April, 2009 visit us at www.locomoshun.com I,1

Five economic trends you might not hear on the nightly news

by Evan Morris

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To repeat a quote from Andy Grove of Intel, this may be a good time to heed his advice. Andy said: “You need to try to do the impossible, to anticipate the unexpected. And when the unexpected happens, you should double your efforts to make order from the disorder it creates in your life. The motto I’m advocating is, ‘Let chaos reign, then rein in chaos.’ Does that mean that you shouldn’t plan? Not at all. You need to plan the way a fire department plans. It cannot anticipate fires, so it has to shape a flexible organization that is capable of responding to unpredictable events.”

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As President Obama is off to the G-20 Summit in England, let’s all hope the meeting is productive and that we are not going to give up on the Western Capitalistic model. There is an exhaustive list of current economic events and actions that have given us more bad news than we need. There is also a surplus of quick fix ideas that grab our daily headlines. We can weep at current market conditions and fall into a stupor but nothing will help us as much as remaining positive and making sure we are part of the solution. It has taken us many decades to arrive at this situation and as much as our leaders in the media want to offer a quick fix there are two things to realize: 1.) it is going to take a while to get things corrected, and 2.) there are aspects of the current change that will leave lasting impact for many years into the

future. I wanted to take a moment to point out what I believe are changes that have helped us land at this juncture. These are five trends that you are likely not to hear on the nightly news. Because these trends carry a lot of gravity and broad scope, there is no reason to become depressed. To the contrary, understand the dynamics and allow these facts to help guide your strategies for success as we move forward. The current era is profound and may be as significant as our post WWII economy. If we think of recessions as a period of decline followed by a recovery, then this is not your normal recession. But, by definition, it’s true that we have recessionary signs: at least two consecutive quarters of declining GDP. The five trends include: 1. Putting our spouses to work increased our ability to consume. We don’t have any more spouses to deploy. In WWII, as most of our men were overseas fighting, our factories filled with women who were coined as Rosie the Riveter. They learned how to weld, how to rivet, how to fabricate metal, and how to build the heavy instruments of war that were shipped all over the world. This was liberating for these women. They not only got out of the garden and kitchen and landed in factories but in exchange for their efforts, they reaped economic payment. This gave them an irreversible view of a new life – a genie had been let out of the bottle. Immediately after the war, most of the women returned to the home as our men shifted from soldier to worker but the paradigm shift our women went through was

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permanent. As the Baby Boom generation was created, our country deployed our spouses in the workplace and over several decades, we became a nation of two-income families. The impact of dual incomes dramatically increased the consumption capacity of millions of households and this, in part, was a driving force of our economic engine for many years. With near full deployment of our spouses, we cannot look to this part of our population to increase consumption and thus boost the economy. 2. Those who enjoyed living beyond their means fueled our economy, the party is over: This must have been a lot of fun, addictive and a powerful drug indeed. Our country has been euphoric with consumption after the war: Levittown, NY; lacing the country with interstate highways; radical new car designs every year and in many states, speed limits that were reasonable and proper. Society was full-throttled, unbridled and had a robust appetite for consumption supported by credit. For forty years (the 1950’s through the ‘90’s) we learned how to live beyond our means with common people living like turn-of-the-20th-century aristocrats. It wasn’t enough that our adult population indulged but we became so good at this, we enabled our next generations to enjoy the fruits of easy credit. We can recall the TV commercial where the guy is on his riding lawnmower, he has an expansive new house, three cars and a membership in the country club – all because he is “. . . in debt up to his eye-balls”. This party is over for the foreseeable future and will result in much less consumption. 3. American manufacturing ingenuity & efficiency slips from being a sole world leader to sharing the distinction with many countries: As communications (radio & television) improved and became more prevalent around the world, countries slowly learned about the riches of the United States. The world was enlightened with American ingenuity. After all we put a man on the moon. It’s amazing how much life changed in this country from 1946 through 2000. Over several decades we capitalized on the treasures we obtained from the war: German scientists, rapid expansion of our cities, bio-medical research results obtained

from those nasty people that were part of Nazi Germany and the Japanese military prison camps. The benefits derived from these intellectual riches drove our economy and enabled the United States to offer advanced technology and superior products to many nations around the globe. Japanese manufacturing evolved from the slipshod to better than world class, West Germany reawakened with excellent manufacturing methods and as we now know, many parts of the world caught up with us and in some cases have surpassed the United States in their ability to present at least the perception of superior value to the American consumer over domestically produced goods. American ingenuity and manufacturing efficiency gave us a competitive advantage for many years but now we seem to have lost that edge across many industries. The loss of wages paid to American workers negatively affects our economy and will continue to do so. We are not going to restore this phenomenon quickly or easily. 4. The United States in linked to the world and the world is linked to the U.S.: All of us on this small blue marble are now interdependent – in unprecedented ways. Although recessions of the past have always had a limited global factor, they have never been as linked to the global economy as we are currently. In some ways we are in uncharted waters. The U.S. is so interdependent with other countries that if we don’t gain a consensus with groups like G-20, it will have dramatic consequences. This interdependency creates new dynamics: many countries are now called to action at the same time to solve commonly shared problems. In prior recessions, if consumption and growth declined in the United States, there may have been opportunities in other developing countries. Since we have outsourced our manufacturing base to these other countries, we are now all linked in a tight web of common economic dynamics. All this is new to us, new to the world and this is a trend that commands different thinking. 5. The previously mentioned trends are forcing subsequent generations in the U.S. to adjust their lifestyles downward

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from ours: For the first time in modern history, our children and grandchildren are likely to have less tangible goods than us. This does not have to be a bad thing and as a matter of fact, perhaps a simpler life might offer a richer sense of success, fulfillment and happiness. To think that future U.S. generations will drive significant consumption is not viable for two reasons. One, there will be fewer people after us Boomers pass, and two, succeeding generations will be more frugal. It’s plausible that future peoples in China, India, Africa and other places in the world will acquire more tangible goods than their previous generations but those goods will likely be manufactured in those countries, not in the United States.

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The beneficiaries of the emerging global economy will be two groups. Throughout U.S. history our captains-of-industry deployed capital to build infrastructure, manufacture goods and provide services – they invested where they lived. There were at-home, trickle-down advantages for all: from barons to managers, to workers. Today it’s a question of “who has the capital and where are they going to deploy it?” Where the capital is deployed will benefit the local citizens where the money is invested. The second group to benefit will the capital barons of Saudi, Japan, China, India and a dwindling number from the U.S., England and Western Europe. This will have an adverse affect on the average American worker who is no longer manufacturing the goods or providing the services. Capital barons will embark upon a global shopping spree to find a satisfactory labor pool i.e. workers in China who earn $2,500 per year to manufacture automobiles v. an acceptable level of quality of those goods. Chances are those manufacturing venues will be outside our borders.

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Who will thrive tomorrow? You will, you can. These different times call for tough thinking, creative thinking, new and different thinking. We have to be ever diligent and in tune with our rapidly changing market and opportunities that may not be readily apparent to us.

Become your own sage, add astonishing value to your customer base, be innovative, try to stay ahead of the curve and most importantly, see the glass as half-full and remain positive. Becoming your own sage suggests that you tailor and make your own economic predictions based on measurement of your economy, your industry and your place in that industry. National press releases and local economic forecasts are meaningful but you need to use that information as a starting point and from there, craft your own private forecast of what you think can positively happen to your company. Look at your local community. Why are some restaurants booming and others failing? Why are some small banks doing well and many are not? You need to take your own measurements and create your own winning strategies to assure your company’s success. As Andy Grove said, stay flexible and be willing to restructure your life, be willing to rapidly change your company in major ways to fit the new world. An excellent example of this comes from Detroit, Michigan. Recently more than fifty autoworkers (both men and women) have enrolled at a local college to learn how to become nurses. What a great testament to people being willing to change and be flexible to continue their careers.

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Locomoshun – Moving Business Forward is a Denver based business advisory group whose mission is to enable marketing channels to create additional selling capacity, improve efficiency, and enhance profitability. Locomoshun works with individual dealers and distributors; dealer groups; associations; and, also manufacturers and producers to improve their channels of distribution. For further information, please contact Evan Morris at 303 345 3355 or Evan@locomoshun.com Also, please visit our website at www.locomoshun.com

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