Saturday, 2 March 2013

Future trends in the economy

As I wrote here several Lents ago, the current economic crisis is not a short-term blip; rather it will be an event of historic significance that will last an eighth of a lifetime - ten years or more. In the UK recession has already been a feature of the economy since the first quarter of 2008, with a third dip on the way. Moody's downgraded the UK from Aaa to Aa partly because the ratings agency could not see economic growth returning until 'the second half of this decade'.

During such extended periods of economic uncertainty, we will be seeing that 'creative destruction' taking place; old businesses going bust - old business models ceasing to function - and new ones emerging.

And what will emerge?

 The Old  The New
 Owning a car  Renting/sharing a car
 Driving  Being driven
 Software in a box   Software from the cloud
 Buying electricity from a big company   Generating your own electricity, selling the surplus 
 Bookshelves full of books  Flash drives full of e-books
 Buying things  Experiencing things
 Buying things  Making things - a 3D printer in every house
 Accessibility  Authenticity
 Tourism  Travel
 Food as a fuel to keep you going  Food as an authentic experience
 Roads  Rail
 Globally-known brands  Locally-produced and cherished brands

Old things will not necessarily disappear. They will simply lose their erstwhile dominance. Television did not kill radio or cinema, it diminished their importance. The internet will not kill television or books, it will diminish their importance.

But what really drives the economy? The notion of 'show off or die'. When I see a person sitting alone behind the wheel of a large SUV in slow-moving urban traffic, I can see one insecure person who still believes it necessary to demonstrate their wealth in this rather primitive and grotesquely wasteful way.

Car ownership statistics from the UK, US and Germany show that many young professional people have got the message that owning a car is as fashionable as being daubed with woad.

If you really must drive your own car - this is the future. Coming into production this year, the Volkswagen XL1 is the shape of things to come.

The other week, Moni told me a current hipster joke: "My favourite frequency is 25,000 hertz. I bet you haven't heard it." The true hipster, at the avant-garde of society, will wear brands no one has heard of, see bands no one has heard of (Eric Shoves Them In His Pockets, anyone?), go to clubs no one has heard of, drink unpasteurised beer from a micro-brewery in Przasnysz.

When the developed world emerges from economic crisis in a few years time, it will emerge without many of its familiar brands. The UK has lost such high street chains as HMV, Barratts, Habitat, Jessops, Clinton Cards and Comet (to name but five of 23 that have collapsed since the beginning of last year).

While Google is set to keep its primacy for the foreseeable future, I'm wondering who will be the Google of new technologies that are as undreamed of as computers and mobile phones were just 30 years ago? Which of the following brands will make it huge globally in the next decade? Spotify? ZipCar? MakerBot?

It's worth reading this article from the Economist's Management Thinking website about collaborative consumption - sharing is the new ownership. Excerpt here:
There will be a shift from ownership to access, from buying to hiring, from permanent possession to sharing, where people will expect to be able to buy goods on a temporarily basis. As Mark Zuckerburg said “Everything that can be shared will be shared”. 
A good retail example of this is a typical household drill, which is apparently used for an average of 6 minutes in its lifetime. It has taken immense resources to produce that drill and many other similar products, so sharing makes more sense than outright ownership - from an environmental, economical and lifestyle point of view. Accordingly, community initiatives are beginning to appear which give neighbours access to goods that there is no need to buy and permanently own.  
One such initiative is the ‘TechShop’ in Durham, North Carolina. This is a ‘tool library’ giving neighbours access to a huge selection of tools for any possible home improvement or construction project without needing to purchase those tools. Here is a significant opportunity for retailers to develop a model that would meet customer demand and also increase revenue through multiple ‘selling’ opportunities. 
Brands and retailers will need to respond to the shift in customer attitude and behaviour. They will have to develop strategies and business models that meet this growing demand and recognise the shift from an asset-heavy to an asset-light existence - neatly summed up by Lynn Jurich's observation, "The new status symbol is not what you own, it’s what you are smart enough not to own." 
Makes eminent sense. Cut out the clutter in your room, in your garage, loft - in your life. As someone recently wrote in Gazeta Wyborcza - 'what's the sense of spending your life doing a job you don't enjoy to buy things you don't need to impress people you don't like?' So if 'showing off or die' will not be the next driver of economic growth what will?

The so-called emerging world is still forging ahead powered by the old model of consumption - if you haven't experienced having a big car sitting in the drive of your four-bedroomed house, it will drive you to work harder and longer until you do.

The future engines of growth for the developed world will be different. No longer conspicuous consumption, 'keeping up with the Joneses', stuffing the landfill sites of the nation with trash bought on credit. Certainly healthcare will eat up ever more of rich countries' GDP as their populations age. The dream of living a long healthy life into an advanced old age is a very real economic driver. Seventy as the new fifty? An alluring prospect that billions will buy into.

People will always be conceited and snobbish, but in the rich world they will seek ever more sophisticated and subtle ways of showing it. Think of a new way of satisfying that need and you can become very rich indeed. If richness is what drives you...

More about the new Sharing Economy here and here (from the Economist).

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