Sliding into the Future

Oh baby baby it's a wild world,
it's hard to get by just upon a smile.
..............Cat Stevens

How many roads must a man walk down
Before you call him a man?
Yes, 'n' how many seas must a white dove sail
Before she sleeps in the sand?
Yes, 'n' how many times must the cannon balls fly
Before they're forever banned?
The answer, my friend, is blowin' in the wind,
The answer is blowin' in the wind.
.........Bob Dylan

As one looks back over the past seven years there is plenty of evidence that suggests that the Internet bust, 9/11, the subsequent technological, financial and military developments have, in the language of Intel's Andy Grove, created an inflection point. This piece will take a stab at laying out the landscape for the next decade or two, especially from a US perspective. The rationale will be developed in subsequent pieces.

The forecast. (CAUTION: the reliability or the error rate is about the same as that of your local weatherman or weatherwoman).

#1. The median standard of living of living in the United States will come down 'substantially.'
#2. The role of the US as the world's police force will diminish.
#3. Real Inflation, not the bogus ones reported by governments, will go up substantially.
#4. Significant new business models will come from other countries, along with new managerial systems.

While some of these changes have been going on for the past few years, this blog will examine the pace of change and what factors drive it.

Capital Punishment of Human Capital

"Employees and ideas are really our core assets." Paul Jacobs, CEO, Qualcomm Inc.
"Technology is important, but we're in the service business, and if we don't respect and understand our people – our most valuable asset – then we can't be successful." Gary D. Forsee, former Chairman & CEO, Sprint Nextel Corp.

Every CEO spouts off about what a valuable asset employees are and how the firm is based on knowledge workers and intellectual capital. But

1) Employees never show up on the asset side of the Balance Sheet
2) Firm-wide Intellectual capital does not show up on the Balance sheet (apart from patents that have been filed and approved)

Whenever mismanagement results in poor earnings performance, the corrective action is to execute mass layoffs- essentially writing down significant knowledge capital.
More critically, the failure of managers, ably illustrated through the Dilbert cartoons, to recognize, develop and nurture talent results in many potential innovations never seeing the light of day. A recent experience of a good friend of mine illustrates that many managers still threaten and abuse the key knowledge assets that are supposed to create 'value.' These 'managerial jerks' still run rampant in the workplace- private and public sector alike.

In a May 2007 McKinsey Quarterly article titled "Building the civilized workplace" Robert Sutton describes workplace jerks and quotes a 2003 study² of 461 nurses which found that in the month before it was conducted, 91 percent had experienced verbal abuse, defined as mistreatment that left them feeling attacked, devalued, or humiliated. Physicians were the most frequent abusers.
The article " When the Bully Sits in the Next Cubicle" describes workplace abuse and the serious health toll bullying can have. According to the article "Some victims become physically ill from the stress, with depression, anxiety and even symptoms of post-traumatic stress disorder. Surveys also suggest that victims of office bullies call in sick more often — although it’s not clear whether they really are sick or just avoiding the abusive environment at work. A large share of the problem involves women victimizing women. The Zogby survey showed that 40 percent of workplace bullies are women." Women managers abusing women is quite commonplace and tragic-putting their sisters down instead of helping them move up when everyone is fighting the glass ceiling.

A sad commentary on human inability to maximize collective human ability.

Hikes and Massages may be harmful to you

After giving my presentation (with the arcane title "Supply Chain Integration as a Marketing Lever: An Enhanced Conceptual Model for Customer Relationship Management") at the NARTS conference, I drove to the Phoenix Mountains with the intention of running a few miles up the mountain. However, as soon as I started running, there appeared before me a hiking trail with a couple of people of people starting the journey. I abandoned my running and decided to hike the trail. After reaching close to the summit point, realization dawned that a) running a few miles is quite different from hiking, b)I was in no physical shape to undertake a hike of this sort, c) I should have gathered data about the trail and got the right tools (shoes) before the hike. After completing the hike I read about it and found that it was one of the steepest and most strenuous hikes in the country (4 stars).
These are the lessons that are applicable to the U.S. economy and its population at large. As Andy Grove of Intel might put it, the economy and the standard of living are at an 'inflection point.' Given the daily dose of bleak news about the economy, some of my students and friends keep suffering from anxiety attacks and ask me to prognosticate about the immediate future. While recognizing that I might appear sillier than any Wodehousian villain, I will lay out in the next few posts a few ways of looking at the 'landscape' ahead and figuring out whether the country is prepared for the 'strenuous hike' ahead. However, there is good reason to tell any forecaster to 'take a hike.' To make forecasts with some level of confidence, one needs data, clean data. Unfortunately, we have to rely on public (and sometimes private) agencies for quite a few economic numbers. Often, these numbers are massaged, some by statisticians, some by bureaucrats and some by politicians. This will be the subject of the next post.

History of an "Ownership Society"

A few weeks ago, a student in my class commented that all the history courses she took were very limited because they all seemed to end with World War II or earlier. Other students chimed in- it appeared that stuff that happened in the recent past was of no historical relevance. As this was in my business course, I decided to give them a ten minute education on recent history related to the economy- the past fifteen years.

• 1992-1993 Beginning of the widespread use of the browser- we really need to thank Marc Andreessen and his buddies at U of I for making this blog and everything else on the Internet accessible so easily.
• 1992-2000 Massive (over) investments in technologies, esp. Communications, and Finance. This can be looked at as pulling future investment 'into' the present, thus forcing reduced investment in the future (reversion to the mean effect).
• 2001-2002 Reality check. Dawned on investors that some investments made above will never pay off, and some would take many years. Collapse of investment.
  9/11- collapse of travel.
  Recession.
  Job Losses, especially the higher paying high tech ones.
  Outsourcing of tech (part of the payoff from capital investments in 1992-2000).
  
• 2003 - 2Q 2007: President George Bush's two part response- Iraq War and Create an 'Ownership' Society.
  Shift the gains from wage earners to 'owner-investors.'
  Fed Chair Greenspan responds by lowering interest rates to 1% in July 2003. Became very cheap to borrow money, both for individuals and institutions.
  Reduced regulatory environment and lax enforcement made it very easy to borrow and lend money.
  Tax code changed to significantly benefit investors and owners- shifting the burden to wage-earners.
  Tougher bankruptcy laws made it more favorable for lendors.
  Massive borrowing to finance housing and other needs, as opposed to funding from savings.
  Spawns asset bubbles- Housing Bubble, Real Estate bubble, Stock Market Bubble, Commodities bubble, etc.
  Lower interest rates, with higher global demand, spawns inflation
  
• 2005-2007 Fed responds by raising rates trying to lower inflation
• 1Q 2007-3Q 2007 Cheap money not available. Borrowing to finance spending becomes difficult.
  Job Losses
• 3Q 2007 to present. Fed dramatically lowers rates and puts in other extra-ordinary measures to make it easier to 'borrow.'
  Assets being repriced.
  Ownership (that arose from borrowing) being reduced.
  

Next step is to take a stab at the future- that's for another blog.