Paradigm Shifts Coming

In an earlier post, December 28, 2008, I wrote about shifting paradigms. Now the signs are growing stronger – the recession we now experience will permanently change our lives. Paradigms will shift right before our eyes.

Petroleum prices will again rise. As the economies of the industrialized nations regain strength the demand for energy will rise and with it the price of all forms of energy. The days of electric powered vehicles are coming fast. Battery powered vehicles, or battery powered vehicles with on-board generators, will grow in number. Even gas or diesel powered vehicles will be smaller, more fuel efficient, and meeting tighter emission standards (in spite of objections by GM.)

Renewable energy is gaining. Chipping away at the market, it will add momentum as a result of the government’s stimulus spending.

Renewable energy comes many sources: biomass as fuel for burning and converting into e e thanol; geothermal sources not only hot water but water at 50° to 60° not far below ground level; the sun through solar thermal uses and photovoltaic electricity; the wind; the tides and ocean currents; untapped flowing rivers providing hydroelectric energy; and possibly others. By 2020 the share of all electricity generated from renewable sources will be slightly over 10%. (http://www.eia.doe.gov/oiaf/forecasting.html)

In time there will be more electricity generated from nuclear energy. Not in a short time though. By 2020 nuclear power generation will rise from about 2% now to almost 10%. (http://www.eia.doe.gov/oiaf/forecasting.html

We will see more and more energy neutral housing. Voluntarily initially, and later forced by building codes. Per capita energy consumption for housing will decline appreciably, over the next twenty and more years. Technologies already in use in Europe will become accepted in our country.

Banks will become banks to accept deposits and lend money, and not to be places to make investments. Investment banks will just what the words say – places to make investments. Both will be more rigorously regulated (until the next lull.)

Athletes earn as much as owners are willing to pay them. If they have a bad year, though, their compensation normally goes down. Why not apply the same rules to the executives of our corporations? If you are a stockholder of a company, will you push for realistic executive compensation, and accountability for performance? If so, inflated salaries will slowly disappear, especially after stockholders sue enough Boards of Directors for failing in their fiduciary role. Instead of bonuses, poor performance will lead to reduced compensation. Is this an unreal dream? I do not think so.

(Charlie’s note: I wrote this blog posting early Tuesday morning. As usual, it was in the editing process until this morning, Wednesday. I was surprised to read, a day after I wrote the above, that President Obama has suggested limiting salaries for executives of companies accepting bailout money.)

The paradigm for health care in the US will change, in fits and starts. Our system badly needs revising. Costs are outrageous compared to those of other countries, including those that provide even better care than do we. Drug prices are too high. Why does the government not negotiate prices with the pharmaceutical companies? That will change.

The psychological effects of the recession will last for many years. Financial caution will be the watchword. Just as is the financial caution of elders who suffered through the Great Depression. This is not limited to only those who incomes have suffered in the recession – almost all. There will be a slow market for luxury items, from yachts to houses and down the line. This caution is not limited to consumers. Businesses of all sizes will spend less freely and expand more slowly.

Air travel, in the midst of rapid change, will be even more difficult than it is now. There will be no relaxation of security; it will become even tighter. Fares will remain high. There will be fewer flights and almost all will be full.

Because of high fuel costs, people will travel less, and when they do, for shorter distances. As a result, families will tend not to scatter as far as they do today; conversely, family units will become more compact. Additionally, the young will assume more responsibility for their elders. I believe there will be a strengthening of family values.

Shifting Paradigms

Paradigms are a set of assumptions, concepts, values, and practices that constitutes a way of viewing reality for the community that shares them. (From a definition found at www.thefreedictionary.com/paradigm.)

When a paradigm in an industry changes, the business “winners” after the change most often are not the old-line companies who were the winners before the change. They are fresh new entities with new ideas for satisfying the market. The winners have no entrenched personal empires, no buildings and factories to amortize, no rigid ways of doing business – all of which prevent the old companies from changing.

What the new companies do have is a large dose of outside-the-box thinking, a willingness to take risks, the energy to get things done quickly, few layers of management….

Old, classic examples of paradigm changes include the railroaders who hauled passengers but thought of themselves as railroaders, and who were overwhelmed by the airlines who entered the business of hauling passengers in airplanes instead of trains. How would our landscape look now if the railroads, instead of scoffing at the airlines, had become the movers of passengers by airplane as well as trains?

Consider the Swiss, whose paradigm of a watch included a spring, escapement, gears, hands and a dial face. Enter the Japanese, whose paradigm for a watch includes a battery, a chip and a digital readout. The watch making business all but disappeared from Switzerland in its rush to Japan. The Swiss, who were offered the digital watch designs but passed on them, had a capital and emotional attachment to the old paradigm. Later, of course, the Swiss adopted many of the features of electronic timekeeping and do continue to make many fine watches. The volume market, though, theirs for many years, is now owned by companies in the Far East.

Almost every day paradigm shifts are taking place.

Consider the impact of NetFlix, with a new paradigm for distributing movies for the home market, had on the video store of the old paradigm. How many video stores remain, and how big a share does NetFlix have of the market? In watching the postal worker put mail in the boxes near my home, and seeing NetFlix envelopes in almost half the boxes, the question is answered.

Another recent shift is the advent of Craig’s List, the Internet classified advertising giant. From a small beginning in San Francisco, Craig’s List now has free nationwide classified advertising. It is very effective. Newspaper owners are crying about the demise of their classified advertising revenue, lost to Craig’s free list. Why did the newspapers not start the free lists? Did their thinking not go out of the box? What would be the situation if they had been the ones to start the free list, and receive advertising revenue for display ads on their pages? Would they be in such dire straights as they are now?

Now we see several paradigm shifts in the auto industry. Fuel prices will soon rise again, creating greater and greater demand for fuel efficient vehicles. Electric cars, and hybrid-electric cars will eventually dominate. Lithium ion batteries will replace older technology. Are the old-line battery companies leading the charge to lithium ion? It does not seem so – the bulk of the companies manufacturing them are in the Far East.

There will be many paradigm shifts resulting from the deep economic recession. The next posts to this blog will explore ideas about them.