"Deeper Recession Than We Thought" is the Marketwatch headline. As government data reporters often do, today they revised the economic numbers for 2008. We now know the start to this recession was twice as bad as reported. The 3.9% decline was the worst economic performance since the Great Depression of the 1930s. The consumer spending decline was the worst since 1951 (58 years – a very low percentage of those employed today were even born then.) Business investment dropped a full 20%. Residential investment dropped 27%. Stark numbers.
How did business people react? Exactly as they were trained to react. They cut costs. Layed people off. Dropped new products. Stopped R&D and product development. They quit doing things. What's the impact? The decline slows, but it continues. Just like growth begets growth, cutting begets more decline.
Then really interesting bad things happen.
"ComEd loses customers for first time in 56 years" is the Crain's headline. There are 17,000 fewer locations buying electricity in the greater Chicago area than there were a year ago. That is amazing. When you see new homes being built, and new commercial buildings, the very notion that the number of electricity customers contracted is hard to fathom. People aren't even keeping the lights on any more. They've gone away.
In the old days we said "go west." But that hasn't been the case. Everyone remembers the dot.com bust ending the 1990s. "Silicon Valley Unemployment Skyrockets" is the Silican Alley Insider lead. Today unemployment in silicon valley is the highest on record – even higher than the dot bust days. When even tech jobs are at a nadir, it's clear something is very different this time.
The old approaches to dealing with a recession aren't working. While optimism is always high, what we can see is that things have shifted. The world isn't like it was before. And applying the same approaches won't yield improved results. "For Illinois, recession looking milder – but recovery weaker" is another Crain's headline. Nowhere are there signs of a robust economy.
We can't expect an economic recovery on "Cars for Cash" or "Clunker" programs. By overpaying for outdated and obsolete cars we can bring forward some purchases. But this does not build a healthy market for ongoing purchases. These programs aren't innovation that promotes purchase. They are a subsidy to a lucky few so they pay significantly less for an existing product. To recover we must have real growth. Growth from new products that meet new customer needs in new ways. Growth built on providing solutions that advantage the buyer. Only by introducing innovation, and creating value, will customers (businesses or consumer) open their wallets.
Advertising hasn't disappeared. But it has gone on-line. Today you don't have to spend as much to reach your target. Instead of mass advertising to 1,000 in order to reach the 100 (or 15) you really want, today you can target that buyer through the web and deliver them an advertisement far cheaper. I didn't learn about Cash for Clunkers from a TV ad, I learned about it on the web. As did thousands of people that rushed out to take advantage of the program at its introduction – exceeding expectations. It no longer takes inefficient mass advertising through newspapers or broadcast TV to reach customers – so that market shrinks. But the market for on-line ads will grow. So Google grows – double digit growth – while the old advertising media keeps shrinking. To get the economy growing businesses (like Tribune Corporation) have to shift into these new markets, and provide new products and services that help them grow.
I live in Chicago. Years ago, in the days of The Jungle Chicago grew as an agricultural center. There was a time the West Side of Chicago was known for its smelly stockyards and slaughter houses. But Chicago watched its agricultural companies move away. They moved closer to the farms. They were replaced by steel mills in places like Gary, IN and Chicago's south side. But those too shut down, moved to lower cost locations offshore. These businesses were replaced with assembly plants, like the famous AT&T Hawthorne facility, and manufacturers such as machine tool makers. Now, for the last decade, these too have been moving away. With each wave, the less valuable work, the more menial work, shifted to another location where it could be done as good but cheaper and often faster.
Historically growth continued by replacing those jobs with work tied to the shifting market – jobs that provided more value. So now, for Chicago to grow it MUST create information jobs. The market has moved. Kraft won't regain its glory if it keeps trying to sell more Velveeta. Kraft has not launched a major new product in over 9 years. Sara Lee has been shedding businesses and cutting costs for 6 years – getting smaller and losing value. McDonalds sold its high growth business Chipotles to raise money for defending its hamburger stores by adding new coffee machines. Motorola has let mobile telephony move to competitors as it remained too Locked-in to old technologies and old products while new companies – like Apple and RIM – brought out innovations that attracted new customes and growth.
Growth doesn't come from waiting for the economy to improve. Growth comes from implementing innovation that gives us new solutions. Every market, whether geographic or product based, requires new solutions to maintain growth. If we want our economy to improve, we must change our approach. We can't save our way to prosperity. Instead we must create solutions that fit future scenarios, introduce new solutions that Disrupt old patterns and use White Space to help customers shift to these products.
If we change our approach we can regain growth. Otherwise, we can expect to keep getting what we got in 2008.