It’s not uncommon today to encounter bewilderment and dismay regarding the state of the economy over the last two years. The downturn started much more abruptly and with less warning than previous recessions. The types of financial collapses and resultant layoffs have been amplified by media attention and personal experience.
There is a reason for the phenomenon we are experiencing in our economy. I believe that we are in the first "just-in-time" recession to affect our country. To review, "just in time" refers to a process in manufacturing designed to reduce inventories and the ensuing inventory costs by getting parts to an assembly plant "just in time". Most important, it is a strategy that is customer-driven and that allows companies to gear production to customer demand, with only a few days lead-time.
This type of just-in-time economy is probably one reason people see the current recession as mild.
The negative of a just-in-time economy is that with reduced inventories come layoffs and reduced demand for raw materials. The economy can respond with a swift collapse rather than a slow decline into a recession. Sept. 11 did not help, but certainly the tragedy is not the reason for our present recession.
Part of what we’re seeing is the decline of several industries, the "buggy whips" of the future, which were prominent in their time. The transition from one type of business to another has been responsible for a shakeup in the technology sector. For example, it appears that if cable has won the high-speed Internet wars and that the trend in wireless will overtake long-distance telephone service.
As a personal anecdote, my 27-year-old daughter who travels throughout the country on business does not have local phone service in her apartment. She only uses a wireless service, a trend that is becoming increasing popular. What will happen to the billions of dollars of capital that has been invested in soon to be obsolete telephone equipment?
I anticipate these shifts in technology affecting all segments of the market, with some examples being the replacement of film cameras with digital cameras and hydrogen-based fuel cars replacing our current vehicles. Not only will the use of the car of the future positively affect our air quality, it will decrease our dependence on foreign oil.
We’ve seen this Hegelian shift in economies throughout history. The railroad industry dominated our economy until a highway economy took over. Our agrarian system changed dramatically from encompassing 90% of the population to less than 3% today.
When these changes occur it can be both depressive and stimulating to the economy. "Just in time" was only experimental 15 years ago; today it is a necessity. Unfortunately, it has the potential to destroy livelihoods as positions are eliminated, and only businesses that are flexible will survive.
On the positive side, when the economy recovers, we should see a significant and immediate improvement in business and profits in a much shorter time than historically reported. Those who endure will be far more efficient and successful than they ever dreamed was possible.
Bob Chernow is a futurist who has published and spoken nationally. He is a VP-Investment Officer at RBC Dain Rauscher, Milwaukee. The opinions expressed here are his alone.
July 5, 2002 Small Business Times, Milwaukee
