The one thing most analysts, pundits, politicians agree on is our economy suffers from low confidence. Low consumer confidence. Low business confidence.
They all disagree on what it will take to restore confidence. But that’s because they disagree on whether or not low confidence is justified.
If you think confidence can be restored with “stimulants” like low interest rates and government spending, then you think the low confidence is unjustified. Demand is "pent up" just waiting for a nudge to reverse momentum.
But what if low confidence is justified? Maybe consumers and business know, intuitively and otherwise, that we are on the cusp of a fundamental transition to new economic drivers.
The last time the economic drivers shifted was in the 1980’s.
The economy grew exponentially from the 1940’s to the 1970’s, when today’s US Fortune 50 companies expanded from successful local businesses to national companies.
I worked with Fortune 50 companies during the 1980’s, United Airlines, Hallmark, Heinz, Procter & Gamble, M&M/Mars, McDonald’s, Wm. Wrigley. After decades of exponential growth, the eighties were a transitional period. Growth had slowed during the 1970’s. To turn the corner, a lot of ideas and money were invested in developing new products and line extensions. There were a few successes. None generated the kind of growth realized during previous decades. But the scope of experimenting was narrow. Take laundry detergent as an example. During the 1980’s, brands were researching and introducing new and improved ways to remove stains to promise superior cleaning power. However superior cleaning power wasn’t the driver when the laundry detergent category was growing exponentially.
When the packaged laundry detergent category was introduced, women washed clothes with soap they hand-grated from bars. We can’t even imagine all the benefits beyond superior cleaning power of packaged laundry detergent. It freed women from the drudgery, time, and scratched knuckles of grating bars of soap. Increased discretionary time, self-esteem, and prettier hands are all very good reasons to pay more for something – especially at a time when the country was moving from an agrarian/rural to an industrial/urban society.
This is just one example of the life-changing improvements during a period of exponential growth. As these new products expanded distribution into new markets, advertising return on investment was visible. Newly stocked shelves were emptied in a day. That's because advertising's value is primarily as an awareness builder.
During the 1980’s, line extensions and marginal product improvements were not so life changing. With established brand awareness, there were few examples of advertising generated increased sales. So by the 1990’s a full transition in economic drivers happened. Improving efficiencies of large scale enterprises was the most likely way to increase earnings. In this environment, the Tech industry has grown exponentially in the US. Fortune 50 companies have capitalized on the improved efficiencies of new technologies to improve earnings in the US even though per capita consumption is not growing.
Also, during the 1990’s and into the first decade of the 21sts century, these companies have grown exponentially outside of the US. The impact has probably been as socially significant for women in emerging nations and Muslim countries as it was in the United States. The return on investment of advertising in these countries has continued to maintain the belief in a traditional business model of free to the consumer, advertising supported media.
But emerging economies are maturing. They are becoming competitors in their own right. Low confidence in the US economy is justified. A transition is necessary to re-fresh the economy just as it was necessary in the 1980’s.
Ironically, the transition will shift in the opposite direction, from a focus on efficiency to premium quality worth paying more for. For example, the premium price of local food is not perceived as higher when one realizes the hidden health and environment costs of cheaper, large scale production food. The gourmet kitchen appliance category is evidence that making food from scratch is becoming an aspirational luxury, not a burden, associated with better health, parenting, and quality lifestyle.
A systemic shift to an economy of premium quality across government, business, and consumers will not only improve confidence, grow the US economy and create new jobs. It will grow the US economy without resorting to isolationist foreign policies which could have an unintended negative consequence on economies outside of the US and national security. Additionally, it will position US companies for future growth outside the US. Our growth outside the US is possible because our products have been aspirational – either better than the local alternative or a way to improve one’s quality of life.
The implications for technology is to shift purpose from efficiency to premium value. Having lowered the cost of distribution, marketing, and information, technology has inadvertently created a scarcity of time and knowledge. So technologies which teach people how to use their time effectively and make more money will be worth paying more for.
