Aug. 25, 2009 - “CHANGE” The Economic Reboot

Looking back at the 1970’s the America entered a recession with some similarities we see today.  We were at war; we had a spike in energy prices, a period of high unemployment resulting from the declining importance of manufacturing.   A growing Japanese economy filled the manufacturing void with products while evening news reported plant closures. The economy sputtered Americans were feeling the golden age was over.

In 2008 the American people feel China will soon dominate the future economy and our golden age is over once again. High oil prices, war, wasteful consumption, and a world in peril has uprooted the world economy.   Today in board rooms, Washington, in kitchens and broadcast media across the national attention is refocusing on “economic change”.  

For 200 years “CHANGE” has been the American economic engine.  While most world economic systems support existing interests we have always been in search for the “next big thing”. During past economic downturns large companies routinely becomes focused on survival which creates space necessary for a major change in our economic system to take place.   The important lesson of the 70s was our nation’s adaptability to the sharp loss of manufacturing which eventually gave rise to the powerful knowledge-based economy that became the cornerstone in America’s economic revival for over 30 years.  
 
The 70’s recession ended an era of very large monopolistic like companies; companies which dominated industries like IBM, Pan Am, AT&T etc.  During most of the 20th century the economics of scale lead to prosperity, but in the 70’s the now familiar names like; Steve Jobs, Bill Gates, Larry Ellison and their small ventured backed startups faced down the giants and transformed our nation’s economy.  More significantly it was a time small companies trumped the advantages size and ventured backed startups lead to an explosion successful startups and the IPO.

After the dot com bubble burst, we reverted back to 20th century economic thought; that large companies where our best investment for growth in the future economy.   During this period the small startups lost there allure they once had.  Then last September it all came toppling down, inflated by debt at levels never before imagined, Lehman Brother’s’ overnight went bankrupt.  The next day Bears and Stern, General Motors, AIG, etc defined a new class of super large companies known to the public as “to big to fail” (ouch).

We now see in this recession the downside of size.  Large companies require longer decision time and have many more levels of regulations and compliance issues to manage.  Big companies today are harder to run on cash flow alone, they require more debt and have little success in providing meaningful growth in innovation or employment.  To produce meaningful results large companies must place bigger bets in a competitive, web connected, diversified marketplace, substantially increasing risk. 

Harvard professor Juan Enriquez made a commented recently that, “Venture backed investment receives.02% of our national investment while being responsible for about 17.8% of our economic output.”  His comments appear to support the notion that the ‘speed of change, trumps the advantages of size’.   Today small 21st companies have the advantage from nimbleness to risk-taking, while cloud computing is turning our workforce into small globalized teams, loosely joined in collective projects working on; renewable energy, robotics, nano technology, informics and bioscience, etc, which may already be engineering solutions for the next generations economy.

Twenty months into the recession the economy is still struggling yet there are recent signs the recession is moderating as the financial industries are beginning to lend and the government stimulus moves into the pipeline.  The freefall appears to be over, but today for the first time the best people are moving from the large firms to small firms and independent contractors.  The framework of success is changing, with little more than laptop and friends tens of thousands of small companies are forming and reforming, CHANGE is already hard at work.