People change – how our robust savings rate shows the genius of systems thinking
The basic idea behind futures analysis is that 1) our whole society is connected in a system 2) trends act on the system 3) people 
act differently due to these changes. This is a more revolutionary concept that you would think; it is met with considerable skepticism. Our culture actively supports the notion that nothing is really systemic, because otherwise it would require complex thinking to understand it, and thus wouldn’t be easily salable to the masses. This is one explanation why our major media rarely approach topics from a systems perspective – they prefer an atomistic approach that prefers celebrities and disjointed headlines to connections.
Regardless, after twelve or so years of this work, I remain steadily convinced that the basic methodology of systems thinking is the way to go if you want to understand what’s next. Because – as stupidly simple as it sounds – people really do change in response to stimuli, as they always have. Take for example our new Asian-style savings rate in the United States – 6.9%, up from 0% in April of 2008. That’s not an incremental change in consumer behavior, it’s a complete revolution in a little more than a year. This is an example of reality outpacing fiction, for if you suggested that the American consumer would on average go from spending like a pack of feral teens on methamphetamine at the mall, mortgaging their children’s future for big screen TVs, to spending nothing and stuffing money in their mattress like a wary old shopkeeper in Hong Kong in just 14 months…well, you had better be pretty convincing to get people to buy it. How did people change so radically in such a short period of time?
Well, the answer couldn’t be simpler. All you need do is scare the bejeezus out of the Boomers, who are facing a structurally uncertain retirement, and BANG, people figure out quickly that your house may be a financial boondoggle, but people still love cold hard CASH. Unsurprisingly, savings accounts begin filling up in ways they haven’t since the World War II generation was at the height if its economic power.
The common myth in America had been such that the Greatest Generation saved cash for a rainy day for the same reasons they beat the Nazis – they were just fantastic, noble, foresighted, brilliant citizens living in a finer age. Of course, this is complete nonsense. The Generation born between 1915 and 1930 was just as venal, dishonest, credulous, and short-sighted as the next batch of humans. Why did they save money where we went nuts at the TV store? There were three main reasons. First, there wasn’t nearly the amount of liquid credit available in the national banking system. Second, many shops did not take credit. And most importantly, they lived through the Depression, when all national governance failed to stop Americans from starving. Basically, they didn’t believe, as many do today, that everything would turn out okay. They knew that complex systems often failed, and many of them literally lost their farms as a result.
Why did Americans start saving all of the sudden? Was it the spirits of their long dead ancestors returned to waggle their fingers in disgust until they were shamed into a 6.9% savings rate? I can’t rule that out, but more importantly credit dried up and people got scared to death. First, credit lines were tightened up, and then people figured out that bad stuff could definitely happen. In other words, two of the systemic requirements for a high national savings rate. The system changed, and then the people responded to the stimuli. Magic.
Question for the week – what are the key parts of your business’s system that could change, and what might it mean for you. If people can start saving 7% on a moment’s notice, they can change in other ways, too.
Baby no cry (or, the disassociative fugue of the Crisis)
Back a few decades ago, when in graduate school, my son, then maybe two years old, was playing outside in a common area. He fell and hit his head pretty hard. A Japanese women, wife of a grad student, saw it and said, managing as best she could with limited English: “Baby hit head, if cry, no problem. Baby hit head, no cry. Problem.”
I would say, about the current reactions to the economic scene, that the baby is not crying.
I read this comment this past week over at Gregor MacDonald’s fantastically insightful blog and it really stuck with me. So much news keeps coming at us, so many headlines informing us of additional $60 billion obligations to our future earnings and yet people seem to be in a daze, tuning out additional rotten information.
An example: I was just in Europe working with clients on economic forecasts and scenarios, typical futurist stuff. A couple of times I was asked a most unusual question. “So, do you think the crisis is really still going on over in America?”
I asked, “Did you see that General Motors, one of the most venerated companies in the history of American capitalism went bankrupt last week?” The quick reply, “Sure.”
Me: “Well, that’s gonna sting a little.”
Them: “So, you think that’s bad.”
Me: “The bankruptcy of GM and the impending meltdown of California and stuff? Yes, that’s pretty gnarly.”
Them: “Oh…I guess…I guess that’s true.” *silence*
People, at what point did the destruction of America’s top car manufacturer become easily forgettable? Are we just so overstimulated by bad news that we’ve stopped thinking about the consequences?
Five years ago, if you had suggested a scenario that by 2010 unemployment would be at 11% and General Motors would be nationalized, your colleagues would immediately seize you and force feed you antidepressants and romantic comedies until your hyper-gloominess passed. Today, it barely provokes a response.
Are we in a fog or what? And what will it take to get us thinking again?
Dutch futurists look at “Enkhuizen 2030″
I just caught wind of some futures studies going on in the Netherlands, examining the twenty year future of some of their towns. I especially liked this video, showing three distinct futures for the town through animation. This is a very compelling way of actually showing people what you mean when you discuss abstract trends as well as potential policy responses. At the end of the day, futures studies are about showing decision makers and stakeholders the possibilities, empowering people, far more than “predicting” the future.
How can you make your ideas more attractive? How can you make a compelling case for change? Think of different ways to tell your story.
The 2012 Pelosi GTxi SS/RT Sport Edition – Strategic Scenarios in a Time of Political Intervention
by Eric Garland
If you have a certain nostalgia for 1980s Soviet advertising, or if you’re interested in the current state of the semi-nationalized automobile industry, you’ll get a chuckle out of this “scenario,” an ad for the 2012 Pelosi GTxi SS/RT Sport.
It’s funny, and yes, it contains some fairly partisan political jabs. That kind of material is something I would studiously avoid in a professional context – especially this blog. That said, we’re not in ordinary times. I would say that the current level of government involvement now means that political analysis of industry developments is more important than ever.
As I have said previously, the government is no longer simply regulating industry or financing it through monetary policy – it is now managing companies with the taxpayers as stockholders who have a right to see their investments protected. This will necessarily require an analysis of politicians and their goals. This may mean our competitive analyses will lay bare political feelings in our own organizations. That was the risk of the U.S. Government’s bailout policies, a dramatically-increased politicization of the American – and global – business environment. And here we are.
Mike Shedlock (“Mish”) on starting your own blogging business, the Fed, Google, and everything
Do you read Mish’s Global Economics Trend Analysis blog? If clarity is a virtue, Mike Shedlock is a saint. Every day he is delving into some key economic statistic that will light up the future for you. He’s ahead of the curve. He IS the curve. He doesn’t need curves. He’s the Chuck Norris of economic thinking.
He has one of the top economics blogs in the world – but he’s not an economist by training. He started his interest in global economics as a result of being unemployed, and went from there. In every way he started his intellectual empire from the ground up. He is the kind of expert we need most.
Mish has a great story and a brilliant mind. Check out his most recent talk at Google, and FOLLOW THIS GUY.
Competitive intelligence, government acquisitions, and a hallucinogenic future
by Eric Garland
With the bankruptcy of General Motors, our economy has finally hopped over the plane’s wing into the Twilight Zone. Not that this event was surprising to anybody with a cursory interest in money or cars – GM bet its future on the world’s endless thirst for bloated Hummers and Yukons and left quality and disruptive innovation to Asian rivals, all while locked into being America’s largest private provider of healthcare and pensions. You can get six Jack Welches, ten Peter Druckers and those guys who started Google on board and even they aren’t going to figure a way out of that hole. Like any death of a long-sick relative it is still a shock without truly being a surprise. You’ll feel the same way when American healthcare self-destructs and when Social Security cracks in half.
The reason to stockpile peyote and brown acid is not the demise of a for-profit company, which should be a prosaic activity in a capitalist system. You’ll need some strong hallucinogens to deal with how this bankruptcy was done, and what it means. The failure of GM I was expecting; a failure accompanied by an additional thirty to fifty billion of my tax dollars was the pimp slap. Not only is the original “Fortune One” company declaring the death of its business model, now my children and I get to be 60% owners of the company for the foreseeable future. It almost makes me long for the good old days of 2008 when we simply handed bankers hundreds of billions to pay off their bad investments without the need to get seats on the board to protect collective shareholder investments.
The walls began vibrating songs and the chairs began dancing a frentic rumba when a psyche-shaking question occurred to me – How many freaking companies do I own as a taxpayer now? I am a proud owner of Fannie Mae and Freddie Mac, a lovely deal for the 50/50 partnership in which government covers the “loss” part of the equation and private investors cover the “profits.” I get 80% of AIG, those masters of risk management who set the planet on fire by insuring every transaction on Earth from credit default swaps to Mexican cock fights. I have shored up most of the gargantuan banks on the planet through easy loans so big that our inevitable inflation will soon give Argentina, Brazil and Ukraine a hearty, nostalgic laugh. Now, my government has made me a majority shareholder in a automotive company that will need to atomize the oldest and most-established industrial infrastructure in the world before it could ever hope to compete with the supply chains of Korea, China, Japan and India – though not a word has been written to describe the difficulty of this transition.
As a taxpayer, behold the fantastic portfolio of my future prosperity! I will take this group of investments over any crap that Warren Buffet might cobble together! And that guy Soros will soon be proven to be no match for the investment genius of Obama, Geithner and Bernanke!
The drug trip has barely begun, my friends, and the buzz of bailout is now set to become a thrumming, pulsating multisensory experience as this new market moves ahead into the new physics of crony socialism. There’s no longer any need to believe in gravity, density, or inertia since this new universe is created by executive fiat and is subject to change at any moment. Just consider one question about the moral hazard created in this hallucinatory plane of existence: who is responsible for competitive intelligence for all of these companies that I own?
In order to compete effectively, every company must have a system of intelligence to understand market developments and competitors behavior. This practice varies in sophistication from sending guys to trade shows once in a while to learn stuff, on up to formal intelligence bureaus working in the service of products managers, strategists, and the CEO him/herself. In a modern economy evolving as quickly – and if recent events are any indication, chaotically – making decisions without the benefit of up-to-the-minute data and analysis about the business environment is a sure way to catastrophe. In the world we used to call reality, organizations had a discrete, impermeable layer that separates “us” from “them” and “internal” from “external,” allowing us to look critically at the external world. Intelligence thus permits leaders to understand the future marketplace and take action to insure profitability.
The U.S. Government not only is providing capital to a variety of American industries, it has invested me as an American taxpayer with a majority position in several cases. Moreover, the layer between “us” and “them” is now more permeable than wet Kleenex – since corporations are taxpayers too, Ford’s taxes will make them part owner in GM. Consumers too have multiple interests at stake – buy a new Ford Fusion, and you may watch your investment in GM decline. Buy insurance from a smaller carrier and you may deny AIG, of which you own 80%, of one of the only sources of profit they have to offset their days at the craps table of global finance.
Let’s not forget the government agencies themselves – they are now shaping the market through legislation and regulation, financing the industry through the Treasury’s policy of monitarization, AND acting in the market – ostensibly – to assure the return on the billions of dollars of taxpayer capital they just promised for the coming decades. This is where some peyote may help you squeegee your third eye clean and see into the kaleidoscopic mask of the Bizarro Future. Some major questions loom:
- For America’s neo-mercantile companies, who collects the data in their search for competitive intelligence?
- Who does the analysis? The company that led itself off the cliff, or the federal government bureaucrats who have zero understanding of individual market dynamics?
- To whom do they report first? Cabinet secretaries or CEOs?
- What kind of information is the most important? Rational, measurable data about the objective business environment, or subjective data about political personalities and their connections to top companies? After all, the new shape of the market seems to have more to do with who had Hank Paulson’s cell number in October of 2008 and who had dinner with Geithner while he was at the New York Fed than it does any macroeconomic trends or intellectual property analysis.
I take it back, leave the hard drugs alone. The coming reality will rival anything that distorted neuronal activity might bring. Remember, this is about the moral hazard of the future. It is with the addition of an automotive company to the national portfolio that we finally complicate American capitalism to an unimaginable degree, like trying solve calculus regressions with ten variables. In a business world created through executive order and maintained through fake federal money, all other players in the market – if they are paying attention – should view future market dynamics with the confusion reserved for a fever dream. It makes competitive intelligence extraordinarily necessary, and partially impossible.
About Eric Garland
Eric is one of the world's pre-eminent thoughtleaders in forecasting and strategy. He helps leaders of business and government make critical decisions about their futures.Connect with us
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