The New York Times ran a great article yesterday, entitled “Job Losses Hint at Vast Remaking of Economy.” Its central thesis:
As government data revealed that 651,000 more jobs disappeared in February, a sense took hold that growing joblessness may reflect a wrenching restructuring of the American economy. … layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business.
The article has attracted comment, including a great blog post by Jeff Jarvis over at Buzz Machine, where he calls this “The Great Restructuring.” I think that’s a great name for what’s going on. A lot of forces for fundamental change have been building up for some time. Their impact has been held off by rapid economic growth, abnormally low interest rates, and bubbles in commodity and credit markets. Now that markets have readjusted, change can’t be held off any longer.
There are a number of industries which are being fundamentally transformed:
- Finance. The traditional investment banking industry is gone. Banks are folding or being nationalized.
- Media. Newspapers are folding, radio stations are struggling, television networks are having a very difficult time, and the book industry is scrambling to find new business models.
- Advertising. With media restructuring, digital content exploding, and marketers cutting budgets, the advertising industry is struggling to find new ways of reaching consumers.
- Retail. More than 500,000 jobs have been lost in U.S. retailing over the past year.
- Automobiles. We’ve all seen the headlines. Over 200,000 jobs have been lost in the past year. All of the major U.S. automobile manufacturers are in deep trouble. So is anyone that supplies them — I’ve personally talked to automotive suppliers who have laid off more than 3/4 of their staff.
- Other manufacturers. It’s not just the automobile industry that’s hurting, although they are the highest profile. U.S. job losses in manufacturing total 1.2 million over the past year.
- Logistics. Transportation and warehousing companies have been hit hard by the restructuring of their manufacturing and retail customers. Over 49,000 jobs were lost in February alone.
- Travel. As businesses have cut back and consumers have tightened their belts, hotels, restaurants and travel companies are feeling a severe strain.
- Real Estate. I think we all know about this one.
These are not temporary changes. Fundamental parts of these industries are now broken and don’t work any more. Over 4.4 million U.S. jobs have been eliminated since December 2007, and long-term unemployment is now at one of the highest levels since World War II. Companies and individuals are going through a painful period of readjustment. Eventually, new models will emerge that reflect the new economic realities. After things settle down, it’s likely that many of today’s major companies will be gone or restructured into barely recognizable form.
The repercussions of this restructuring will be widespread. If you’re in one of the industries being restructured or if you sell into those industries, your business is going to be severely affected. You need to reexamine the fundamentals of your business. Only those companies which make comprehensive adjustments to their strategy, their value proposition and their operations are going to survive.
Even if you aren’t in one of the hardest-hit industries or serving them, you may well be affected. You may be relying upon them in some part of your business, for instance as suppliers: What will happen to your business if they go away? You may rely upon or compete with companies that are in a weakened state, due to their reliance on (or investment in) one of these industries. That could create problems or opportunities. Your investors and lenders could be having problems: What if they want to restructure your financing? Your people may be in trouble because of their investments or their family’s situations. That will create challenges.
Despite all these challenges, The Great Restructuring is not entirely bad news. Historically, crises like this have laid the groundwork for new booms as the old economic barriers were torn down and better business models emerged. I am optimistic that this time will be no different. There will be opportunities galore in the post-Restructuring world, if you position yourself to recognize them and take advantage of them.
The point is, you ignore The Great Restructuring at your peril. Permanent and far-reaching changes are happening. The “good old days” aren’t coming back. What are you doing to adjust?