Economic pundits, eagerly searching for signs of the recovery, are grasping at almost anything. “The rate of decline has slowed.” “Unemployment has stabilized.” “The cardboard box index has bottomed out.” And the shape of the recession and recovery has been predicted to be a V,  W,  L, or even a double-bounce W.

I think they’re all wrong.

The old economy will never come back.

This economic meltdown is much like a forest fire. After the fire burns itself out, the storm may be over, but the burn area is fundamentally changed. It does not “bounce back.” It starts at a different place.  Sometime in 2010, the economy will stabilize, but it will not “come back.” We will go forward from a fundamentally different position. This new starting point will reflect the impact of deep, long-term, global trends in the nature of work, the value of the dollar, and our relationship to our government. The current recession is a convenient marker to recognize these trends.

Work Is Changing

The nature of employment will continue to change. The United States will continue to shift to a “just-in-time,” service-based workforce. The manufacturing sector will continue its decline, from 29% of GDP in 1950 to 15% in 2000 (see analysis by Dr. Mankiw). It will drop below 10% by 2010. You can construct your own labor trend at indeed.com. ( This website is a fascinating example of the business of data, which we discussed in the last three posts.)

Many new service-sector workers will be involuntary. Growing unemployment and under-employment in the United States (which will exceed 15% this year) is driving many people into self-employment as service workers. An analysis of Japan’s Lost Decade by Tom Coyner, long-time resident of Japan and Korea, provides one instructive example of this phenomenon, and some associated risks.

These new service sector workers will be driven to a “do-it-yourself” model for almost everything. They will have to provide their own health care plan, retirement plan, office arrangement, and business planning. Many of these workers will be home-based, with little differentiation. The most common product/pricing model will be piecework, with unit pricing based on the alternative of being completely idle. Ironically, one result will be the re-integration of work and home life.

Entrepreneurship is Changing

Investment capital will no longer be available for any but the most solid businesses; and the vast majority of these newly-independent service workers do not have plans to build large businesses. As a result, the successful ones will exhibit four common, positive characteristics:

Local—In a global world, being present still counts. A local service provider who can show up in person has a distinct advantage. In addition, some services simply cannot be outsourced. When your car is broken or your roof leaks, you need a local service person. For locally-based services we may see an increase in a local, personal relationship with service providers.

Immediate—Without investment capital to fund long-term research and development, independent service-providers and small businesses must focus on services that provide immediate value. The “cash-to-cash” cycle must be less than one pay period. Fortunately, credit/debit cards and other immediate payment methods support this trend.

Information-based—Information will provide significant improvements in service quality and competitive differentiation. For instance, simply finding a customer is difficult and expensive. Irritating prospects with unnecessary and unwanted sales promotions is also costly. Successful service providers will use information to target customers on a “just-as-needed” basis.

Green—Setting aside the discussion of whether the earth is warming or whether green is good, government policies will reward green activities preferentially. Independent service providers will offer green services or enhance green aspects of their existing services.

Start-Ups Will Explode in Unlikely Niches

The availability of many talented people and the flexibility of independent service providers will fuel new start-ups. While these may not completely replace the loss of investment capital, they will certainly provide an alternative path of low-cost labor for new businesses. The change may be refreshing, for us individually, and for our economy.

This is perhaps the greatest unknown—how much will individual creativity and inspiration replace financial engineering.

I am hoping for a few delightful surprises ahead.

This entry was posted on Tuesday, April 14th, 2009 at 5:30 am and is filed under Business info, Compensation, Strategy. You can follow any responses to this entry through the RSS 2.0 feed.
Tags: economy, future, global economy, Strategy, work
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