The Do-It Yourself Economy

This is a paraphrase of an excellent article by Thomas L Friedman in the New York Times a few days ago. (Friedman is the author of The World is Flat)

"In case you haven’t noticed, the U.S. economy today is being hit by two tsunamis at once: The Great Recession and the Great Inflection. The Great Inflection is the mass diffusion of low-cost, high-powered innovation technologies, from hand-held computers to Web sites that offer any imaginable service, plus cheap connectivity. They are transforming how business is done. The Great Recession we all know.

The “good news” is that the Great Recession is forcing companies to take advantage of the Great Inflection faster than ever, making them more innovative. The bad news is that credit markets and bank lending are still constricted, so many companies can’t fully exploit their productivity gains and spin off the new jobs we desperately need. The Great Recession forces companies to radically downsize, but the Great Inflection has made them radically more productive.

The writer cites an example.

A marketing agency in Minneapolis was forced by this Great Recession and Great Inflection phenomenon to make a film completely differently for a non-profit client. The budget was about a fifth of what was normal, almost all meetings and communication with the client was by e-mail. The script was developed and approved using a collaborative tool provided by www.box.net. Mobile working meant the script was reviewed in real time by all with complete transparency wherever they were, easy convenient and free. There was no budget to shoot new footage or stock photography - costing royalties of anything between $100 to $2,000 per image. The new economy provided low cost solutions online, www.istockphoto.com and www.voices.com and www.audiojungle.net within a relatively short period and for very little money. By being able to access all these cheap tools immediately, the company was able to complete the project in record time and focus on its value-add: imagination. The customer got a better product, a lot quicker and for less cost.

But the issue is this. Not many new jobs were created neither was significant profit generated. For that, the economy needs to pick up and credit needs to become more freely available. Given successful companies are now in a new state of "hyper-efficiency" any uptick in business would really improve the bottom line, generate cash and stimulate hiring, but that requires credit markets to loosen for customers and clients.

Strange times: The Great Recession and Great Inflection are making our companies ultra-lean, innovative and productive. But with credit still constricted, the economy is like a superfit track star with a weak heart. Getting credit pumping to the industrial muscles again must be the top priority."

December 18, 2009 11:40 AM | Permalink