The GFC (global financial crisis) is a vital part of this great system of capitalism that we all seem to love, love in spite of ourselves or accept because we are simply at a loss to think of a workable alternative. Way back when this was a little downturn, George Bush said: “In a market economy there are good times and bad times, this is a bad time”. We will miss him, Bush is obvious but he is also, annoyingly, spot-on.
We all know that our economy operates on cycles; short cycles and long cycles. We know it but we act as if it isn’t true. We know that we can’t go forward without ‘creative destruction‘ but we act as if doomed technologies, and the business models built on them, will not be blasted from the earth in a firestorm but rather be eased into the gentle night by a merciful god.
No, dear readers, the god of economics, is the Yahweh of the old testament. A vengeful deity that lets foolish humans get deeper and deeper into the delusional before ripping away their cloaks to reveal an awful reality. Well, enough of that. But Bush is right, we need bad times and good times – that’s what makes our economies so dynamic.
This crisis will herald far-reaching changes. They always do. Those changes will be surprising to most of us because they always are. The utter folly of specific predictions is a whole other topic. The real point is to think about the big issues and where the pressures are. The future is a break with the past not a continuation of the present. The great thing to do is to try and identify what that break or breaks might be.
For instance, the GFC does herald a global shift in power away from the USA (and Western Europe) and towards Asia. Of course, truckloads of books have been written predicting this would happen in the 21st century and politicians (including K Rudd) love to talk about it. Well, it is happening now but the long-term impact on our hitherto comfortable lives in the West is yet to be revealed. We just got used to a world where a little interest rate manipulation, and some keynesian tweaking, was enough to keep our economy growing on an even keel. Now, we seem to be entering a world where these national levers look pretty ineffectual. Will that mean a greater role for multinational arrangements? We shall see.
As uncomfortable as this new phase of globalisation might be for us Westerners, it might prove essential for re-balancing global power structures and giving China, India and other countries a greater role. If this re-balancing can be achieved through a GFC rather than a war or three than we will have a lot to be grateful for. War often happens when some actors fail to understand, and act on, important power shifts.
At an industry level, the GFC will cause a lot of people to re-think some recent verities about the miracles of superannuation and early retirement. We baby boomers may have to take for real the notion of a working life that extends to about seventy or beyond. This may be no bad thing and help us stay engaged and, consequently, live longer, healthier lives. It will also take off some of the incredible pressure that has been building on national budgets through the aging problem.
Equally, we may all have to re-think our over-reliance on debt. Debt makes (some) sense in a world where incomes keep rising and we can enjoy some stuff now and pay for it later (plus interest) out of our higher incomes. Debt makes less sense when those incomes are stable or even falling.
Both these last two points suggest that the finance industry is headed for some permanent re-focusing. Not a bad thing since its contribution to economic growth and value creation has been vastly over-stated. Much of the finance industry is little more than a (highly profitable) ticket-clipping exercise.
Our greater focus in keeping down costs, in the face of constrained or falling incomes, will also see many of us re-thinking our use of energy and other natural resources. Not a bad thing in terms of the environment and that other great global crisis, global warming. I think we will also see some move away from centralised solutions and to a greater reliance on local solutions like water tanks and solar panels. Again, people have been talking up this stuff for decades and the GFC might be just the thing we need to start taking it seriously.
Then there are all those businesses that have steadfastly ignored the power of the Internet, or at least paid too little attention to dealing with it. Those who see it as a fad, or a threat to be challenged through courts and monopoly power. This has ramifications across much of the economy. As consumers become more cost and value conscious their reliance on the Internet will grow. At the same time, anyone in the media and entertainment industries that relies on an up-front charge is going to find some hard times ahead as people head to the free, advertising supported, content on the Internet.
The point is that the GFC will focus global attention on some things that we have been talking about but have not been acting on during the recent boom years. To me, that means a decade of rapid and pervasive change lies ahead of us on many, many fronts. Much of it the sort of change people have been predicting and hoping for. May you live in interesting times!
