The Great Restructuring

It’s not a great depression, neither is it a great recession we’re going through now. At the Brite conference this week, Umair Haque called it a great “compression,” as an economy built on perceived value reconciles with actual value. This morning, The New York Times finally realized that what we’re experiencing is more than a financial crisis: “Job Losses Hint at Vast Remaking of Economy.” Well, yes, if hints were sledgehammers.

I try to argue in my book that what we’re living through is instead a great restructuring of the economy and society, starting with a fundamental change in our relationships – how we are linked and intertwined and how we act, nothing less than that.

The Times sees this play out in the loss of jobs that won’t return in their industries. That’s merely the symptom.

In key industries — manufacturing, financial services and retail — layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business.

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte, N.C. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

Yes, entire swaths and even sectors of the economy will disappear or will change so much they might as well disappear:

* America may well not be in the auto industry soon. “American car sales have dropped to an annual pace of nine million, from some 17 million in 2007. Even if sales increase considerably, that is likely to leave a lot of unneeded auto factories,” said The Times.

* Financial services will have to be completely remade (by government). “Much the same can be said for financial services, which gave up 44,000 jobs in February.” The Times said. “During the housing boom, banks hired tens of thousands of well-compensated traders, analysts and marketers to sell mortgage-backed securities and other investments. That industry is unlikely to return to its former shape.” Who knew that The Times was such a master of understatement?

* Newspapers will vanish. Magazines are in worse shape than I would have guessed and many will go. Books‘ channels of manufacturing, distribution, and sales will go through upheaval.

* Broadcast media will become meaningless, replaced by digital delivery.

* Advertising will be next to feel the earthquake avalanche, after media.

* Large-scale retail will shrink and consolidate and then be transformed by a search-and-buy economy. The Times: “The economy lost 39,500 retail jobs in February, and has eliminated more than 500,000 in the last year.”

* The blockbuster economy in entertainment will become harder to support as more attention and money shifts to the tail.

* Business travel – including the convention and conference business – will take a huge hit in the financial crisis and much of it won’t come back, replaced by more efficient communications.

* We can only hope that dirty and political energy industries will shrivel.

* Residential and commercial real estate will have to restructure around a new capital structure. Homes will get cheaper but so much of homeowners’ equity has been wiped out in real estate and stock investments that I’ll bet apartments will be what’s built when building returns. Commercial real estate had its own bubble and it will be hit with a double whammy as tenants shrink and disappear. Construction will, of course, decline.

* Health care was the one sector in this month’s employment report that showed growth. But we know that medicine, pharma, and insurance will undergo a forced restructuring.

* Computers are getting so small and cheap and open that that industry is under growing pressure. As every other device we have becomes smart and connected, I wonder whether the computer itself will begin to disappear.

* Universities are facing competition from each other and commercial newcomers online and have suffered huge blows to their endowments; they will have to change. We should be so lucky that elementary and secondary education will also face such pressure.

* Finally, consumer products of all sorts will have to change in the face of empowered customers and, in some cases, with competition from small competitors given the benefits of scale on platforms (see: eBay, Etsy, Amazon, et al). They will also face price pressure thanks to online comparison shopping and new retail structures.

* Government will grow but thanks to the empowered populace, it, too, will face fundamnetal change.

* * *

There are opportunities here, of course. There always is in change if you’re willing to see and seek it.

* This is the time when startups start. I agree with Reid Hoffman that founding new companies is our way out of this mess. Given the profound nature of the restructuring, starting new businesses – not fixing old, doomed ones – is the only sensible path. “Consider a few start-ups from the past century.” he wrote: “Microsoft, MTV, CNN, FedEx, Intel, Hewlett-Packard, Burger King. Each opened during a period of economic downturn. Today, these brands employ hundreds of thousands of people worldwide. We need to prepare for the next Burger King. By empowering individuals and small businesses, an innovation stimulus can help germinate stable industry players for the long term.” Fred Wilson would disagree with Reid, I think, about government helping to fund startups, but I think we can all agree that creating the right environment for investment could not be more critical.

* Creating platforms to serve small and independent businesses and networks to bring them the advantages of scale are key opportunities in the restructured economy. That is the real lesson of Google in WWGD?. There are three ways to succeed here: Create a platform; create a network; build on top of somebody else’s platform or network. This, I believe, is how large companies will be replaced.

* There are many opportunities to provide services to new, independent players – startups and newly self-employed individuals. At yesterday’s Hacking Education, Scott Heiferman and I tweeted back and forth about the opportunities to build a network of spaces for independent work (the inverse of Starbucks: good with space and services, OK with coffee). Add payroll, insurance, hosting, and all sorts of services.

* Education is a growth opportunity but not in its current institutions. As industries are killed and turned upside-down, present and former employees will need to be retrained in technology, in the skills of starting and running a business, in entirely new skills. In Hacking Education, some participants were building such platforms. I see huge disruption here.

* Of course, there are opportunities to remake the fallen industries. At Davos, in a session I ran, business guys reinvented the bank under radical transparency. In my book, I started to rethink the auto industry in the image of the computer industry: disaggregating the car so we can reaggregate it from many new suppliers. Many are working on new scenarios for news. I see huge opportunities in rethinking and remaking advertising from the ground up. Every one of the collapsing industries listed above will be replaced – in a different image, at a different scale – and that presents opportunities.

* * *

But all that still doesn’t reveal the extent to which our society is changing. At Brite, Haque addressed some of this as he talked about a “metacrisis” in our “zombieconomy” in which we have understated cost and overstated value. He talked about reconceiving thin vs. thick value creation; about Google as an example because it creates principles more than strategy; and about the new principles of a new economy, built around stewardship, trusteeship, guardianship, leadership, partnership.

I said from the audience that his prescription sounded like a moral imperative. Another member of the audience said it sounded like dialectical materialism (I had earlier joked in my talk at Brite that I vaguely sounded Marxist talking about how all the change I outlined in media came from no longer being bound by the means of production and distribution). Haque responded that though both our contentions might be true, he was declaring an economic imperative. He previewed that view sometime ago when he wrote what I came to call Haque’s Law: “As interaction explodes, the costs of evil are starting to outweigh the benefits.”

Now back to the start: We are linked in new ways. Because of that, it’s hard to build a business model anymore out of screwing people – since when you do, we the screwed can rise up and be heard and fight back and make evil too expensive. Our interconnectedness is also what made the complex derivatives – the toxic assets – that triggered the financial crisis possible – but that is all the more reason why we will demand transparency, our best antidote to evil. That will change how business is run in fundamental ways.

And so there is our Great Restructuring, Great Rethink, Great Reboot, call it what you will: The change in our society and how it is structured are both causing and necessitating change in the economy and its industries. The crisis is bigger than it appears in the rear-view mirror. It’s more than jobs lost and companies folding. It’s a new economy built on a new society that we are only just beginning to recognize if not understand. That is WWGD? – and its sequel.

: LATER: In typical eloquence, Yochai Benkler expresses the restructuring in his response to Paul Starr’s lament about newspapers and the future of democracy:

Like other information goods, the production model of news is shifting from an industrial model–be it the monopoly city paper, IBM in its monopoly heyday, or Microsoft, or Britannica–to a networked model that integrates a wider range of practices into the production system: market and nonmarket, large scale and small, for profit and nonprofit, organized and individual.

This will be the case, I argue in WWGD? and now here, not just for digital and information enterprises but for others. Education was built, it was pointed out often at Hacking Education, for an industrial age, to turn out factory workers. It was also built in an industrial model: every student off the assembly line the same. The future of education will be a magnificent mish-mash of – to quote Benkler – market and nonmarket, large scale and small, profit and nonprofit, organized and individual. Computers and their software are made this way. Cars may be. Banking, I think, will be a similar mix (nonprofit? yes, credit unions). The bottom line is the shift from an institutional economy to a network economy.

: LATER: This post seems to have caused Bruce Sterling a bad trip. Sorry about that.

: “The new normal will be a lot different from the old normal.”

  • Muy interesante.

  • Mike Vigil

    Your blogs are long but fascinating. I just finished reading WWGD? and gobbled it up. I am 48 years old and a lot of what I read is new to me. I recently joined Facebook and that was like a major accomplishment. I’ve got a long way to go, but I think I’m going to enjoy the ride…

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  • jim phelan

    Jeff, I just read WWGD and you have inspired a burnt our old IT veteran. I just spent the day installing ubuntu and drupal. next up elgg. In a month who knows what wonders I will be creating. :-)



  • What no one is calling it is: The past 10 years were really a fake economy. They like to talk about the lost decade in Japan, however, our last decade (or two) was actually based on mirrors.

    The mirror finally cracked and exposed the reality of it all. Oh well, as Forrest Gump eloquently stated: “It happens.”

  • What do you mean when you say “newspapers will vanish,” Jeff? Time frame? Specificity?

    Is it time to offer you the $1,000 bet again?

    • Howard,
      See: Denver. Seattle. San Francisco. Philadelphia. Minneapolis. Miami. Chicago. Trouble all around. Want to keep the Polyanna dress on:?

  • A bold blog post. I like the freshness of approach. You are an imaginative optimist.

  • Very well layed out article!

  • Well said, Jeff.

    And Howard, I’ll take some of that $1,000 action. I don’t believe there will be a 7-day-a-week paper in America by this time next year.

    • Wow, that’s a pretty bold timeframe, Alan. If every paper in the country cuts at least a day of circulation in 365 days, it’ll be because of such a deep slide economy-wise that reading a Saturday newspaper will be the LEAST of our worries.
      Possible, yes. Likely, I hope not.

    • Oh, I should have said Monday paper. Everyone knows that’s the thin one. A decade ago, I was a newspaper reporter trying to inflate that thinnest of papers. Now, I spend half my time writing for TV, the other half for our Website.

  • Vashti Winterburg

    I love the NY times. The vast majority of what’s on the net is just drivel

    • And nearly everyone I speak to agree’s. Nearly everyone I speak to says that they buy newspapers because they don’t trust/don’t like the internet.

      So if newspapers were to go, I would wager that billions of people out there would be very pissed off indeed.

      • Er, to be more accurate – that should be EVERYONE I CHOOSE to speak to on the subject – not literally EVERYONE I speak to, LOL.

      • Andy Freeman

        > So if newspapers were to go, I would wager that billions of people out there would be very pissed off indeed.

        If there actually were billions of newspaper readers to get pissed off, newspapers wouldn’t have financial problems.

        Or, to put it another way, newspapers haven’t figured out how to serve billions of readers.

      • If these people feel so strongly, the newspapers should have no problem raising their prices to make up for the falling ad revenue. Time will tell. Personally, I find plenty of drivel in printed news.

    • Newspapers are drivel, then the net is slobber. The net is so filled with junk and it is so time consuming to find anything worth reading it is practically useless. But half the newspapers are just over hyped, biased trash as well.

      If journalists could use words to describe what happened, when and how instead of using them to fill space, and they dug into stories, we wouldn’t be in this financial mess right now!!!

  • Have you read Krugman’s “The Conscience of a Liberal?”

    Economic/political slant, but he talks about a Great Compression in it.

    Fantastic post!

  • Jonathan

    Also see the revolution of how peace in the world will happen and help facilitate exponential change. A group is forming using new technologies and treating peace like a business. Just as war has done. You were exactly right when you said “As interaction explodes, the costs of evil are starting to outweigh the benefits.” and why now is the time for true peace. Look at what is already happening and suspend your initial disbelief and learn about the plan at
    Amber and Nathan are have already made great strides.
    My number is #23 and my wifes number is #24. What is your peace number going to be?

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  • Jonte Edvardson

    Very interesting! I’ve had a feeling all along that this “crisis” will be good for us, thanks for putting words on it :-)

    • It will be interesting to see what happens in 2012. All the calenders come to a close in 2012. I look for a major restructuring of the who planets
      way of life. Ecological, financial, personal and governmental.
      The changes will not be in ant manner we see it now.

  • Can’t help but be struck by both the opportunity for startups and the surprising inability of current businesses to invest in change. Broadcast as we now know it *could* still be at the head of a new digital delivery platform. But adapting takes investment, and that is a hard thing for operating businesses to do.

    Startups, on the other hand, are *based* on the idea that they must invest to build a new product. Why are net-only businesses eating the mainstream media’s lunch? Because while they have accepted the need to invest now to achieve future returns, the current businesses are locked into the need to maintain earnings for current operations that they cannot invest in future ideas as well.

    How many of those thinking of the new scenarios for news are doing it in a traditional media environment?

    The ultimate irony in this – is that in many cases, the amount of investment in new media that would make a major impact is relatively small. But you’re right, in crisis there is opportunity – the only question is whose opportunity it is.

  • Hi Jeff,

    Interesting read…and of course, to go with The Times article you referenced was the Friedman piece on realignments/disruptions too.

    Was intrigued by your comment about computers. Of course, guess it sort of depends on how you define computers.

    If you are referencing personal computers (desktops, laptops as we know them), I think they will continue to morph….a range of devices to meet our needs in different ways — different form factors — and ubiquitous, not simply mobile. For example, in your car, in your wall or coffee table. It might just appear to you as a screen but with the processing power in behind it.

    However, the other part of “computing” and I dont hink you can see it going away, are the servers and technology — the global Info Tech infrastructure– that increasingly connects us, drives the networks and underpins what google does :-)

    Perhaps we can catch up at SXSW and discuss further. Enjoyed the post.

  • I agree with most, if not all, of the above.
    I love the radical transparency concept. There’s certainly business to be done in that space.

    As with all times of change big = slow, small = agile. What’s different now is that technology means that small can become big very, very quickly. The challenge then becomes how do start-ups scale their solutions to make best advantage of good ideas and prevent themselves imploding under the weight of success.

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  • The conusmer is dead! Long Live the Consumer!

    Jeff – you get it. You are right on track – these are changing times for our society, culture and capital systems. These times, this change is a fantastic opportunity – granted not for every company, but for some – for those with that special DNA recognizing the opportunity in changing times. Companies that are not agile to respond to new market conditions will be attacked in their status quo in a recession. Maintaining your business is the first step towards closing the doors. These times reflect an opportunity for both established, larger corporations and smaller, nimble businesses, as well as start up entrepreneurial organizations to break into new markets or gain market share. These times provide a reality check to evaluate your services, your leadership and your unique corporate DNA – all in perspective to the value you provide to your customer. This is classical Darwinism. In these times I am not interested in the followers, who can’t show a direction on their own – I am interested in the leaders who seize the opportunity and go to work. I would not follow an old school business model, copy it and sell the heck out of it – in these times. I am looking for unique value, a drive to succeed and positive outlook. You know the saying – misery likes company, and I like to believe success breeds success and that positivity encourages and empowers and the future belongs to those that have open eyes.

  • eden45

    This article is very interesting, not the mention one of the few i have read which offers optimistic views about how this downfall in our economy will actually help shape our future.

    “Newspapers will vanish” – definitely a realistic prediction, as much as many of us don’t want to believe it. Take the Times for example. With the drops in circulation and cutbacks in revenue on top of the $1 billion dollar debt, its no suprise that soon enough digital distribution will replace print journalism.

    I guess we just have to wait and see!

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  • Rob

    Jeff, I think the Blockbuster model in Hollywood is breaking down right now, but because the revenue is being pushed to the FRONT, not the tail. The best profit margin has always been in the tail, but the size of the profit is shrinking due to increased EST, VOD, Netflix, and the immeasurable piracy. Folks still like to see the movies NOW and with super-buttery popcorn, but the DVD doesn’t have the universal blackening power it did 2 years ago. Watchmen may stay red for years, depending on its ability to run on network tv.

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  • Patrick Kuras

    OK, if all these industries will fail, or at least undergo radical shrinkage, then what will drive the economy?

    Put another way, where is the value creation? Without the creation of value (read: the making of physical products), there is no basis for an economy. In this scenario, no one in the U.S., and most of the post-industrialized West, will have any money with which to buy any of these great services, and there will thus be no investment and no growth.

    We have to get off our high horses and realize that we demand too much, and produce too little. The required result of this is that we accept lower wages and a lower standard of living. Only then do we begin to create value again, and restart growth, but with a loss of probably 60-80 years worth of built-up equity.

    • Joanne Luke

      In response to Patrick Kuras: I’m a LOHAS individual and value experience over “stuff”. Beyond what I regard as basics such as food, shelter and a shirt on my back I almost always choose to pay for experiences rather than commodities. Yes services such as book-keeping, plumbing, a massage, a facial, a guided-hike into the wilderness, education, hair cuts, guided meditation, coaching and so on. Yes there are local economies that survive and grow predominantly by providing a service e.g. to view wildlife. It’s not just physical products that provide the Value that folks are willing to pay for.

      Jeff – What a wonderful thought provoking read with interesting comments! Good on you!


    • Patrick,

      I don’t really know where to start deconstructing what you’ve said – it is so wrong on so many levels.

      You have spectacularly managed to completely miss Jeff’s point about this being a great RESTRUCTURING.

      My humble attempt to paraphase (although I really think you should go back and re-read the post)

      – the economic forces behind the means of production have shifted
      – therefore the ‘creation of value’ is no longer driven by ‘the making of physical products’ (as you assert)

      How will value creation be redefined?

      I’m not sure anyone can fully predict this – just as someone living in the 18th century would have struggled to predict the value creation unleashed by mechanisation

  • Jeff…just wanted to say thanks for this. Truly inspiring post. One of the best I’ve read in a while.


    • Joe,
      So nice of you to say. Thanks. In the world a blog comments, such nice notes are, well, nice to get.

  • Tim

    Hi Jeff
    awesome post once again. Your posts are compulsory reading in my Google Reader each morning at work and aid this snowboard/enviro/green services entrepreneur no end!

    Keep up the great education


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  • Jeff, I agree with your main assertions – -that this is a transformative moment, and things are being remade. But I think your vision seems more than a bit utopian and also makes it seem like this will all happen faster than is likely. The pendulum has surely swung, but it will swing back to a cash-and-grab economy, and those interested in profits will milk the system, whatever it happens to be.

    I do believe, and this relates to your point about education, that the technologies and networking capabilities will ultimately break up the abilities of the schools that hoard knowledge to charge tens of thousands to let students obtain it. Many of the equations MBAs learn can be put in a widget (or an API, if you prefer) and spread virally, for example. Private equity’s margins, based on hidden knowledge and guarded relationships, will shrink. So, fundamentally, I agree with you I hope that what you’re writing is true (and that along with my intellectual excitement I’ll be able to feed my family well during the upheaval) — but I believe it will be a bit messy.

    And even if youre predictions are true, there are still large swaths of humanity that will be outside the systems you’re writing about.

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  • Fan

    “We need to reboot capitalism.” So said radio host Thomm Hartmann just as I was reading this post. The number of enlightened voices recognizing the (literal) bankruptcy of the current system is encouraging. That so many Americans’ attention is to Idol rather than Geithner does not bode well for the future of American children. Keep talking about it!

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  • “Education is a growth opportunity but not in its current institutions.”
    Fantastic observation.

    I am experiencing a growth in our Small Business development Seminars and funding coming form Quasi-Government funded entities. Local and State.

    Opportunity for the Mentor-Coach with solid Programs is HUGE

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  • Thoughtful optimism and careful observation.

  • Antony Watts

    I am wondering how Copyright enters the equation. It is certainly being used by the record industry to support their old model of business (owning physical distribution, blocking internet downloading of CD or higher quality music).

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  • Debbie Novick

    Brilliant! Thank you.