Timothy Blumentritt: The implications of the ‘new normal’

The Kennesaw State University Corporate Partners program recently hosted a session exploring what…

Georgia (Jun 24, 2011)

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The Kennesaw State University Corporate Partners program recently hosted a session exploring what the term “new normal” means with respect to our economy. In previous conversations, our partners had asked such questions as “Is this economic environment here to stay?” and “How do we make sense out of our current economy?” The session on the new normal dug into those issues.

Don Sabbarese and Brett Katzman, two of our prominent faculty economists, provided data on a variety of economic statistics, including current account and budget deficits, unemployment rates, U.S. debt held by foreign institutions and economic recovery statistics compared to those of previous recessions. They discussed how policy decisions, not from political perspectives but from economic perspectives, may influence our economic future.

In the end, they convinced me that the U.S. economy is different now than it was five, 10, 20 years ago. While the past sets the stage for future decisions, our economic landscape has fundamentally changed. Suggestions that we can go back to where we were in the boom-boom days of the mid-2000s seem to be fanciful.

Several key points jumped out at me. First, past business cycles have been fairly predictable, moving in relatively smooth ups and downs. We have had recessions and crashes in the recent past — within the last 50 years — for instance, moving off the gold standard while facing an oil crisis in the early 1970s; dealing with stagflation in the late 1970s; and the burst of the tech bubble in 2000 certainly threw some curveballs. But the unprecedented decline in personal wealth, especially through the decline in housing prices, and the enduring high level of debt — both personal and governmental — undermines the tried-and-true means of coming out of economic malaise.

Second, it will be very difficult to bring down the persistently high unemployment rate. Once we include the underemployed and the many people who have given up on the job search, statistics put the continuing impact of the downturn at more than 20 percent of our workforce. Shifting demographics, as the baby boomers move to the end of their careers and millennials enter the job market, complicates things. Even the providers of jobs seem to be on the sidelines; large corporations are conservatively sitting on historic cash balances, small businesses are having difficulties accessing the capital they need to serve their traditional role as the engine of job creation.

Third, technological advancements have changed the way people interact and access information. The smartphone and social media technologies are the latest in a string of advancements. It’s often difficult to remember that the Web browser is only 17 years old. But anyone who can remember pre-Internet business is probably out of touch with the way young people use these technologies. Despite the already significant impact, the pace of new-technology introductions should only continue to get faster.

Taken together, it seems like things will be permanently different this time. That people are fundamentally wary of our economic stability even one year after the National Bureau of Economic Research officially called an official end to the recession in June 2009 reinforces this viewpoint.

But just saying that things are “different this time,” and mostly in troubling ways, is insufficient. We also have to consider how businesses might respond to the new normal. A lot of firms have already figured it out. Many big companies have successfully deleveraged their balance sheets, reducing interest payments and raising cash. Like many others, one of the participants in the KSU session noted to me that his small business was doing very well in this economy.

The general idea is to create business agility. There is no way to predict the future; executives are no more prescient than your corner psychic (perhaps less so). What we can do is rethink assumptions, rely less on intuition and gut feel and more on current data and trends, and most certainly listen to people with different perspectives. The goal is to create new ideas for doing business, ideas that fit with the new economic environment.

There are a variety of strategic development tools that can help business forecast their futures, even in very difficult economies. Most of them rely on gathering solid data, making novel but realistic projections, and relaxing assumptions about the past. While it’s often difficult to think about anything but near-term problems, a long-term view always helps businesses put current issues in perspective.

Just as not a single person would advocate doing business today as we did five or 10 years ago, we should anticipate that the business practices of five to 10 years in the future will be just as different. We don’t have to know what those differences will be, but just be ready to act once the necessary changes become evident.

Dr. Timothy Blumentritt is a business professor at Kennesaw State University’s Coles College of Business. The MDJ will periodically publish columns from KSU business faculty.


 

A leader in innovative teaching and learning, Kennesaw State University offers more than 150 undergraduate, graduate and doctoral degrees to its approximately 41,000 students. With 11 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the third-largest university in the state. The university’s vibrant campus culture, diverse population, strong global ties and entrepreneurial spirit draw students from throughout the region and from 92 countries across the globe. Kennesaw State is a Carnegie-designated doctoral research institution (R2), placing it among an elite group of only 6 percent of U.S. colleges and universities with an R1 or R2 status, and one of the 50 largest public institutions in the country. For more information, visit kennesaw.edu

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