There was an interesting analysis in “The Economist” this week, looking at the US economy’s current woes and the measures being implemented to turn the tide around. However, unlike most pieces about the current global economy which try to predict when the economic situation might improve, this article examines what the long-term consequences might be from this current global recession. If their analysis is correct – which I believe it is – we’ll have to prepare for a dramatic change in our spending habits.
As the article from “The Economist” points out, growth in the US economy for the last few decades has been fueled largely by consumer spending as a result of easier access to credit, thanks in part to companies like General Electric and GM that moved into the money lending business as a quick way to generate revenue. However, as the current economic downturn has demonstrated, this model for economic growth is clearly not a sustainable one. With this comes the realization that the US economy, and by extension the American population, will have to shed the mass consumption model for growth and move instead towards one that focuses on export growth to such burgeoning economies like China and India.
Naturally, the implementation of such thinking, of companies viewing themselves as products/services exporters instead of ones that cater almost exclusively to the American market, is not likely to occur anytime soon. Indeed, in an article featured in “The New York Times” this week, Disney executives gave insight into how they are employing scientists to help them understand how the average web surfer from the United States perceives online advertisements in an attempt to understand why some ads catch the American surfer’s interest while others are simply ignored. Clearly, the hope is there in such conglomerates that once government and economic leaders give the all clear signal, the American populace will once again run in droves to the shopping mall or online retail stores to resume the credit-propped spending sprees that supplied such companies hefty profits in the past.
Of course, it’s not surprising that companies like Disney would want to maximize their chances of selling their products in the US market as there is a clear understanding that no matter how much growth exists in such foreign markets as China, Japan and Germany, they will never match the level of spending exhibited by the American population over the last 20 years or so. Then again, there’s nothing to say companies like Disney are not also making efforts to increase both the profile and attractiveness of their products in foreign markets to compensate for the drop in interest in domestic ones. As I wrote in an earlier piece that looked at the issues which lead to the decline of the Detroit Big Three automakers, it’s more important than ever to diversify one’s market share in this ever-expanding global market.
Without question, this would be a fundamental shift in how both businesses and consumers conduct their affairs. And it certainly won’t be an easy one for Americans to adapt to after decades of carefree, mass spending on goods and services. Of course, the undeniable truth is that while change can at times be difficult, it is also more often than not unavoidable.