There is no longer any dispute that the world is going into a recession. The only question is how long and how deep: 1970s-style or 1930s? But just because business is bad doesn’t mean it stops completely. Just as plants renew themselves in a frosty winter, so the economy often does the same during a prolonged contraction.
During the 1930s, new industries such as consumer electronics and plastics were created. In the turbulent mid-1970s, the personal computer industry was born, as companies such as Microsoft Corp. and Apple Inc. were founded.
The economy didn’t look much good then, either, with soaring oil prices, rampant inflation and tumbling stock markets. That didn’t stop a young Bill Gates or Steve Jobs from setting up new businesses. No doubt there are now plenty of young entrepreneurs with bright ideas and loads of determination ready to build the corporate giants of the 2020s and 2030s.
As Tom Nicholas, an associate professor at Harvard Business School, said in the latest issue of the McKinsey Quarterly, the 1930s became a period of intense innovation and experimentation. For companies with cash and ideas, history shows that downturns can provide enormous strategic opportunities, he said.
The question is where those market openings will be in this recession—for managers, entrepreneurs or investors. Here are five to think about.
First, local manufacturing. When we are worrying about climate change, does it make sense for goods to be transported around the world, with raw materials dug up in Australia, taken to Chinese factories, then shipped as finished products to Europe or the US? Or how about food? Can’t we develop the technology to grow vegetables in the UK or Germany during the winter rather than flying them in from Africa?
Entrepreneurs should find ways to re-engineer globalization, so we can still get a vast range of goods at low prices, and yet produce them locally.
New modes of business
Next, credit. The banking system that has developed over the past two decades looks broken beyond repair. That doesn’t mean that people don’t want to save and borrow money. We need some way of transferring cash safely from people and countries that have too much of it, to people who have too little.
There used to be a far greater diversity of financial intermediaries—from the mutual building societies in the UK to credit unions, to savings-and-loan associations and cooperatives. Finance needn’t be monopolized by global banks playing the international capital markets. There is space for newcomers, developing other modes of business, possibly based on the Internet. The entrepreneurs who devise them will do well.
Boomers need care
Or how about ageing? The baby-boom generation is starting to reach for its walking sticks. And the elderly need young people to look after them. While much of Europe has ageing populations, other countries have soaring birth rates. They need to be brought together. Maybe the young people should come to Europe. Or the old people should move to where the young people are? Either way, new ways of caring for the aged will be a huge growth industry.
Biotechnology and computing
Technology will be crucial. In recessions, ground-breaking technologies tend to get going. Perhaps that is because they don’t usually require big upfront investments—nobody poured a fortune into starting Microsoft—or entrepreneurs have to focus on essential, breakthrough products when times are tough.
So, where will the cutting edge be? Bio technology has promised more than it has delivered so far, but put it together with computing, and dozens of new products and industries might blossom, as they did in the electrical industry in the 1930s.
Books go digital
Finally, publishing. Printed, bound books have been around for more than 500 years and have overcome predictions of their demise for at least a few centuries. Somehow they have survived. They aren’t about to go away, but they may be about to evolve.
Electronic books are set to take off in a big way. Just look at how well Amazon.com Inc.’s Kindle has done. Alternatively, books can be downloaded in bite-size chunks onto mobile phones. As the technology becomes universal, new types of storytelling will emerge to take advantage of it: more episodic, more concise, and probably more communal. And the publishers who get that right will create a whole new industry.
History suggests that in the next three or four years we will see the birth of the new companies and industries that will dominate the next few decades. Recessions wipe old slates clean. They create space and resources for new entrepreneurs.
So, while the economic news over the next few months is likely to be gloomy, it is worth remembering that beneath the hard frost the first buds of the next spring are germinating. Spotting them is the tricky bit. But catch them early enough, and you will make a fortune.
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