period of time. This means that most middle of the road, mutual fund investors, get hit hard by crashes and it takes a long time for them to recoup their investments (much less make profit or compounding profit).
If we look at the major crashes that have occurred (in '29 and '74) we see that it took 20 years and 10 years respectively for them to bounce back to the levels they were at prior to the crash.
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| You can view the original chart at here |
While that might seem like a good thing, I think it's kind of scary. There's no reason for such a rebound (housing is depressed, lending is tight, national debt has risen, etc.). I won't go in to all the variables impacting currently stock market levels other than to say at the very least, what we are witnessing is out of character in comparison to past crashes.
So one has to allow for the possibility that things could easily get worse or stay as they are for a long time to come before a true growth cycle establishes itself once again. This variable is important in a recovery as 401k and RRSPs, which represent a huge component of people's personal net worth, are still at risk for never regaining their pre-2008 worth (ie. people will remain poorer than they were in 2008).
2. Until Debt do us Part
Everyone is in debt now a days. Nations are in debt over their heads, which weakens their currencies (which then weakens the value of everyone's savings and earnings - ie. it takes more dollars to buy what it use to take less dollars to buy). Students are graduating university with 30-60k of debt and are not able to get jobs (and the debt of university grows more every year). Tack their debt on to lower paying jobs (if they can find a job) and it's years before they dig themselves out of debt and are actually able to save or invest.
All of this use to be fine when there was still room for more debt (because as people took on more debt, they could buy things, fueling corporate profits - which is what was really at the heart of predatory lending, looking for some new way to squeeze more debt in to the system).
I think most would agree we've leveraged the shit (pardon the French) out of just about anyone that can be leveraged. So how much more growth can be fueled by debt? I think the answer is not much. Which suggests that the only way to increase profits further is through real growth that is attained using real profits and reinvestment of those profits. Yet where is this new, real growth going to come from - no one seems to know (which is not a good sign).
3. Lowest Common Denominator Thinking
One of the major shifts that suggests we are going to be stuck in a recession for a long time to come is what I call lowest common denominator thinking (LCDT). The typical prism through which decisions have been made in the West has been with regards to the middle class. Supply and demand was moderated by the concept that a middle class existence was the ultimate purpose behind our system of work (aka economy) and this concept regulated a general sense of morality that influenced decision making.
Employers and employees negotiated around the notion of people trying to attain a middle class existence and what was fair was judged in relation to this goal.
Today though we're seeing the emergence of LCDT. Instead of people asking how can we get MORE people living a middle class existence, we instead are watching various groups bicker over who is getting paid MORE than they should. Which really is a way of saying "Why do they get to keep their middle class existence and I don't?"
This is very typical. If food is scarce everyone watches everyone else's plate to make sure they aren't getting more than they deserve. That's really what's behind what is going on in Wisconsin - it's people outside the union setting arguing that if they can't have the benefits of the union, then they should take away those benefits from those who currently have them.
Whether unions are good or bad is a moot point, the point that matters is the phenomena of LCDT that is emerging. Break the unions and LCDT will still continue, next it will be cops, or doctors, or however else is seen to be benefiting through the system's protection while others are left out in the cold.
When in reality, if we were moving out of a recession, we'd be seeing the opposite... we'd be seeing people discussing ways of growing the middle class and expanding (ie. investing) in people to fuel future growth. That's not what we are seeing.
4. Eroded Trust
Trust has always underlined democracy and by association capitalism. The rule of law (which allows for trust to develop) is essential for an economy to grow. Without it people are encouraged to break the law as much as they can.
I think it's safe to say that people around the world have little to no trust in the greater powers that be that regulate the societies they live in. No one went to jail for predatory loans, no one went to jail for CDOs, no one went to jail over the BP oil spill, no one at the SEC has been in trouble yet for missing the Madoff scandal (much less the financial crisis), no one got in trouble for false intelligence regarding WMD that lead to the Iraq war, etc. - the only person I can think of that has gone to jail in the past 10 years has been Bernie Madoff (the irony being if Madoff had been a bank he'd probably have been bailed out instead of sent to jail).
Now, all those instances (and many more) are instances of accountability and the lack thereof. People aren't dumb, they recognize lack of accountability when they see it. And when they see it, they distrust the powers that allow it to occur.
The election of Obama was built on this notion... the hope of the people that he would restore accountability and as such a society of trust-based relationships and conduct (at least to the extent that people believed in the efficacy of the law).
Without trust people start taking guarded stances on all kinds of social and business issues, which is the opposite of growth-oriented thinking. If the system is rigged, then what's the point of trying to play the game? This type of thinking is the opposite of what underlies a growth oriented economy.
I think it's going to take at least another five years to begin to rebuild the trust that has eroded in the West. Obama has failed to make a dent in that mission, so repairs won't even begin until after the next Presidential election. Until trust regains some of its stature in the world it's hard to envision a growth cycle that doesn't ultimately turn out to be just another bubble in the making.
5.Anxiety
Fear can be a good thing... it spurs people to action (in spurts anyway). Anxiety (a low grade, consistent state of fear) however is usually a bad thing, as it paralyzes people.
It's totally normal to witness increased levels of anxiety during a recession (people's net worth falls, their job security erodes, they see friends and family suffering, etc.). However, we are now in year three of the recession and I'm not sensing an easing of anxiety out among the general public.
If anything, anxiety seems to have heightened as baby boomers inch closer to retirement without the financial ability to retire, as organizations still do not bring in new workers to help existing workers who are burning out from doing double duty the past three years, and as home prices continue to remain depressed in the US (with the threat of going perhaps another 25 per cent lower).
Anxiety creates stress and stress means less productive workers and less inventive entrepreneurs, all of which adds up to a society that is just treading water instead of swimming in a direction and making progress. Without a 'go get 'em' attitude out there it's hard to imagine what is going to drive economic growth beyond the levels it was at in 2008.
A society stuck in a state of anxiety is no different than a person suffering from anxiety, they are handcuffed from releasing their potential and instead exist always worrying about what could go wrong next and attempting to prepare for the worst (which often results in the worst happening).
6. Growth (innovation) versus Replacement Cycles
This is a giant variable behind my thesis that I think we may have come to the end of the line in terms of the stock market growing much beyond its current levels (keeping in mind that to me stock market growth is the exact same thing as economic growth, as one reflects the other).
If I look back on the growth of the stock market it is chalk full of innovation. Brand new things that never existed in the history of mankind. The list is endless: cars, computers, cell phones, televisions, laser eye surgery, endless prescription drugs, food with preservatives, planes, software applications, vitamins, movies, etc.
And while these things still drive our economy, they do so based on replacement cycles. We get better cell phones, different movies, better cars, etc., and we buy them when the previous version we had breaks or we get bored of it (hence we replace).
The problem with replacement cycles is that they occur in commoditized markets. Once a product has been around a while the manufacturing costs become more efficient and in conjunction with market competition, the product sells for less. While this is great for consumers (those who have the money), it's not great for profits or employment.
We've been living through an era of product expansion and innovation and its created enormous wealth. Yet, the past 10 years has been mostly about replacement cycles. Aside from Google, Facebook, Twitter and Amazon what other dramatic innovations have occurred? Not much comes to mind.
And what's on the horizon?
Smartphones? They are just mini computers - more of a form factor / convergence change than something brand new.
Solar panels? Yep, this would count, unfortunately it will be years before we see them at a cost anyone can afford readily (although it will be amazing to simply buy solar panels and get your energy from them and not have to pay an electricity bill every month).
Skype? Yep, it would definitely be a game changer if mass adoption occurred (good bye carriers around the world).
Light rail? Yep, pretty neat, although not implemented in many places.
The truth appears to be that the next twenty years are most likely going to be filled with replacement cycles and new features built on to existing technology.
While this should be fantastic for consumers (who will get more for less), it's horrible for the economy. This trend is what caused the financial bubble if you ask me. When product innovation could no longer drive the economy like it did in the 80s and 90s they had to figure a way to keep the economy growing and the easiest answer was sell more homes, hand out more debt to people and create more exotic financial instruments.
You know you've hit an innovation wall when newer versions of products are often no better than the older versions. The fact that Vista got trashed in comparison to Windows 95 is a great example. The company that arguably changed the world more than any other, Microsoft, doesn't know what to create next and stumbles to market with various attempts at new products that often fail (and yet no one dethrones them because, well, no one can really out innovate what they've already created).
Part of this stagnant innovation cycle we are in is the result of the stock market itself. Big companies don't make more money innovating (since innovation costs money to do and is a gamble) and actually serve shareholders better if they simply innovate a little bit at a time (just enough to get their consumers to toss out what they bought a couple years ago and buy the newer version).
So from business models to basic limitations in knowledge and creativity, innovation is no longer at the core of society. That explosive phase seems to have come to an end. And one must ask, without innovation thriving, where is the long-term upside in the stock market or in job creation?
Interesting to note also is that much of the innovation that does occur will actually supplant existing businesses (so Skype might end up destroying some of the big carriers for instance). While great for consumers, it's bad for employment (those big companies fire a lot of people when their profits get hurt - more people than the up-and-coming competitor can hire, who have built their business around a leaner, meaner operations and service delivery model).
Sure there will be innovations here and there, but I just don't see anything on the scale of what we've seen over the past 100 years. I just don't see any game changers on the horizon. And that's about as bad as it can get in terms of getting out of recession and in to a growing, healthy and robust economy.
7. The Shareholder model is breaking down
Perhaps one of the things that is surprising me the most is how many people today do not want to own stocks.
Stocks are really the only way to compound your money (without actually going out and buying another house or something). Everyone accepted this model before. You invest in companies that are growing and your investment appreciated, everyone wins.
The problem now though is that people are gaining a greater understanding of what being a shareholder means. It means that when you are invested in company X and they fire 10,000 people to boost the bottom line so that your shares don't go down in value, that you are party to 10,000 people losing their jobs (such an action was taken not necessarily because the money wasn't there to keep them employed, but because keeping them employed interfered with returns to shareholders).
I'm noticing that a lot of people just are not comfortable with this model anymore. They don't want to be a part of a system that they feel is hurting not only other people, but themselves as well.
Whether they are right or wrong to feel this way is a moot point, all that matters is that they do.
And this shift in sentiment wouldn't matter if they simply took their money and spent it (because that would simply mean that those still invested in the companies that were selling them things would reap the rewards of increased profits). The problem is that this shift in sentiment will most likely mean that they won't save for their future, which means their net worth will go down, and in the long-run their ability to purchase things (much less carry debt) will decline.
Corporations are built around innovating to increase profits to return to shareholders. If enough people opt out of the investing / shareholder model this will throw a giant wrench into the largest profit sharing model ever created and ultimately erode economic growth. You simply can't maintain a middle class if they aren't sharing in the profits created by businesses through investing.
And yet, I'm convinced that the recent crash has soured people on the stock market for a long time to come. Which means even if things do get better, there won't necessarily be buyers there willing to pay premiums for stock (breaking down the entire model upon which business currently operates).
8. Globalization
Globalization, to me anyway, is simply a giant averaging event. As other countries develop their own version of the middle class and can innovate the same as the West you simply expand your knowledge workforce by millions of people. While great for businesses and great for developing countries, this is bad for the average person in the West.
If someone in the US makes $100k and someone in the East does the exact same job for $30k, the moment their markets merge you'll get a salary for that profession of $50k or thereabouts. Well in truth, you might actually end up with a salary of $20k (if supply exceeds demand, then everyone losses and gets paid less, you don't even get an averaging of the salaries).
And this ties back in to innovation. What can the West do that no one else can do? It's only when you can do what others can't that you don't experience an averaging event (or commodification). At this point not much (entertainment seems to be the last stronghold right now). The advantage the West has so far has been democracy and rule of law, these two things have allowed entrepreneurship to flourish... attracting the best and brightest minds from around the world to America.
The question has to be whether this will continue for the next 30 years? I'm skeptical. I don't think people in other areas of the world are clamoring to reach America's shores like they once did. I think they are just as happy to go to Canada, Australia, Japan, Europe, etc. - in some cases they would prefer those places over America. Heck, a lot of them are simply over-throwing the dictators in their own homelands (why leave when you can reclaim your country?).
So if the West doesn't stay at the leading edge (from rule of law, to social norms, to education and innovation) then what we will see is an erosion of US companies and their ability to profit. Other stock markets may rise in value, but the traditional DOW, S&P and Nasdaq will top out and remain stagnant (as the majority of the companies that comprise these exchanges are based in the West).
This ultimate reflects the reality that the rest of the world won't need products coming out of the West, they will make their own products. At some point who knows, maybe Australia will become the new producer of flat screen televisions.
Point is that as globalization unfolds, while good for the rest of the world in theory, it's likely to be bad for the standard of living in the West as poorer countries start competing not just to make clothing but to do your accounting, investing, banking, and all the other white collar jobs that fuel the middle class.
9. Baby Boomer Costs
There's a tidal wave of baby boomers who will be moving from workers in the economy to dependents of the state / their families. And it won't just be the cost of health care and pensions that is levied on the system, it will also be a radical shift in spending patterns.
While taxes will probably increase to pay for caring for the elderly, the other issue will be a huge chunk of the population (baby boomers) drastically reduce their spending. Whether it be out of necessity (once they stop working they will have to live within the means of whatever retirement income they have) or the result of physical health (less mobility and health general leads to less spending activities).
So we're going to have a huge segment of the population who will continue to spend, but probably not like they did when they were working. Can Gen X, Y and beyond somehow make up for this impending drop in consumer spending and increase in health care costs? I don't see how they can.
It hasn't been an issue in the past because the baby boomer's parents were a smaller population than the baby boomers - it's not a big deal when you take a smaller group of consumers and replace them with a bigger group. But when you replace a big group with a smaller group you're in for trouble.
It's no surprise that we are seeing a lot of talk about extending the retirement age, because if the baby boomers leave the workforce on schedule, it's going to leave a giant crater in the consumer base, which will be bad for stocks. I suppose immigration could help offset the baby boomers, but until I see someone articulate that to be the case I'm not so sure.
10. Extremism
I know, talk about a vague variable to end this post on, but it had to be done.
What I mean by extremism is that since 2001 we are witnessing a world in which actions are more extreme than ever. Whether it be banks that are too big to fail, CEO compensation being of the charts, terrorists crashing planes in to buildings, politicians who take polarizing stances and say extreme things to get elected, politicians who take extreme actions (like deregulating industries that shouldn't be), man-made natural disasters or super bugs - extreme is the word to describe many aspects of the world today.
While the world has always been tumultuous, it's getting more so. I'd like to think that we'll revert back to calmer, more sane times, but it's hard to see how we are going to get there. Which is bad news for stocks, which are predicated on investors being able to approximate growth trends. The more volatility the less people want to invest (and the less companies want to invest and take risks that are essential to growth).
An uprising in Libya and gas goes through the roof. PIGS can't pay their debt and the Euro crashes. The list goes on and on.
No one knows what is around the corner, but it's safe to say whatever shoe drops next will be bigger and more extreme than the one before it. It is going to be very difficult for the markets or society to emerge from recession until the world calms down a bit (which likely won't happen for a while).
I should note, I was tempted to list 'inflation' as my #10 reason the recession will continue, but inflation isn't really a contributor so much as a symptom created by all the things listed above. It's the ultimate straw that breaks the camels back and erodes standard of living.
So there you have it. I've really wanted to be a bull looking out to the future. Yet, when it comes to this recession, I think we've essentially reached a new norm. In fact, I think it's quite possible that we are actually at the beginning stages of a slow deterioration in the standard of living in the West.
I certainly hope I'm wrong. There are still lots of things that could ultimately catalyze another growth cycle including:
- Global frameworks that put an end to wars once and for all
- Global frameworks designed around creating a world-wide middle class
- With a new generation running the world (aka post-baby boomers) new possibilities arise across all variables
- Technological innovation that no one sees coming (or that develop faster than expected)
- Shifts in cultural norms that create greater communities of support for people (which I think is the real interesting thing about social media)
- Re-emergence of pure democracy and the election of leaders that represent the will of the people (versus special interests)
So there are lots of things that could radically flip the world on its head and create an entirely new era of innovation and creative thinking, but based on how things are at the moment, I don't think we are going to see that any time soon and as such I think the stock market will reflect a society that is immobilized by a confluence of forces that prohibit growth as opposed to nurture it - in essence, we have reached a new norm.
As promised, I'll take a second to muse about what all this means to those practicing PR (or at least what I think it means).
* I think clearly crisis communications is going to grow in importance. The thing that will topple many organizations will be a crisis they didn't see coming and not having the appropriate responses in place when that time comes. Let's call a spade a spade, crisis communications today is poorly done in the best of circumstances (BP's crisis communications plan for an oil spill was an utter joke).
* I think social media will transform in to something we can't even imagine just yet. Tweets and blogs are nice, but the ultimate evolution for social media has to be a much richer medium. I think a lot of that evolution will come from the usability of video and audio editing software (which most people currently don't know how to use and which is cumbersome to use) and the advancements in video compression tools. When people can make polished, professional videos and post them easily and quickly to a hosted web site (ala Facebook) you'll start to see the real impact of social networking.
While we may be living in a new norm this facet of technology will continue to evolve because it will be driven by individuals just as much as by corporations. So don't expect the recession to impact social media (if anything, the low cost access of social media platforms will enhance the use of social media).
* Virtual interactions will become massively important if we don't enter another growth cycle. Travel is one of the biggest opex costs of doing business and technology will enable organizations to slash their travel budget in favor of virtual forms of communicating. Unlike face-to-face meetings where charm and charisma can carry you a long way, virtual meetings will require highly polished presentation materials to wow the people you are speaking with. I suspect a prolonged recession will bring back the emphasis of look and feel (and messaging) that has been lost over the past couple of years.
* Key opinion leaders will become ever more important - trust will be a commodity hard to attain and easy to lose (even more so than it already is). Organizations that manage stakeholders casually will quickly find their brand at the bottom of the pile as opinion leaders will be ever more cautious not to lend their own brand of trust to an organization they don't actually trust.
* PR as a profession will likely continue to grow as organizations find themselves dealing with tougher stakeholders. As life continues to be stressful, that stress plays itself out as people who are easily upset. So expect PR to go beyond simply communicating a message and to evolve in to managing expectations and stakeholder sentiment as well. Which I think will be a whole new area currently not defined within public relations (think of it as a mix of HR, customer service, marketing and public relations).
* Agencies will thrive. The bare bones reality is that most companies don't staff appropriately internally (and that won't change for a long time due to opex limitations). In conjunction, there are very few academically trained people in the PR profession. The result should be an increase in outsourcing to PR agencies and consultants. The increase will come as greater demands are placed on PR staff without the clearance to hire additional resources. The only resolution to this issue will be to outsource assistance.
So we'll see how it all shakes out. I hope I'm wrong and somehow we enter a growth phase and everyone gets back to the task of making the world a better place and the streets are filled with passion and excitement again. That would be a PR persons dream come true.
But I'm afraid the dark clouds of 2008 have lifted only momentarily and that we all must adapt to a new normal.
Yes, it's true...the Industrial Revolution was a fad. In the old days we were putting men on the moon, building huge infrastructure/construction projects, inventing new and pleasant music, Disney had ideas...now all we have to show for this millennium is the like score on Facebook. History is repeating itself, just as the Romans entered a Dark Age where not much innovation or advancement in the arts occured, we too are 13 years into the next Dark Age. It's like the lightbulb joke about the Microsoft technicians...they just declare Darkness the new standard. People ask me questions like 'Don't you want to go to college so you can get a job you like?' 'Why don't you find the perfect woman?' 'Don't you want to have kids and raise a family?' 'Why don't you start saving money for a rainy day/retirement?' The article hit the nail on the head in that the answer to all the preceding questions is that I don't have faith in civilization being usable for more than 5 years into the future, perhaps even less. The world isn't going to end, it's just that the future is going to be less entertaining/tolerable then the event known as 'Now'. I'm almost 32 years old on insanity holiday and I want to have all the fun now when I am healthy and am still living comfortably. I'd also like to get one of those new smartphones, just like Roxanne in front of me breeding a terrorist army of 20 small headless children that want to gun down all our god-fearing children to death in the classrooms and has been on food stamps for the last 5 years.
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