No Going Back

Published on F&O February 22, 2014

When we read about the Great Recession of 2007-11, there seems to be an assumption on the part of commentators that as soon as the economy ‘turned around,’ we could get back to normal. That’s not how it is turning out and that should not be surprising. There is no going back.

When the United States economy came out of the recession, one of the things most noted was that this was a ‘jobless recovery.’ Somehow, companies were producing a lot of stuff, but hiring growth was dismal, unlike other recessions. The truth was that U.S. manufacturers gained back all the sales revenue they had recorded before the recession, but they did it with 5 million less jobs. Since the softness of demand during the recession meant they could not raise prices much, if at all, there had to be some kind of productivity growth to account for this situation.

The answer, for the most part, turned out to be robotics, by and large. Different kinds of robots: big arms doing welding; little ‘saucers’ scooting palettes along a floor; advertising robocallers pestering and selling products — all kinds of machines that replaced most any function that is repetitive. Some of the machinery is so cheap to install that manufacturing is leaving Asia for North America. Robots are cheaper than Chinese.

For years, I have been spending a couple months of the winter in Arizona. When I am home, I want to be busy, but when the desert calls…see ya! One weekend in 2012 I spent a couple of days at the Tucson Festival of Books. It drew an estimated 120,000 people. I went there to look into what has been going on in book publishing. Clearly, with Kindles, Nooks and Kobos, as well as with iPads, book publishing has been leaving paper for bytes, which has wrecked the bookselling business. The Borders chain in the U.S. went bankrupt. If you go to your local store, you will find the gifts section growing. Even used bookstores are moving into DVDs, musical instruments and gifts.

As I understand it, the book business, like a lot of others, consists of production, marketing, distribution and retail. E-books tend to cut out a lot of production, distribution and retailing, with the exception of producing content and putting it into an acceptable form. The big publishing houses used to act as gatekeepers on content that was sellable. Also, they did some marketing of the books they published. Now, everything is falling apart. I went to a presentation by a Silicon Valley company called Smashwords. The Marketing Director presented some amazing facts. In five years, from 2007 to 2012, the proportion of e-books went from zero to 30 per cent of the market. But these were not just electronic copies of the publishers’ paper books. A lot of these were done by ‘Indie’ publishers, namely, anyone with the software to produce an e-book or who contracted the task out to Smashbooks or its competitors like Amazon.

Unlike the traditional publishers who understand as well as possible, what sells, these e-publishers are clear that they will get your  novel up in the cloud, but it is up to you to sell it. Smashbooks distribute new titles to the new e-retailers, the Apple Store, Amazon, even the dot-coms of some traditional publishers. Their favorite pricing point is $2.99. Half the company’s revenues will soon be coming from non-American authors. This thing has global reach.

The book industry is the latest to go through a wrenching change, but watch out for education as well, especially higher education. It is an information industry like banking, real estate and media, and eventually subject to the same rules. Universities have monopolies on certification and government money, but these are dwindling.

When a Stanford professor offered a free engineering course a few years ago, 50,000 people from around the world signed up. The MOOC (massively oversubscribed online course) was born. Now Harvard appears to be outsourcing its basic accounting course to another university, so its faculty can concentrate on higher-level stuff. The California legislature passed a law recently requiring the state universities to offer and accredit online equivalent courses where there are required courses that are oversubscribed by their students and where faculty are not available to teach them. Finally, I am reminded of a comment made by a University of Phoenix (private for-profit institution) that he saw his major competition coming, not from other universities, but from Disney.

So, the Great Recession is over, but there’s no going back. There are dozens of industries that will never be the same again. If any of you are in the vicinity of a 3-D Printer, go to see it — and consider what this ‘toy’ will do to manufacturing in the near future. Make your own iPhone, anyone?

Copyright © 2014 James D. McNiven

 Contact: j.mcniven AT