A few weeks ago I told you about my client who “acquires houses out of foreclosure, rehabs and rents the properties, then sells the properties to investors” and the consequences of the unintended craziness involved in the auctions in Texas.

Unintended consequences sometimes seem to be the primary result of human actions. It is safe to assume that no one planned to cause global warming or the current economic meltdown.

These are just unintended consequences, but each one is much, much larger than the sequence of intentional human actions which led up to it. Given that we do not have perfect foresight, unintended consequences appear to be truly unavoidable. But they don’t have to be tragic.

Goals, Judgment, Flexibility, and Transparency

We can reduce the negative effects of unavoidable consequences.

Consider a sailor navigating a sailboat into a harbor marked by a lighthouse. Unfortunately, this sailor does not have GPS or an electronic autopilot, so he has to steer the boat manually, using the tiller. He sets the boat on a course to the harbor, using the lighthouse as the marker. Almost immediately the wind, waves, and tide push the boat off course. The sailor constantly corrects the boat’s heading to keep it on course for the harbor. Sometimes the boat has to change course to avoid larger ships heading into port. Most of the time the boat is off course, but due to the sailor’s constant corrections it makes progress toward the goal.

Passengers on the boat may not know how to sail, but they can see the lighthouse and can use the radar screen to track the progress of the boat amidst other ships. They can tell, for themselves, that the boat is on track and making progress.

The sailor has a clear goal and uses his judgment and flexibility to keep the boat heading to port. The analogy to our economic situation is obvious—while the sailor is guiding the boat to a safe harbor; our economy feels like it is careening out of control, heading toward the rocks.

Things to Think About

Given that most of us cannot significantly influence the government or the national economy we need to look closer to home.

• How do you guide your business?
• How does your team set goals?
• How do you encourage transparency?
• How much freedom do you allow your employees to use their own judgment?
• Do your policies look like the US Constitution (only 4,440 words) or like the US Tax Code (over 400 volumes)?

One More Consequence

Recently I have found a new opportunity, much too interesting to pass up. To pursue this new opportunity with the attention it deserves, one unintended consequence is that I must let go of this blog. With great appreciation for you readers and with many thanks to Miki Saxon, who gave me this opportunity to speak directly with you.

I close with the heartfelt wish that you follow your dreams all your life; that you may fulfill your dreams and that they may fulfill you.

Sincerely,

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Richard is still in Houston, but he thought that this case study detailing the unique problem facing a company with no competition and a radically new product would be of interest to you.

A Case Study of Customer Mapping

With the massive shifts in the economy, your customers are moving. Your sales and distribution channels are moving. Do you know where your customers and channels are now; where they are going tomorrow? Do you have a new product that is so that it is not just a matter of competing, but of evangelizing?

Giftventures, Inc. was facing many of these problems. Recently I worked with them to map their customers and channels.

Challenge—Find the Customers

The target market for Giftventure is parents with children in the 4-12 age range. The product is clearly a discretionary consumer product, a significant sales challenge in this environment. In addition, Giftventure is a new concept, which requires some explanation and investigation by the parent before making a purchase. How can an emerging company, with little cash to invest, gain recognition and traction with a discretionary product in a crowded consumer market?

Giftventure needed a compelling, proven go-to-market strategy in order to complete its initial fundraising, so this exploration had to be thorough, fast, and low-cost.

The results had to be conclusive and compelling, so Giftventure could focus its scarce resources in the channel that would produce large results, quickly.

To do that they needed to identify a channel that would produce large results, quickly.

The three keys:

• In starting a new product or service line, and especially in starting a new venture, you do not know where your “sweet spot” lies in the market. Don’t rely on opinions–embrace your ignorance. You must test.

• Be thorough. It can also be fast. Plan a comprehensive market exploration to test many possible channels, even in spite of your internal biases.

• Only actual market results, supported by wide outreach and in-depth contact with potential customers, can direct you to the sweet spot for your product.

The winning combination is always to

Test many market channels.

Test wide and deep.

Let actual results lead you to your sweet spot.

To read a detailed explanation of Giftventure’s customer mapping download the PDF.

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Actions have consequences—mostly unintended.

One of my clients in Texas acquires houses out of foreclosure, rehabs and rents the properties, then sells the properties to investors.

Yep, they “flip” houses—one of the emerging business models in this new economy. The secret sauce in this business is in acquisition and resale, not in the rehab.

This company acquires houses through county foreclosure auctions, which are an amazing example of the unintended consequences of government regulation.

At every step in the foreclosure and auction process, the government regulations are clearly designed to protect an abstract concept of fairness. As a result, the process inflicts the maximum financial damage possible on the unfortunate homeowner, who is already losing a house.

Foreclosure processes are controlled at the state and county level, so we’ll use Texas as the example, although many other states are even more peculiar.

Big problems often start small, then grow.

To give some perspective, each month Harris County (Houston), Texas has around 4,500 bank foreclosures and 500 county tax foreclosures. This is about ten times more than 18 months ago. That’s growth on the scale of the internet—or health care.

After a hundred years, things may change…

Texas foreclosure laws, mostly written in the past 50-100 years, require that all foreclosure auctions must be conducted on the first Tuesday of every month, on the county courthouse steps, in an “open outcry” auction. Rain, shine, or holidays, eager bidders convene on the courthouse steps every first Tuesday to search for bargains.

But this is not just one auction. Harris County has eight precincts, each with several constables, and each constable conducts his own tax auction. To add to the confusion, trustees, who hold the property title for the foreclosing banks, also must conduct their auctions, at the same time, and on the same courthouse steps.

So, on the first Tuesday a property investor will find ten to fifteen constables and thirty to fifty trustees all auctioning off foreclosed property in open outcry, at the same time. It’s more like a flea market than an auction.

Texas law specifies the method of notification. Foreclosure notices must be posted on the courthouse wall by the 18th of the month preceeding the auction. An investor has only two weeks to review 5,000 properties, estimated a market price, and make a personal inspection.

Texas law also specifies the method of payment – cash or cashier’s check – and the bidder qualifications. A bidder can bid only for himself. Stand-ins are not allowed. So an investor may find 10-20 properties of interest, only to discover that they are being auctioned by different people, in different places around the courthouse, at the same time.

Constables and trustees do not identify the property by its street address, but use a tax ID number – a string of 14 digits, with no alpha characters or other breaks, so there’s yet another challenge for the potential investor in identifying his selected property, attempting to listen to a soft-spoken constable amidst many other auctions.

Government regulations tilt the playing fields.

Finally, Texas law specifies the remedies for a buyer at the auction who may make a mistake. There are none. Once the bidding is done, the county cashes the cashier’s checks and the investor owns the property.

No possibility to recover from any mistake. It’s a huge opportunity for investors with lots of cash, lots of time to do the homework, and with nerves of steel. As a result, bid prices are very, very low.

It looks almost as if the state of Texas designed a process to minimize the bids on foreclosed properties at auction. While each of these regulations made some sense at the time, they look very dated now and one significant unintended consequence is to destroy any homeowner equity remaining in the foreclosed property. Another major unintended consequence is to shift the advantage heavily to full-time investors with lots of cash—the “fat cats” who have the time and knowledge to game the system.

It’s easy to poke fun at the process; but that’s not to the point. If we investigated government-run insurance, government-run construction projects, or any other government operation, we would find exactly the same situation.

Regulations create exceptions and processes that experts can exploit.

More regulations create more exceptions, more experts, and more gains.

Is there any solution for the unintended, unfair consequences of government regulation?

Next week we will explore goals, judgment, and transparency. Can these play a role in reducing unintended consequences? What are their unintended consequences?

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Actions have consequences, mostly unintended.

Ready, fire, aim.

In response—mostly—to the financial crisis, the US government has taken so many actions that the list is almost too long to chronicle here. To pick a few…

• The government has picked survivors in the banking industry.
• The government has picked survivors in the auto industry.
• The government has picked executives in many companies.
• The government has set compensation levels in many industries.

And the government’s intrusion into previously private enterprise sectors has only just begun.

Of course private enterprise has never been a model of virtue and discretion. But, just because private enterprise has executed a series of excesses, is it reasonable to assume that federal regulation will produce unalloyed goodness?

If executives in private enterprise cannot foretell catastrophes ahead, is it reasonable to assume that those same executives, when working on behalf of the federal government, will have better foresight?

Massive Actions, Unintended Consequences

The economy is in uncharted territory. This is the first major crisis of the integrated, global economy. It simply has too many moving parts for any individual or organization to identify all the inter-relationships, much less to forecast the results of all those interconnections. The chart below makes the point exquisitely.

Historically the money supply has grown by 2-7% annually, with spikes prior to Y2K and following 9/11. In the past nine months, the Fed has increased the money supply by over 100%, almost ten times greater than the largest previous increase, during Y2K. The Fed might argue that this increase was needed to offset the loss of a comparable amount of bank lending, when credit dried up in the past year.

But how and when does the Fed unwind this massive increase? What are the long-range consequences of this action?

At the moment, no one can guess. However, we can be certain that many of the consequences will be significant, unforeseen, and unintended.

Transparency – The Only Cure for Unintended Consequences.

The Federal government now controls almost 25% of all domestic economic activity, not to mention 100% of the money supply. We need much more transparency, particularly with government sponsored enterprises such as Fannie Mae and Freddie Mac.

Recently our culture has cheapened transparency to the cliché “full disclosure…” after which the author lists some relationship, often trivial.

The US government pumped over $170 billion into AIG late last year, to prevent its collapse. This expense received very little exposure, either from the press or by the Treasury Dept. execs who made the “investment.” Where did this $170 billion go? Why was this expense necessary?

Neither elected congress people nor Presidential staff exhibited any curiosity or outrage over this “investment.” However, when AIG paid out $165 million in bonuses—only 1/1000 of the amount the Treasury Dept. had spent a few months earlier—elected officials went into hysterics. Selective transparency is no transparency at all.

“Sunshine is the Best Disinfectant.” –Supreme Court Justice Louis Brandeis

Meaningful transparency can have considerable impact. Witness the recent publishing of the expense accounts of British Members of Parliament.

In the US, the Federal Election Commission (FEC) regulates campaign contributions. Of course every politician running for office has thoroughly computerized records of donors and amounts and the FEC requires that every candidate report all donations to the FEC. That information might be interesting to voters making voting decisions. But candidates provide those reports to the FEC in thick, printed volumes, specifically to delay the FEC in compiling the results. As a result the FEC finally publishes the donation reports months after the elections are done.

Follow the Money—Post Everything on the Internet

With the expansion of the government into finance, autos, energy, and insurance, as well as health care, public disclosure is critical if our economy is to respond positively. Encourage your elected representatives to post budgets, and expenses on the internet.

Over time, we can recapture our democracy.

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Recipes have changed over the years, with the biggest change being the elimination of fat. Ingredients for business success have similarly changed—no fat. Now it’s content and communities—not capital

Recessions have traditionally been good times to start new ventures and to expand SMBs (small and mid-size businesses). Larger competitors retrench, leaving some market niches exposed and unprotected. Workers are available, often at reduced rates.

Recessions loosen long-time business relationships and create brand-new opportunities. Recessions are Joseph Schumpeter’s “creative destruction” on steroids.

This recession is exceeding all expectations for creative destruction; but with a few substantial differences.

First, while risk capital was available for emerging ventures in previous recessions, it has simply vanished in this recession.

Second, the need for risk capital has dropped dramatically for certain types of businesses, particularly those focused on information services.

The New “New Business Model”—Everything You Need is Free.

OK, “free” is a little bit of an exaggeration. But the cost of business expansion is dramatically lower than in the past. For instance:

• You don’t need an extensive network of offices. Most knowledge workers already have home offices. They work at a customer site, at home, or with co-workers at a coffee shop.
• You don’t need a sophisticated telecommunications system. Virtual PBX’s, portable telephone numbers, internet-based telephone service, and conference call services are inexpensive and readily available.
• You don’t need a big advertising budget. With Google Ad Words, you can pay only for results. Better yet, create your own promotion with social networks, blogs and email communication.
• You don’t need production equipment, raw materials, or inventory. The data is the business.
• You don’t need a computer facility to host your information database. Google, Amazon, Microsoft, Salesforce and others offer cloud computing for free.
• You don’t need any back office. You can outsource accounting, HR, IT, CRM, and almost every other internal business function.
• You don’t even need employees. You do need a team, but new business models use clusters of associates.

If everything is free, then what do you need to build your business?

You need content and communities.

You don’t need capital!

This is an over-simplification, but allow me to make the point.

You Need Content

Your business needs something of value to provide to customers.

In the information age, this is content—not just entertainment content, but a cluster of information, typically housed in a set of inter-connected databases. In previous posts we discussed Google, Jigsaw, and Alexa.

Another example is deCODE Genetics. For only $195 and a sample of your DNA, deCODE will map your genes, identify a collection of your genetic risk factors, and map your genetic ancestors. This business model combines a proprietary database with a physical connection to each customer.

Granted, the actual consumer service is a “nice to have,” but the business model is powerful. Your business generates a continuous stream of data. Package it and build a data business.

You Need Communities

Communities are more than just a collection of customers, suppliers or employees. Communities have common interests.

Your business is only the conduit, or the meeting place for your communities. The most effective communities have some structure. Online games are excellent models for your communities. Provide enough structure and rewards to stimulate the community, but then let it grow.

You Don’t Need Capital—You Do Need a Cash Business Model

This may be one of the biggest surprises of the new century. The internet, low-cost communications, and the availability of low-cost support services have dramatically leveled the playing field for new businesses competing with established organizations. You don’t need huge capital investment to build an information business.

With no investment capital, you need a business model that generates cash quickly.

Here again, technology and the internet have conspired to meet your needs. Credit card payment systems eliminate the collection hassle. Internet delivery and prepayment terms shorten the cash cycle.

All you have to do is provide compelling value for your customers.

Go do it.

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“I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life.” –Judge Sotomayor, 2001

“I’m sure she would have restated it… But if you look in the entire sweep of the essay that she wrote, what’s clear is that she was simply saying that her life experiences will give her information about the struggles and hardships that people are going through — that will make her a good judge.” – President Obama, 2009

By now the political press has replayed Judge Sotomayor’s statement ad nauseum. Setting aside the political opinions, this quotation and President Obama’s interpretation of it dramatically illustrate the importance of perception, context, and diversity in human relations.

How you perceive or interpret Judge Sotomayor’s remark depends heavily upon the context you bring to it. President Obama believes that “she would have restated it” because it is inconsistent with his understanding of “entire sweep of the essay that she wrote…” In other words the context of his understanding overrode her words.

Perception and Context

Let’s extend that concept to the workplace, and the importance of your company’s relationship with your employees.

Employee perceptions can and often do override the actions of the company.

The Employee Free Choice Act (EFCA) will affect the vast majority of growing companies. As discussed in the previous post, the proposed EFCA legislation enables unions to organize many more companies, and gives unions tools, access, and a simplified method—card check—to gain approval as the company bargaining unit.

Pat Lynch, Ph.D., an expert on union history and CEO of Business Alignment Strategies, points out that an employer should know its “employees’ perceptions of how their employer treats them on a daily basis.”

An employee may be comfortable with the supervisor, the compensation, and even the work content, but still have a poor perception of the organizational culture. In this case, the context will open the door to possible unionization of that workplace.

Conversely, in difficult economic times such as this, an employee may not be satisfied with the supervisor, the compensation or the work content; but if the employee perceives the organizational culture to be fair and to value the employees, then that context will discourage potential unionizing.

Last week Pat called me with a request to clarify the EFCA and correct information that was in the previous post and I’m happy to do so.

Key Provisions of the EFCA

1. Unions will be certified without a secret ballot election by employees if more than 50% of affected employees sign authorization cards.
2. If management and union do not reach agreement on a contract within 120 days, a two-year contract would be imposed by a panel of arbitrators.
3. The Act imposes treble damages on employers who retaliate against employees who are involved in union organizing efforts.

Additional Considerations Regarding EFCA

1. Specific employers are excluded from the EFCA, such as those in the public sector, those covered under the Railway Labor Act, agricultural workers, and independent consultants, to name a few. The company size limit for EFCA is covered in the existing National Labor Relations Act, which would be amended by the EFCA.
2. The EFCA does NOT expand the definition of “employee” to supervisors. This proposed expansion is addressed in a different bill before Congress called the Re-empowerment of Skilled and Professional Employees and Construction Tradesworkers (RESPECT) Act.
3. The EFCA does NOT give unions the right to access a company’s e-mail directory, although there is a National Labor Relations Board (NLRB) case that addresses this issue. The NLRB may change the existing ruling (which has the force of law) to enable unions to gain such access under certain conditions in the future.

Diversity

Back to my opening comments.

Our perceptions of diversity are often singular, as in the case of Judge Sotomayor, but in fact, diversity exists only within the context of a group. Any single individual is not diverse. Any single person makes decisions within the context of his or her individual experiences. The benefit of diversity is in its improvement of the collective decision-making of a diverse group–be it employees or the panel of judges on the Supreme Court.

But the power of diversity only works where each person has a perception of respect and value within the context of the workplace.

Perception, context and diversity—a powerful combination to improve employee relations and, not coincidentally, employee performance.

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Fulfilling one of Obama’s campaign promises, Congress is now considering the Employee Free Choice Act (EFCA).

Because opinions run hot and strong on this proposed legislation, you should read both the union perspective and the non-union perspective.

In short, this legislation would eliminate a secret ballot for union representation, replacing it with a public “card check,” one key difference of opinion is how the card check would give employees a free choice.

But, regardless of your opinion on the legislation, Pat Lynch believes it should be called the “Employer Free Choice Act” because it gives employers a free choice – either take care of their employees or the unions will.

Pat Lynch, Ph.D., university professor and CEO of Business Alignment Strategies has studied unions extensively, focusing on their impact on the American economy. I interviewed her recently to learn more about the EFCA.

She started with a long-term perspective of unions. Union membership has declined as a percentage of the workforce, roughly corresponding to the decline in the manufacturing sector of the economy, to a low of 7.6% of the private workforce as of 2008. Even though union membership in the public sector has climbed to 36.8% in 2008, total union membership is still only 12% of the entire US workforce.

In Pat’s opinion, unions believe EFCA will provide a significant opportunity to organize the newer businesses starting up in green industries. Especially with three key provisions in the proposed legislation:

• No lower limit on company size. EFCA will apply to every company in the United States, whether 10,000 employees or 10 employees.
• EFCA expands the definition of a union worker to include supervisors, in addition to line workers; with this expansion, unions can cover a much larger percent of a company’s workforce.
• EFCA gives unions the right to access the company’s email directory for union communications.

Pat works with companies to improve employee relations. In her opinion, employees rate their job satisfaction on four primary issues:

• Employee satisfaction with immediate supervisor
• Employee voice – do employees feel safe in challenging the status quo, do employees believe their ideas will be considered
• Employee perceptions of procedural fairness
• Rewards and recognition – these go far beyond compensation, which is not a significant element of satisfaction. Recognition is extremely important.

Employers need to improve the actuality, as well as the perceptions, but it takes time. Pat recommends that employers start now—before the EFCA becomes law.

Start by offering an online satisfaction survey to your employees to learn how your employees perceive your team.

Then act on the results.

And come back Thursday to hear Miki’s take on keeping employees happy.

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Possibly the most difficult question for any is business:

“Is it time to pull the plug?”

Business Bankruptcies up over 100% since 2006

In this difficult economic environment, many businesses are answering that question simply, “yes.” As the chart below shows, business bankruptcy filings grew dramatically in 2008, up over 100% from 19,695 in 2006 to 43,546 in 2008.

This chart is deceptive, because the average annual number of business bankruptcy filings for the 28 years 1980-2008 is 52,667 and the number of filings in 2005 was 39,201. So the 43,000 filings in 2008 are 20% below the long-term average and just a little above the number in 2005. But, regardless of the long-term average, the short-term trend is up over 200%.

Time to Pull the Plug on My Business?

Setting aside statistics, the question at hand is real, personal, and immediate for many small business owners. As a professional business consultant, I work with several clients struggling with this question.

One of my clients generates approximately $3,000,000 in revenue and supports 25 employees. For the past two years, this company’s revenue has remained flat, with annual losses of $250,000 or so. This year revenues have declined and the owner has kept the monthly losses to $20,000 by reducing expenses. So far, so good, right?

Will the situation improve in the near future? Is a turn-around in sight with just a little more patience and persistence? When does persistence become stubbornness? When is it time to pull the plug? How do you know? Forgive this barrage of questions—this is an extremely difficult, emotional question for a business owner.

What Are Your Choices?

As a business unit manager, you have the opportunity and responsibility to make major changes in your business. 2% solutions don’t count.

What few significant changes can you make to improve the problems facing your business?

• Eliminating People Means Eliminating Work. You simply cannot eliminate people and leave the workload unchanged. How can you reorganize your business to reduce the work? Can you automate or outsource back-office services or sales? Can you move more functions online? Can you move your customers to self-service online? Can you use online order / payment to simplify the sales and collection processes?
• Don’t Eliminate Products. Eliminate Production Costs. Can you shift inventory and fulfillment services to suppliers or third parties?
• Don’t Eliminate Value. Eliminate Overhead. Do you need all the office space, telephones, equipment, and software? Eliminate, reduce, or find it for free.
• Grow Revenues. Be careful here, as increasing revenue is extremely difficult, especially in this recession economy. It’s easy to forecast big growth, only to be surprised three months later when the growth has not appeared on schedule. First, find a few customers for your services, and then forecast the growth based on their orders.

You Already Know the Answer

Three business aphorisms provide some insights into this question:

• The universe rewards action.
• Ready, fire, aim.
• Follow the money.

Taken as a set, they offer a road map to making this difficult decision.

If your business is struggling, then do something! The business (universe) will respond to your actions.

If the business situation is getting worse, you have limited time and budget to make meaningful changes. This is not the time to be shy. Take some dramatic action. That’s the “ready, fire” advice.  Observe the result. Based on the result, quickly adjust your actions to improve the outcome (aim).

Finally, follow the money to your desired outcome. You know your budget for time and money. When either one runs out, you lose your freedom of action. Take action now, while you still have freedom to choose.

The biggest obstacles to meaningful business change are usually not intellectual understanding of the problem, or a lack of options, but emotion and fear.

For instance, most business owners truly care for their employees so layoffs are difficult. “What will my employees do without this job? How will they survive?” If you are considering major changes in business direction, fear raises similar questions about you; “How will my company survive if I make this change? What will I do with my life if my company fails, or if I have to shut it down?”

Together, emotional attachment and fear of the future create a paralysis, even in the face of clear impending disaster. When you wake up at 2 AM, what is on your mind? If you can get past the emotion and fear, I believe you already know the answer. “Don’t go wobbly,” as Margaret Thatcher famously advised George Bush senior when he was preparing for the first Iraq war. “I just don’t know,” is a cop-out.

What is Your Biggest Fear?

If your company is losing money each month, you must make changes. In this economy, your business will not get better by itself. What is the single change you fear the most?

Turn off the computer, put down the cell phone. Be still for a few moments, sitting with your fears and emotions. What is your biggest fear? Go there. Do it.

Wishing you the courage to make the difficult decisions,

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In previous posts I shared my views regarding the shape of the recovery and shape of employment in the future.

The President and Congress have told us, this recovery will also cost a few trillion, so the open question is: how the value of the dollar will change in the months and years ahead? Deflation, inflation, or both?

The following is what I think may happen.

First, the Fed Rebuilds the Banks

According to the Fed, total mortgage debt exceeded $14 Trillion as of Dec. 31, 2007.The best estimate is that 10-20% of that debt must be written off due to the drop in house values. That’s $1.4-$2.8 Trillion. Assuming US banks hold only 50% of that debt, that’s $700 Billion to $1.4 Trillion that needs to be removed from their balance sheets for mortgage debt alone. That does not include credit card debt, auto loan debt, student loans, or business debt. The Fed will have to print enough funds to cover the debt, lending to the chosen banks. Those funds will not provide any stimulus, as the dollars will simply re-establish the reserve levels that banks are legally required to carry.

Second, Consumers Start Saving—Near Term Deflation

Of the US $14 Trillion GDP, 70% ($10 Trillion) is driven by consumer spending. If consumers increase their savings rate from -2% to +5%, another $700 Billion (7% of $10 Trillion) will be removed from the economy, creating an additional 5% drop in the GDP. In the short term we will have deflation, driven by declining demand. Sure enough, that’s just what has happened in the past four quarters.

Third, the World Redeems Dollars—Long Term Inflation

With over $7 Trillion dollars flowing internationally as global reserves outside the US ($2 in China, $2 in Japan, $2 in OPEC, and $1 in Europe), plus the $7 Trillion the Fed has already printed in the past year, over $14 Trillion (1x GDP) in cash is beyond the control of the US.

Sometime in 2010-2011, the US may see currency deflation as other countries spend their dollar reserves to dig out of their own recessions. Remember that we produce very little of our own hard goods, They come from China, Japan, Korea and other countries. We buy energy from OPEC. If the dollar drops vis-à-vis Korea, Japan, China, and OPEC, then the US may see an increase in the price of hard goods and energy.

Granted, any price rise will be moderated by the domestic drop in consumption, but the US no longer controls the price of global goods, services, and energy. The US share of global commerce is 23%, and declining. Global consumption will increase, regardless of the US. Prices will rise, and the dollar will likely decline against other currencies—a one-two punch for the US.

What Do You Think?

What is your forecast for GDP and deflation/inflation? How does it affect your business planning?

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The world is changing. We are witnessing the de-industrialization of America. As a consequence, home and work life are blending together again and the means of production are moving back to the home. Sound like the medieval era? You bet.

The Industrial Revolution

The printing press, invented by Gutenberg circa 1440, helped to introduce the Renaissance and end the Medieval era. The printing press sped the transmission of knowledge, planting the seeds for the Industrial Revolution about three hundred years later.

But even though the printing press created a flood of knowledge, it did not affect the daily nature of work. Family life and work life occurred in the same place—the home. The loom occupied a central place in the home. For carpenters, potters, and other craftsmen, the home was also the workshop. Workers (back then they were peasants) lived with their personal means of production—knowledge, skill, and their own personal production tools.

Since the beginning of recorded history work and family were largely inseparable within the house—then came the Industrial Revolution.

With the advent of mechanical production equipment (ironically, some of the earliest were mechanical weaving looms) the Industrial Revolution (circa. 1750-1850) centralized the means of production around the production equipment, and later around the power source which drove the production equipment. Within a few years craftsmen and laborers began to commute to the local factory.

The factory lowered production costs and eventually improved living standards for everyone. But its immediate impact was putting some workers out of work and inflicting further indignities on others.

Centralized production dictated fragmentation of work. Just like the mechanical devices, laborers became cogs in the factory wheel, doing small, repetitive, de-humanizing tasks.

Mechanization intensified throughout the 1900’s, leading to the famous “lights out” factories in Japan, which could operate in the dark without any human intervention. Workers migrated away from factories and into offices.

The Information Revolution—De-Industrialization

Initially, the information revolution (circa. 1950) appeared to be an extension of the Industrial Revolution. Manufacturing jobs peaked (as a percent of all jobs) at 30% in the 1950’s. Then workers began to shift from factories to offices.

At first the new information work itself remained fragmented and repetitive, just like the old factory jobs. Computers and communications, the means of production for information work, were large, centralized, and expensive, just like the old factory equipment.

In the 1980’s the PC and the internet started to weaken the chains of office workers. The de-industrialization of America picked up steam.

Back to the Future – Working from Home

The peasants of the new century are knowledge workers. With an internet connection and a laptop computer they typically work from home. Some remain as employees, but an increasing percentage work as independent contractors paid by the job, just as medieval craftspeople did. Job satisfaction may be better, but job security has plummeted.

This information revolution is only now working through the economy.

The industrial revolution changed the face of America and the nature of work. The information revolution is changing us.

The Biggest Unknown—The Power of Human Creativity

As Mark Twain said, “history does not repeat itself, but it does rhyme.” The Renaissance unleashed a tremendous wave of knowledge and human creativity that reshaped the world. However the Renaissance was only a small foretaste of the coming explosion of creativity and knowledge from the Information Revolution.

It will reshape everything, even our bodies and our minds. A little frightening perhaps, but what an exciting time to be alive.

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