Why the Economy Must Get Worse

While the U.S. economy is relentlessly eroding from bad to worse, certain economic and socioeconomic triggers are poised to fire that will make life significantly better for most Americans and the country for a long time. Ironically, things must get worse in order for these levers to engage; otherwise we will likely experience a short period of stability followed by freefall.

Triggers and Alarms

There are triggers all around us, protecting us from catastrophe, silently waiting for the precise moment before setting forth a series of pre-determined actions that are nearly as calamitous as the events they are set to mitigate. Fire sprinkler systems are a good example of triggers. A small bit of smoke, a lit cigarette, or a small smoldering fire may not set off the sprinkler system in a hotel; but once large enough to threaten destruction to the hotel infrastructure or lives and the sprinklers will trigger, dousing the hotel, and everything inside with water that will likely destroy everything inside the hotel, but save the structure and any people still in the hotel. Triggers typically execute only at a predetermined point, whether man-made or in nature, when a set of events continue unchecked. Like the balance of a scale, the last proverbial straw can shift the balance permanently. This is the point where, ready or not, things will change. Alarms notify us when a set of events is about to release a pre-existing trigger, and often with enough time to do something to mitigate the looming trigger. Smoke alarms tell us to put out the fire before the sprinkler system engages, aircraft distress alarms warn a pilot to attempt to correct flight prior to automatic ejection, and even the rattlesnake will rattle, an alarm warning those present to beware. The economic alarms have been sounding now for some time, and I believe that enough damage has been done to and by the people of this country, the infrastructure, government, resources, and the corporate mindset that the inevitable triggers that will change everything as we know it must be allowed to release.

Begin with Economic Growth, Abundance and Success

While everyone can debate endlessly about which alarms are sounding and for how long, I would prefer to focus on the events leading to the ultimate trigger, the cost of attempting to turn-around the inevitable, and their aftermath. Fuel prices are at the root of the problems and will also drive the ultimate solutions. Relatively low historic fuel prices have created an infrastructure of inexpensive global sourcing, which leads to multiple global sources of products, which leads to low cost selection, which leads to downward price pressure on the products that we purchase and consume every day. Couple downward price pressure with a history of increasing salaries, positive growth trends and a strong national economy and the result is an economy of consumption, excess, instant gratification, and entitlement.

Age of Entitlement

We feel entitled to have fresh flowers every morning, which are flow in nightly from Latin America ($745 million 2007), Europe, Middle-East and North Africa. We cannot live without our multiple selections of exotic and imported fruits and vegetables at our local grocery stores. We decorate our houses endlessly with non-functional yet appealing décor and decorative accents manufactured in China. We like to drive. Everywhere. In business, we travel to and for work, either by air (over 200 million person-trips per year), or by long commute (100 hours per year avg.). As a business consultant, I depart Atlanta to travel to travel another city to work every week. At the airport, all the incoming airliners are full of consultants and professionals coming to work in Atlanta from elsewhere to perform similar jobs. But the economy is devolving: the dollar is weak, the deficit is up, housing market is destabilized, costs are up, gas prices are up, the jobless rate is up, and the outlook is bleak. We are fighting valiantly to maintain our entitled lifestyle, instant gratification, oversized homes; our façade of opulence. But the alarms are sounding, the money not there to make the next McMansion house payment, to get the weekly massage, to pay the lawn and maid service, the nanny, to put the kids in private schools, and put gas in the Mercedes convertible and Lexis land yacht, and nanny car.

What Happens When Things Get Worse?

As high fuel-driven costs increase, the materials and transportation costs of manufacturing, moving and selling products increases. In an attempt to maintain profitability, companies will continue to increase costs to the consumer. However, it takes a 20% increase in sales to offset a 2% increase in costs, and consumers are not increasing their purchases. U.S. companies, having spent years and great amounts of money to fully leverage global sourcing (i.e., buying stuff from China and selling it to you) will increase their retail prices to cover their increasing costs. Consumers who are losing their jobs and homes, and can't afford to put fuel in cars to go to work, will stop buying anything but bare necessities. Did you know that working 40 hours per week and making under $10 per hour, you work almost one day per week just to pay for gas? Of course you do. Companies will follow Bombay and Sharper Image into bankruptcy, leaving more people unemployed, and making the economic situation even worse. There are just too many stories of employers loaning employees money for gas to commute to work, and abandoned cars at the side of the road. Companies are not run by the magnanimous. Executives afraid to lose power, control and their own jobs are unwilling to let go of fiefdoms, inflated overhead, and outdated global sourcing strategies and global resourcing strategies (offshore and outsourced consulting). These companies will fail, collapsing a fragile interconnected ecosystem of codependent vendors and customers. These companies who have become expediters in lieu of failed attempts at lean manufacturing and collaborative eChain integrated supply-chain commerce will in turn fail, feeding a cascading wave of collapse in every direction. In the end, it is the employees and consumers who pay with their jobs, fewer product choices from few remaining companies, and yet again higher prices due to less competition.

When the Triggers Fire and Regionalization Emerges

The aftermath of this economic and socioeconomic meltdown will be a kind of "shock doctrine". The cheap assets of many broken companies will be available for pennies on the dollar. The reduced global transportation demand to move products for the now non-existing companies will result less global fuel consumption, and greater transportation capacity. Fuel prices will go down, transportation prices will go down, but never again to the prices found three years ago. Americans, always innovators and survivors, will begin grass-roots efforts to "Regionalize" everything from Farming/Agriculture to Manufacturing. We will be forced to wake up from our relentless pursuit of the opulent façade and focus on a practical, self-reliant way of life. Regionally, farms will spring up using the latest technologies to extend yield and growing season to provide an affordable alternative to the oppressive food prices of imported and cross-country shipped foods. Local manufacturing will return as the economics of high transportation costs make regional manufacturing an affordable alternative to imported products. Jobs will return locally to grow, manufacture, pack, ship and sell locally manufactured goods. Local and regional jobs will additionally improve as corporations begin seeking local consulting and business resources because "road warrior" consulting becomes too expensive. The depressed dollar will make our goods and services valuable to the rest of the world, and we will once again become a net exporter of our products and expertise. The U.S. will once again become a net export country growing wealth, reducing debt, and decreasing our reliance on external interests.

Can We Improve Things Now?

It is possible that we could improve things right now if we decide to come together to make the difficult choices required to actually fix things rather than patch them. Instead of attempting to stop the current trends however, we need to move forward to begin executing the kinds of events that would follow the trigger event. Several very specific things need to happen to effect actual positive change:

1. Fuel prices and record Oil Company profits must come down. With the industrialization of China and India, global demand for fuel will continue to increase. Fuel and Oil prices may come down temporarily, but do not expect cheap oil ever again. Plan for a world where fuel and oil are expensive and are a significant factor in the cost of living. But, while the major Oil Companies have been targeted for making excess profits, we should instead focus on the monopolistic tendencies of huge companies selling inelastic goods. Have we forgotten that the first Anti-Monopoly law, the Sherman Antitrust Act enacted in 1890 to stop Standard Oil record profits and price fixing? The record profits of the Oil Companies today are not a result of capitalistic profitability, but of price fixing on a global scale. It may be time to consider the Oil companies in the same light as Enron.

2. Regionalized Food and Agriculture. We must seek alternatives to high food prices. Major grocery chains need to adopt the "California Model" of seeking out and supporting local and regional agriculture sources. Many regional farmers and distributors would gladly grow more crops if they knew how to sell to the regional grocery chains. Notice an increase in local farmers markets and road-side produce stands as food prices increase and entrepreneurial farmers try to create a way to get their products to you.

3. Tariffs, Tariffs, Tariffs! China has proved expert in setting and maintaining tariffs that benefit China and only China, and the result is phenomenal growth! The U.S. maintains lower tariffs than most of our trading partners in the spirit of true, unrestricted market-based capitalism. The problem is that our trading partners aren't playing the same game as us. Tariffs level the playing field between countries of differing socioeconomic levels, and protect our local businesses and our livelihoods. Import Tariff increases coupled with the high fuel costs would provide the proper price incentives (higher prices) needed to fuel U.S. industry growth as an alternative to the higher prices of imports.

4. Regional Staffing. Why would a company pay $200 per hour for non-local workers to fly into work every week, rent cars, and stay in hotels when you have an abundance of extremely qualified local resources who would love to stay in town, live in their own homes, and work for a local company and not pay 20% for business travel expenses? For the most part, and most particularly in larger cities, you will find an abundance of local qualified resources for your staffing and consulting needs at around 50% of the cost of the traveling consultants. Take a little effort to find them before taking the easy path and going to big consulting who just flood your company with foreign H1B's and out of state resources. Wasn't the original concept of the H1B Visa program to provide a source of qualified resources with skills that were not available here?

5. Simplify and Appreciate What We Have. As consumers, we need to simplify our lives. Purchase homes and cars that we can afford. Do our children really need 30 gifts on their birthdays? Understand that local vegetables may not be as pretty, but will likely taste much better than something harvested 2 weeks ago and trucked from Mexico. Cook at home. Save money. Invest in yourself and not in the stock market. Cut your own grass. Listen to your parents and grandparents. I'll bet they appreciated going out once per month to have a nice dinner instead of staying in and cooking one night a week. Realize that if you want to eat bananas or any exotic fruit, you will probably pay dearly for it, but staple products like bread, corn, potatoes will be affordable and plentiful. Learn how to do things for yourself: fix your car, fix your home, do your taxes.

By taking care of ourselves right now, we can be a much better global neighbor in the future. Our days of unchecked consumption are coming to an end, one way or another. Our companies need to find and invest in local manufacturers right now; otherwise it will be too late. Regionalized staffing, agriculture and manufacturing will decrease our national energy and fuel consumption which will result in lower costs, fuel prices and less pollution. Finding local and regional resources will provide more local jobs and better rates so fewer people have to travel long distances to, and for work. Import tariffs will protect us from continued erosion of our manufacturing infrastructure and the reliance on the good intentions of our trading partners.

A good Heroin dealer gives new customers the first few hits for free until they are hooked and then will pay any price for a fix. A junkie lives only for the next fix. We have become hooked on inexpensive energy and goods at the cost of our ability to do anything but consume. The alarms are sounding, and we just might have one chance to stop this natural progression of events before the final trigger of cascading failures forces the same changes, but at a much higher price.

About eChain Technology

eChain Technology (http://www.echaintechnology.com) enables companies to achieve world class performance through best practice business strategy hands-on expertise and technology solutions. We provide leadership and execution in many areas of the corporate enterprise that remove all excess waste and cost from your operations leaving you with seamless solutions providing flawless execution that provide a significant cost savings to you.

Mr. Lewis Kilby is a 20+ year business and solutions consultant and Managing Partner of eChain Technology. Email: lkilby@echaintechnology.com