Economic picture may be bleak now, but there’s reason for optimism
Commentary, bu Bob Chernow, for SBT
The economy is in painful contraction. News of layoffs, plant closings and bankruptcies pervade us daily. The stock market seems like a ski slope with no snow. State and local governments are cutting into muscle and bone. The dreaded "disinflation" word is common lingo. War, justified or not, gives us nightmares.
Times are hellish. Yet what we are seeing and feeling is but the downside part of a transformation that happens once every 55 or 65 years.
This present adjustment is similar to the process set in motion with the introduction of the automobile in the early 1900s. Will Durant, who founded General Motors and Chevrolet and subsequently lost General Motors twice, personifies the development. It was a time period characterized by numerous start-ups, inventions, innovation and great productivity improvements. Electricity became a new source of light and power. The telephone made its way into homes and businesses. The car and truck supplanted rail. Mass production replaced crafted products.
That transition was not smooth. There were numerous recessions and depressions, with accompanying business failures and mergers, as well as government and business fraud and corruption. Fortunes were swiftly made and then precipitously lost. Stocks and bonds boomed and busted.
Does this sound familiar? This is not a lesson of history, since few learn from the past. Rather, I am illustrating that parallels in economic cycles exist.
I believe that we will soon surface from the negative part of this cycle soon.
Many companies and industries will disappear. But new businesses and industries will emerge. This is the Darwinian in our capitalistic system – part good, part cruel, but always dynamic.
Wang Computers was once one of the top 100 companies in the US. Its product was superior; its expertise sought. But today that company and its products no longer "exist." Wang could not overcome change and the future passed it by.
Examples of developing technologies coming to the front include: advanced biochemistry, genetic engineering, digital electronics, microwaves, photovoltaic cells, fiber optics, lasers, optical data storage, artificial intelligence, fiber reinforced composites, new polymers, molecular designing, thin-film deposition, and high tech ceramics. Nanotechnology, a subject of science fiction a few years ago, is now part of the experimental landscape.
Many of these "new fields" have the potential to increase productivity on an exponential scale, with increases of 5,000% to 10,000% attainable. Impossible, you say? History has demonstrated that the magnitude of such gains is feasible. The downside is that many old industries will be obsolete.
After the American and French revolutions, there was a period when we saw productivity gains even higher than 5,000% to 10,000%.
Those productivity gain giants included the introduction of the cotton gin, the sewing machine, the McCormick reaper, steam power and the ability to transport and store food.
In the last century, we had the introduction of the automobile and truck, electricity (and the ability to transfer it over a long distance), the telephone and short wave radio. Here we begin to comprehend the magnitude of change that occurred in the early part of the last century.
It was not without significant social and economic disruption.
The key, of course, is not only the "invention" but also the adaptation and acceptance of the innovation. Human capital and human adoption of innovations are the crucial variables in this equation. For example, while development of the fax preceded that of the telephone, its use has only gained wide acceptance in the last 25 years. On the other hand, wireless phone and the Internet have had much speedier adoption.
While I anticipate an upturn in the current cycle, there will definitely be winners and losers.
For example, thin-film deposition could radically alter the razor blade industry by providing a permanently sharp razor. It easily follows that such an advance would eliminate the need for replacement blades.
In the health industry it is not unimaginable that diagnostic equipment will assess patients, while nurses assume many of the general functions of physicians. Our health care system will feature highly specialized physicians, but relatively few general practitioners.
What point am I trying to make? It is simply that the road ahead is bright and optimistic. Right now we see only darkness. Businesses are failing. People are being laid off. The stock market continues its retreat. Yet, when we view where we are in a historical perspective, we see this as part of a cycle, a cycle that will turn upward. New industries will spring up from the ashes of the old, and prosperity that we have only dreamed of will be within our reach.
It is always darkest before the dawn.
Bob Chernow is a Milwaukee businessman and a futurist.
April 4, 2003 Small Business Times, Milwaukee
