Posts about financialcrisis

The Great Restructuring II: The next ism

March 19, 2009 by Jeff Jarvis
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I continue to muse on the great restructuring I wrote about recently: more than a crisis, a recession, or a depression, what we’re enduring is a millennial shift in the economy and society, the true start of the post-industrial age. What will it look like?

I got an email from a German reader of What Would Google Do?, Joachim Günster, suggesting that we are witnessing a shift from old systems – communism (fail), socialism (never realized), capitalism (now suffering fundamental challenges) – to something new. He said that’s what I chronicled in my book and so he called it Googleism (which sounds much more impressive and less grating auf Deutsch: Googleismus).

At the Brite conference – which I recounted in my last post – Umair Haque described an economy that is fueled by the ability of people to create, by the failure of models built on screwing people, and even by love (see also Clay Shirky on love). I said this sounded like a moral imperative: a new religion. Craig Bromberg called out that it sounded like dialectical materialism. I agree. It is a fundamental shift and that it is brought on, I’ve often said, by a shift in the control of the means of production and distribution (that does sound Marxist, eh?).

Now Bromberg blogs on the notion, saying that Haque’s idea of “constructive capitalism” bears close similarity to the “march of Marx’s dialectical materialism, the resolution of class conflict through various stages of history from feudalism to capitalism, socialism, and then finally to the ultimate of abundance, the big C (no, not Citibank, for Karl’s sake: Communism!).”

Right: the post scarcity economy, the economy of abundance. Religions couldn’t do it (no heaven on earth for us, not yet); socialism couldn’t do it (because, Günster argued in his email, our individual needs and desires simply are not shared); communism couldn’t do it (because, Günster said again, nobody, especially a dictator, is smart enough to plan three years ahead); capitalism isn’t doing it (because our abundance turned out to be a big lie, a balloon with a hole in it).

So will the internet get us to the promised land? Well, no. We still do have scarcities of food and energy. But our economy will soon not be built on them. It will be built, at least in part, on the abundance of knowledge. That is a fundamental, millennial, shift, a next phase perhaps in Herr Marx’s march.

Bromberg concluded:

But what most struck me in the days after Haque’s talk, was this notion that the raison d’etre of the new networked capitalism is Love: people’s love for information, for getting it right (or at least right enough), for connection. And that this newfound love of creativity for its own sake and not just Mammon is creating behavioral change in startups and perhaps even in the way we think businesses can and should be run. Et voila, Jeff Jarvis’s question: What Would Google Do (if it were running the hotels, restaurants, car companies, governments, utilities, shops, manufacturers, and even Apple.

So where Godard once proclaimed (some 45 years ago in Masculin/Feminin) of his generation that “We are the children of Marx and Coca Cola,” we now seem to think we are the children of Marx and Google. It doesn’t have quite the same poetry, and I’m not sure about all the squishy emotion (as Shirky calls it) here, but I am noticing it, and wondering if we’re heading towards another moment of massive cultural change conflating capitalism and eros. Anybody for a Godard film night? We can always download some torrents from that secret cinema site I’ve been hearing about.

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“We don’t have to reinvent the wheel, do we?” a smart leader in a challenged industry asked me under a hot sun at South by Southwest.

Yes, we do, I said. The change we’re seeing is that fundamental. Our response must be equally fundamental.

That is my problem with trying to replant old business models, line by line, in a new economy. There are a million examples from media (why can’t we charge still, damnit? why can’t we sell scarcity anymore, damnit? why can’t we control the product even though we no longer control the means of production?) to manufacturing (why not the disaggregated car?) to retail (post-stores) to religion (see this post) to education (see Union Square Venture’s Hacking Education Session) to government (you ain’t seen nothin’ yet).

That is my problem with not seeing the imperative for change. It may be instinctual to cower from it, but that accomplishes nothing. Instead, seek out change, run to it, see the opportunities in it, learn from it. I’m tempted to end here with the obvious bromide: Change is good. But that value judgment is entirely irrelevant. Change is inevitable and right now change is seismic. It’s millennial.

I am the opposite of the guy in a beard (well, a long one) and rags (worse than mine) holding up a sign (or a tweet) proclaiming: The end is near! Doom is upon us. Instead, I’m proclaiming: The beginning is near. Call me a bloomsayer. (Or don’t.)

Of course, your view of this dichotomy depends on your perspective. If you’re trying to protect a past, then yes, that end is very near. It’s here. Last stop on the Cluetrain Express. Everybody off. But if you’re trying to innovate and experiment and create and build the future, then your time is now. That’s why, in the ever-more-emotional debate over the future of news and other industries, my confederates and I (see again: Shirky) are accused of trying to tear down, to destroy, to dance on graves.

But we’re doing the exact opposite: We’re heralding new opportunities in a new world. Hallelujah, comrade.

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In my own head, I keep fighting between the instinct to try to update the old or abandon it for the new. I keep thinking we can put the old wheels from the horse cart on the new truck. Except in this new economy, there are no wheels. Even the fucking metaphors don’t work anymore.

Pardon me for thinking out loud, but that’s what led me to my book. Like Bromberg and Haque and Shirky and new friend Günster – but not as smart – I keep mulling over the change and see and saying, it’s bigger than it appears in our rear-view mirror.

The Great Restructuring

March 7, 2009 by Jeff Jarvis
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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.”

Davos09: What’s missing in journalism?

January 30, 2009 by Jeff Jarvis
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The media machers at Davos got together yesterday with three economists to ask what went wrong in financial coverage that did not warn of the crisis.

Like other leaders from other segments of society here in the meeting of the machers, they did not don hairshirts. I believe that will be the worst outcome of this year’s Davos: a failure to take responsibility for the failure of leadership. But blame isn’t the most productive priority. What’s more critical is to ask what to do about the failure.

I wonder what gaps the crisis reveals in journalism. That’s where the discussion finally went yesterday. (Because it was held under the Chatham House rule, I can’t attribute quotes.)

The assembled journalists insisted that the crisis had been reported, that they can point to articles that warned of the insanity. I’m not sure whether that’s an effort at industrial whitewashing: If one reporter gets the story, the entire profession gets credit. But fine, let’s stipulate that the stories were written. But one of the wiser editors said that didn’t do any good because it didn’t make an impact; it didn’t register; it didn’t go mainstream.

So is that what’s missing in journalism: the ability to bang on a story until the world pays attention? Our assumption had been that if it appeared in a major newspaper or magazine, that was the definition of attention. It assumed that the world paid attention to our news. So under this argument, we could be seeing an admission that papers and magazines have lost their juice. But let’s get past that, too. I think there is something to the idea that we aren’t good at driving a story.

In response, I quoted Arianna Huffington telling the same group two years before that journalists have attention deficit disorder and bloggers have obsessive compulsive disorder. Josh Marshall’s key skill is dogging a story until the press and the powerful do pay attention. The press can learn from that.

But then again, as an editor said yesterday, if an editor devotes page one every day to a warning that the sky is falling, no one will listen to him, either.

A well-respected journalist told the group that in economics, there is no objective truth. It’s too complex. So it shouldn’t be declarations of doom that should dominate front pages. It should be questions: How can these companies be this profitable? What is the impact of this much leverage? How can people without income get loans? It the constant poking and prodding we need.

That requires the willingness to be a pain in the ass. We journalists used to pride ourselves on being pains in the asses — or just asses. But now they like to be liked — they think they need to be. They believe that maintaining their connections is their key value. But that compromises their ability to dog.

One of the journalists complained that companies are so opaque they are hard to cover. “There’s not much a journalist can do, or anyone can do, when you don’t know what’s going on.” That’s true. And indeed, I believe the most important reform we need to enact post-crisis is transparency, an ethic and law of openness. But this argument, too, lets the journalists off the hook. It’s our job to find out what people don’t want to tell us. Maybe that is the real definition of reporting. The rest is just information.

An economist that “it’s hard to hold the press to a higher standard than the profession itself.” There was much nodding. But I question that. If we are to be the watchdogs — instead of merely the messengers — then don’t we need to try to know if not more than our subjects than at least enough to know what to dog? I’ve long argued that journalists aren’t experts, they find experts. But maybe I’m wrong about that. Maybe news organizations need to hire different kinds of experts. One editor yesterday said he hired a cultural anthropologist who really was ahead in warning about the danger of derivatives because she looked at it through a different lens. An economist talked about hiring psychologists and even scientists and the emerging study of neuroeconomics. Papers have hired economists to cover finance. But papers can’t possibly afford to hire experts and people with different perspectives in every area they cover.

You’ve been waiting for me to bring blogs into this. Here’s my chance: Many of those experts and players are publishing themselves. They are questioning and arguing and so perhaps the key skill journalism needs is to curate that. (I also couldn’t get through a post such as this without saying “curate” at least once.

The risk now, many agreed, is that journalism will – as is its habit – overreact. A journalist I ran into in another session yesterday said she thinks we’re now in a “doom bubble.” American business journalism has been too American with too much reporting – including puffery – on companies and too little reporting on finance, on the markets that have such a profound impact on our lives. There are plenty of lessons to learn from journalism’s failure to warn well enough of the crisis to come. But we can’t stop at that, at incremental change in journalism: a few more of these people, a few more of those headlines, a better job with that kind of story. We need to look at the fundamentals of how news – a large, global, complex, interconnected ecosystem of news – can be and should be made now.

Davos09: A crisis and failure of leadership

January 28, 2009 by Jeff Jarvis
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The crisis the world is suffering through now is a failure of leadership. The leaders of the world are in Davos. If the world is watching what happens here this week, it will be to hear solutions and see responsibility and accountability. I’d say that’s not off to a great start, at least on the latter.

This morning, I started my Davos week with talk of trust. The Edelman Trust Barometer presentation revealed plummeting trust in financial, government, and journalistic institutions: 62% of adults in 20 countries trust companies less than they did a year ago. Trust in government is even lower.

Nonetheless, the first trend I spot here: the rise of government. News reports have been saying that this will be a dialed-down Davos, but I don’t see that; it’s the same Davos with the same pastries and parties. The change I do sense is less of a presence and apparent swagger from business and more from government. “Power has shifted from Wall Street to Pennsylvania Avenue,” said a speaker the Edelman event.

The other obvious trend is America to the woodshed. “America is the new Europe,” Richard Edelman said. In a decade of the survey, they have never seen such a precipitous drop in trust in one category: American business, falling from 58% to 38% in a year, now stands equivalent to France and Germany and under the UK. The least-trusted industries in the U.S.: no surprise — automotive and banking.

In most markets, trust in business remains higher than trust in government, “which is not a good thing for either,” Edelman says. Asked who can fix the economy and prices, government is now clearly the preferred leader, the survey says. The percent who agree that government should impose “stricter regulations and greater control over business across all industry sectors:” 61% in the U.S. up to 84% in France (65% worldwide). The percent who trust business less: 62% worldwide, ranging from 77% in the U.S. down to 49% in India.

The survey reveals a new world spit: optimists in China (where trust in business rose from 54% to 71% in a year), Brazil, India, Indonesia, pessimists in the US, Europe. “The United States picture is really bleak. I can’t put a better face on it,” Edelman said.

Edelman advised companies to make change and not wait for regulation, to recognize mutual social responsibility, and to show “shared sacrifice…. This is not the French Revolution yet but it is certainly not the roaring 2000s,” he said.

His advice on communication: “It can no longer be Moses from the mountaintop.” You have to inform your employees and enable them to blog, for they’ll talk anyway. Communication moves from messaging to informing the conversation, he said. If one can trust companies — only 29% do. Government is worse; only 27% trust what they say.

Lionel Barber, editor of the Financial Times, began the session saying that trust is an issue for the press as well. Edelman found that trust in business magazines and analysts fell from 57% to 44% and from 56% to 47% respectively. Trust in TV news is down from 49% to 36% and in newspaper coverage from 47% to 34%. Stop on that: Two thirds of people don’t trust newspaper articles.

After all this talk about trust, though, breakfast ended up serving spin. An executive of AIG split a very long hair, drawing a distinction between distrust over morals and distrust over competence and he argued that our issue now is the latter. An executive at another company said trust fell from a record high to a record low and he wondered whether business had simply oversold itself. Then there was much discussion of a new concept (or new buzzphrase): “private sector diplomacy.” Isn’t that a fancy way to say PR?

Later: A video of Richard Edelman after the session on trust:

: Crossposted at the Harvard Business Review, where I hope another discussion blooms.

Guardian column: The Google economy

November 17, 2008 by Jeff Jarvis
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My Guardian column this week argues that we’re witnessing not just the collapse of the financial (and auto and newspaper…) industries but the birth of a new economy best seen through – you guessed it – the lens of Google:

The financial crisis might be damaging countless companies around the world, but last month Google announced another quarter of growth, with profit up 26%. When it reported similar results two quarters before, The New York Times’ headline proclaimed, “Google defies economy.” It should have read, “Google defines economy.”

In this crisis, we are witnessing more than the failure of mortgages, derivatives, banks, and regulation. We are also seeing the dawn of a new economy; one best viewed and understood through the lens of Google, the one company that – by design or by luck – is built for the emerging world order.

Google’s first advantage is being digital. Who wants to be in the business of stuff any more – building cars, printing newspapers, selling CDs, growing food? Owning and controlling stuff was the basis of most business. And the reflexive response to a collapse in finance and equities used to be to return to the real: buy property. No more. Now the best retreat is to the value of knowledge.

In a sense, Google itself is built on a derivative: its data on data. Like the derivatives that got us into this mess, Google’s are based on creating abundance. But unlike those corrupted financial products, Google’s metaknowledge creates new and real value.

In Google’s economy, small is the new big. Of course, big is still big — Google itself is gargantuan. But it doesn’t grow by borrowing capital to buy companies (likely no one will for some time to come). Instead, Google created a network for an abundance of new advertisers and a platform for countless new businesses, all independent of Google. Indeed, Google does not want to own the assets — content to commerce — upon which its empire is built.

To succeed like Google, companies will build networks and platforms as it does. eBay’s platform enables thousands of merchants to sell more than America’s largest department-store chain, Federated. In Google’s era, the mass market is replaced by a mass of niches. So by continuing to track and measure only the biggest businesses — as the FTSE, the Dow Jones Average, and Nielsen ratings do — we miss sight of the small economy.

Another hallmark of Google’s economy is transparency. Even as Google remains opaque about details of how it does business — its ad commission, for example — it demands transparency of the rest of us. For without openness, we get no search-engine optimization, no precious Googlejuice. Regulators, customers, and citizens, too, surely will demand more transparency in business now that we have been so badly burned by secrets hidden in what are now glibly called toxic assets. Online, the truth is often just a link away.

This link economy that is the real basis of Google’s success, can also bring business benefits for other industries. Struggling and rapidly shrinking newspapers can now specialize—a local paper becomes more local and links to national coverage. Do what you do best and link to the rest, I tell editors.

Marketers are also beginning to learn that with direct links and relationships with customers, they may reduce ad spending. But relationships between companies and customers must be built on trust, and trust comes from handing over control. David Weinberger, author of Everything’s Miscellaneous, puts it this way: “There is an inverse relationship between control and trust.” Post-meltdown, the public will demand control — the internet and Google provide tools they will use to seize it.

Trust itself is becoming the basis for new business. eBay’s systems enable customers to anoint merchants with trust; Amazon demonstrates that we trust the opinions of fellow customers over critics; PayPal and Prosper help us make trusted transactions; Google knows which sites we trust with our links and clicks. We don’t trust banks anymore; hell, they don’t trust each other. In Google we trust.

Google manifests the business of trust in its famous decree, “don’t be evil.” Etch that over doors on Wall Street. If enough people had asked whether getting and issuing toxic mortgages, and making and selling toxic assets was evil — instead of someone else’s problem — I wonder whether we’d be in this mess. Our meltdown was not inevitable. But the transition to a Google economy is.