Recession - What Next?

Many companies will be experiencing negative growth over the next 2 quarters. If not us, then we will know someone else. The recession seems to be global, with many countries experiencing reporting a downturn and AC-DC returned to the top of our charts in October. ("People crave something uncomplicated and dependable in a time of uncertainty, and rock music has never produced a band so uncomplicated and dependable as AC/DC." The Guardian)

Creative Destruction is the idea that innovation of processes or products or services will destroy the traditional way of doing things. This process can be wealth generating, but depending on where the innovation is, can also have a negative impact.

For many people the advent of the PC was wealth generating. Both in terms of something new to make, it also allowed us to do things differently. Work smarter, do things differently, and therefore earn more income. GSM and the mobile phone was also “life changing”, with the industries springing up around improved communication. The result was more jobs directly and indirectly.

Whilst the advent of the Internet has changed our lives, it is also a destroying influence. You can buy anything you want online. Traditional retail is losing jobs and this will change the makeup of our cities, towns, and retail parks in the future. Has the advent of the Internet meant more jobs or more wealth in the UK?

Its all Free!!!! One game that is being played out is the software that runs our PC's and phones, and can be so easily distributed over the Internet. For instance http://portableapps.com/ provides much of the software that you need to run a professional small business. It will all work from your memory stick. http://www.makeuseof.com/tag/portable-software-usb/ gives a list of 15 different types of software that will work from your memory stick, and by default will also work on many phones, and of course your PC. Whilst you can work smarter, its all free, and not wealth generating in a production or service sense. The apps are so well productized you don't even need a tame geek to make them work. So you can get a PC and memory stick on ebay for less than £100. You can put up a website with ecommerce using OS Commerce without paying huge amounts for webdevelopment – after all the logical end for software is that it will be free, and also useful, and therefore easily customizable.

Phones are also starting to become “open” so not only will you be able to put on lots of applications, but with wireless the potential for communication to be “free” also exists on a wide scale. http://wiki.openmoko.org/wiki/Main_Page explains how you can get an “unlocked” phone with free software, that can tap into wireless for free. Whilst this may improve our lives as consumers, it doesn't create production jobs. From a helicopter view, jobs will be lost. Google maps will work on my phone “its not GPS, but its pretty close”, places me 15 miles from my front door, not so good if I am lost on foot! So perhaps we have a way to go.
Protection debates will rage on. There are those that do not want to earn money from copyright, patent or trademark, but most talented businesses and people do. AC/DC refused to release their recent album on digital down load, and very quickly 400,000 downloads through torrents followed. This represented about a third of their sales. Mama Mia has grossed between $5-600k in the cinema. Distribution of DVD's for purchase and rental have been worth between 3-5 times as a multiple. My family were excited and I pre-purchased on Amazon for £11.99 back in the summer. It is £8 in Tesco, and freely available to download for free on hundreds of torrent sites. There are albums that I had on vinyl, tape, cd, and now digitally due to wear, misplacing, and digital remastering. How many times should we pay for copyright in the future? How do you achieve a balance?

Whilst the Internet is a wonderful tool, it may not directly lead to jobs. We will see further reduction in barriers to entry, increases in efficiency, but less jobs.

So whats ahead?

Genuinely talented individuals will always earn a good living. From entertainers to “clever” people in most walks of life, we will want to see the best or use the best available. The problem with the “best” is that it implies a few or not many people. “Public” goods and services are safe, but not life changing. At least “public” makes up over 40% (42.9% and rising) of this countries wealth at the moment. The bets on new beneficial areas of technology that “need” help are:
Intelligent Transport Systems ServicesLow Impact BuildingsAssisted LivingNetwork SecurityLow Carbon Vehicles

You can see why each has been chosen. There is a social benefit, economic benefits, and may well help the government in their programmes (and not freely available on the internet). If genuine progress is made in these areas then there is a chance of wealth generation. Ie more jobs.What is certain is that for all the government intervention, growth will built on progress that generates wealth ie employs people. Governments are notorious in not predicting markets very well, and so it is equally likely that progress will come from somewhere else.
During a recession there is a temptation to cut costs, and if you are wasteful, then it may be a good idea to take stock. Cutting the marketing that gets you sales is possibly a bad thing to do, but M&S have done it. Training budgets are being cut all over the country at a time when individuals need to be more competitive. Holding your nerve is difficult for even the largest and most successful.

A phone call from a broker last week saying it was the best time to invest if I was liquid. The stock market has never been lower. My “no” came back quite quickly – an indication that I don't see the opportunities out there at the moment (although a railway company developing Intelligent transport systems might be undervalued at the moment.........). It is difficult to pick winners - who would have bet on AC-DC over the Kaiser chiefs or Mama Mia (Costing $52m) over the Dark Knight.

Somewhere there are companies considering new products and services and whether this is the best time to invest. Creative destruction suggests that innovation is not easy, and it takes a special sort of person or team to be able to innovate and then educate the market when everyone is blasting AC-DC out loud.

Notes:
Britain's Highway to Hell1973 - AC/DC form
Economy: Start of the oil crisis, which saw the price quadruple
1980 - AC/DC release breakthrough album Back In Black
Economy: Inflation in UK reaches 20% and unemployment nears 2 million
1990 - AC/DC score comeback with The Razor's Edge
Economy: Recession in UK imminent
2008: AC/DC top UK album chartsEconomy: Biggest world recession in decades looms