Sunday, March 08, 2009

Economic Tsunamis and Changing Business Climates

In today's NY Times, Thomas Friedman writes:

"We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...

He goes on to state that 2008 marks the Great Disruption, where both the market and the environment say "no more." I like Friedman, but he's a bit breathless in this "discovery". However, Friedman often represents the leading edge of the main stream. Either he is prescient, or so influential that his writing shifts opinion. What I find intriguing about this article is not the idea that our economy is exceeding the carrying capacity of our ecosystem, but rather that, through Tom, the idea is now reaching lots of people.

Friedman may call it the Great Disruption, but for many it may seem like the Great Deception. For 60 years, the answer for most problems has been economic development. Growth is good. A rising tide lifts all ships. A superficial concept, as any rising tide in a closed system (like Earth) means a falling tide elsewhere. But due to the way we keep score (GAAP and GDP), the falling tide was hidden. Or perhaps, like those people getting fish during the falling tide before the tsunami, we were just unaware of the danger. It was deceptively calm before the wave hit.

I am underwhelmed by the predictive power of Friedman or other pundits. As Taleb says in Black Swan, "what is surprising is not the magnitude of our forecast errors, but our absence of awareness of it." So I don't know if 2008 was the inflection point of a Great Disruption (although if it is, I am sure Friedman will take credit for telling us so).

In the article, Friedman claims to be optimistic about the positive changes he is seeing. Since I am an unrepentant optimist, I am too. But I am optimistic for the entrepreneurs, not the dinosaurs. While Friedman sees climate change being the dominant force in "Hot Flat and Crowded," I think that the changes in the business climate may be faster and more furious. As a Washington Post article reported in 2005, "19 of today's 25 largest U.S. companies didn't exist four decades ago." It is instructive to look at how companies have evolved in the Fortune list. Is the period from 2005-45 likely to be more tumultuous than 1965-2005? Where should you get a job? Invest your IRA?

Here are the 2008 Top 10 largest US companies:

1. Wal-Mart Stores, 2. Exxon Mobil, 3. Chevron, 4. General Motors, 5. ConocoPhillips, 6. General Electric, 7. Ford Motor, 8. Citigroup, 9. Bank of America, 10. AT&T

See any dinosaurs in their death throes due to "business climate change" on this list? I do. If Friedman is right about the Great Disruption, these companies may also be those most disrupted by economic and ecological climate change. They all appear to be leaders in the business model described in Friedman's quote at the beginning of this post. Grabbing fish at the low tide. Growing off roots deep in the petro-consumptive business model.

As for those emerging firms that may prove more adept in the new economic and ecological climate, you may be able to find them in lists such as Fast 50, Social Capitalists or Global 100. Or maybe at your local algae farm or brewer. Those that grow from more regenerative business models. But hey, I'm no pundit. Just trying to figure it out for myself, rather than letting so-called experts figure it out for me.

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