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  The Making It! Business Blog
by Nelson Davis

Thursday, October 18, 2007
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THIS EDITION: CRYSTAL BALL 2008

Since all media floats along on more speculation than fact, polishing up my crystal ball to join the speculative folks is fun at this time of year. So, this is the first in a series of musings on what I see our medium-term future focusing on, the opportunities presented by some very challenging changes.

Voracious consumerism as we’ve known it in America for the past 100 years (except for two wars and one depression) is coming to an end.

Our country’s consumer behavior patterns have been jet propelled by what we want much more than simply what we need, and that has been enabled by two major factors—well, maybe three. It began with the growing persuasive power of the advertising business around the turn of the 20th century. You know, “The Man in the Gray Flannel Suit” and those ubiquitous messages about what we should look like, wear, smell like and desire. Factor number two was the growth of the middle class based on America becoming the manufacturer to the world over many decades. Jobs grew; salaries and expectations grew while the prices of houses, cars, clothing and transportation generally just kept pace with inflation. In other words, there was lots of disposable income for a major slice of the population. The third factor is rooted in simple human behavior. We’ll take soft over hard and easy over difficult just about every time there is a choice, and Madison Avenue has always known that.

 But now the middle class spending power is shrinking even as our waistlines and doctors visits grow. Our confidence has been shaken by poor leadership on many fronts, including the sub-prime mortgage mess that arrived just in time to color the holiday spending splurge. We are soon to wake up to the fact that the money we were tossing at that extravagant vacation trip is needed to put gasoline in that splendid and thirsty SUV in the driveway whose value is also dribbling away. We should have known we were in trouble when car companies began to name vehicles with sheer size in mind. They simply didn’t have the courage to say “Lincoln Gargantuan or Cadillac Leviathan.”  

A report this week from the California Budget Project says that a two-parent family of four living in Los Angeles with one person working needs $51,035 a year to stay on the right side of the poverty line. If both parents are working, the report says they need $74,044. By the way, taxes and miscellaneous are listed as the largest monthly expense at $1,423.00. They say that these income levels don’t have much room for college savings, vacations or emergencies. 

Because we are living longer and being lulled by the pharmaceutical companies into thinking that we must have their products to function at advanced ages, we can’t seem to get enough of what is euphemistically called health care. The demand is insatiable and the prices are rising almost daily. So, more of every family’s income will be going to “illness care” and won’t be available for the latest car or the education fund. You may not be able to lavish big allowances on little Mary and Javier for the latest cell phone or their fourth iPod.

Speaking of the darling children, some of whom escape from public school unable to speak in complete sentences, correcting that bothersome educational deficit will cost a lot more. As public schools become exhibit “A” in the book on beaurocratic dysfunction, you may have to resort to private schools beginning at grade one. That takes another chunk out of the family budget and imposes another limitation on being able to spend like a sailor on shore leave.  

Energy, shelter, insurance, education and food; the basics, are already taking a greater share of the average family’s income. I grew up poor with one person (my father) working. Even though we didn’t have a telephone until I was 12 years old, we did have the material basics and a pretty happy time. But now, people are poor in families with two people working even when supplemented by the public treasury handouts. Wow! You can easily see the circumstances that I think will be the death of shopping as sport and emotional therapy. My prediction is that in the next four years, predictable steady gains in wealth and easy borrowing will become relics of decades past.

 Yes, as small business owners there are opportunities lurking in the tangled web I just described. Just this week, I read about a one-woman business that helps parents get their children into the schools of their choice. She’s grossing nearly a million dollars per year! There is a real business to be built by offering to audit energy bills and counsel people on how to lower their costs. I’d certainly be a potential customer for a consultant who could help me navigate the morass of health insurance and in fact, all insurance options.  

The changes are coming, whether we are ready or not. They will also be laden with opportunities.