March 17, 2009
The economy is going through a prolonged slowdown of several years, longer and deeper than recent recessions. This will cause us to question things that we see as unchangeable, to redefine and rebuild our models of capitalism and the role of government.
This is a world ripe for creative entrepreneurs, people who can perceive and ride gamechanging shifts in the ‘rules’, to deliver the ideas, products and services that we will need in the new world. In this article I combine my own ideas with thoughts from the FT series on Rebuilding Capitalism, Stanford University’s conference “Leading Matters”, and a First Tuesday event on the “Green Technology Window of Opportunity”.
First, what’s happening. Major global banks are capitalised with an average of just 2.7% of deposits, while asset values have fallen much more. This means that, technically, almost every major bank is insolvent. Governments have provided deposit guarantees for savers, but do not have the money to back those up in practice. It is possible that a major bank may limit or ban withdrawals, leading to a run on other banks. Government bonds are likely to fall as long term interest rates go up, and a major European government could default on its own bonds. Equity markets remain unstable. The dark side of recession means protectionism, racism and civil unrest. Gold could rise dramatically as the only safe haven.
Does this mean the end of capitalism? Capitalism is a resilient dynamic force with its own heartbeat of rises and falls, perhaps the biggest rises and falls have a multi-decade lifecycle. Capitalism will re-invent itself through creative destruction. Now is the time to take bold steps to reconceptualise finance. The United States under the Obama administration seems to have the expertise, the ambition and the confidence to take these bold steps. For example, their environmental team is second to none in terms of scientific knowledge, political savvy and implementation skill.
The new economy with its new regulations and its new controlled markets will focus on wealth that is worth having, the triple bottom line (financial, social and environmental). Companies will report on value added to a sustainable planet and its people. Through carbon markets and CSR reporting, this is already beginning to happen. The government has a key role in setting up these markets, defining and adjusting their frameworks until they are stable enough for it to step out of their way. Consumers will want to see tranparently what happens to their money in the financial system, and will select what impacts their investments have on the world. This is an opportunity for charities, for banks, for microfinance projects, for venture investors, for development agencies and for information providers.
A new energy infrastructure is emerging, one that enables micropower projects to contribute to the national grid and earn money (witness Al Gore’s idea of the Electranet). Your own investment in upgrading your home will be made based not on the absolute cost of the electricity you save or produce, but on whether that investment makes sense for you given the subsidies available, the feed-in tariff, the carbon market, the value you add to your home, and yes, on your values and the contribution you wish to make to your local environment.
Is this utopia? Well, eight years ago you didn’t believe that Britain would ban smoking in pubs, did you? We overstimate change in the short term, but often underestimate the long term. Besides, change isn’t just what the world does to us, it is the sum of the small things that we make happen. Enjoy THIS decade, or it will enjoy you !