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Macrowikinomics: Rebooting the Economy

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2010-11-05-51wLr9RFQdL._SL500_AA300_.jpgThis article is the first in a series of 12 over the next 3 weeks written by Don Tapscott and Anthony D. Williams, authors of the newly released book Macrowikinomics: Rebooting Business and the World. The book is receiving a lot of buzz. The Economist calls it "a Schumpeterian story of creative Destruction."

The book argues that many of the institutions of the industrial age have finally come to the end of their lifecycle, and now being reinvented around a new set of principles and a networked model.

Today's blog is about rebooting the economy.

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The election is over, but the economic stagnation gripping the country is not. Many economists are warning us to buckle down for a period of prolonged sluggishness, reminiscent of Japan's lost decade or the Swedish crisis of 1992.

Arguably, we've been in this slump for a decade. We just didn't know it. Booming house prices and the massive expansion of cheap credit made a lot of us feel rich as kings. Now that the jig is up it's clear that the housing bubble was masking a dark economic picture.

The economy is growing more slowly than at any time since the Great Depression. It was announced today by the Labor Department that the unemployment rate for October remained unchanged at 9.6 percent with close to nearly 15 million Americans out of work. The Total unemployed (called U6 including all persons marginally attached to the labor force) is 17 percent.

There has been virtually no net job creation since 2000. And unless you happen to work in finance (where average salaries are four times higher than in the rest of the economy) your wages have probably stagnated. Factor in the collapse of the housing market and it turns out that the net worth of ordinary Americans is lower now than at the turn of the Century. A foreclosure crisis and stubbornly high unemployment suggest that the forward-looking picture is not getting rosier anytime soon.

It's far too convenient for critics to pin our economic problems on Obama. To do so makes the solution self-evident. Replace Obama, turf out the Democrats and you have your answer to America's woes. If only it were so simple.

Evidence is mounting that this is not simply a crisis of political leadership. Rather than the normal ups and down of capitalism, the global slump is symptomatic of a deeper secular change. There is a case to be made that industrial economy and many of its institutions have finally run out of gas -- from newspapers and old models of financial services to our energy grid, transportation systems, education and institutions for global cooperation and problem solving.

Take media and entertainment. Newspapers throughout the United States and Canada are collapsing. Some say bad business decisions are to blame. What, you might ask, were the managers of the New York Times thinking when they borrowed hundreds of millions of dollars to buy lavish real estate and other dubious properties like the Boston Globe? Others say that crashing circulation and revenues are caused by the tough economic climate. But no amount of rationalization or denial can hide the looming truth that the collapse of the newspapers is not coincidental, conjunctural, or containable. It is systemic - rooted in the digital revolution. So the leaders of the old media should take a deep breath and get going on the kind of experimentation required to forge some new approaches that are optimized for a world of digital data.

Newspapers are just the beginning. Across the board, a lot of old models and industries need rebooting.

Greater openness in innovation and science, for example, is creating more economic opportunity for start-ups and small business owners businesses who can acquire global marketing and product development capabilities that used to be available only to the world's largest and wealthiest enterprises.

Or when it comes to fixing and restoring confidence in the financial services industry more is required government intervention and new rules; it's becoming clearer that what's needed is a new modus operandi based on new principles like transparency, integrity and collaboration. Bankers can get going now to rebuild the industry on a new model. For example they could remove the value and dispose of the $trillion of toxic assets on their balance sheets by placing them in a commons and letting the world's leading financial modelers determine their value. Companies like the Open Models Corporation are working hard to make this happen - using the web and 21st century strategic thinking to create a human genome of risk management information.

On the health care front, Republican lawmakers have pledged to gut Obama's reforms. This would no doubt deliver a significant setback to the Democrats' efforts to boost equity and contain costs. But convincing and empowering the American population as a whole to live healthier lives would arguably amount to a far greater accomplishment and no enabling legislation would be required.

Possibly the greatest failure of the current healthcare system is that it clearly doesn't engage a large part of the population. And when we don't think about our health we get unhealthy. Close to two-thirds (63.1 percent) of adult Americans are becoming overweight or obese, exercising less, and eating unhealthy foods. Compared to healthy-weight people, overweight and obese people have particularly unhealthy lifestyles--lifestyles that contribute to the skyrocketing rates of preventable diseases like diabetes and heart conditions, which are among the most costly public health afflictions. A population truly engaged in the issue of wellness would not act so recklessly with respect to its own wellbeing.

To change that, we need to shift from a model of health care where patients are passive recipients of care only after they become sick to one in which one where patients become much more active in managing their own health over their lifespan. A main benefit, as studies show, is that when patients are more engaged in managing their own health, they are more committed to being healthy. Collaborative healthcare could not just improve health it could reduce costs of a system that is close to 20 percent of the GDP and acting as an anchor on the economy.

The same fresh thinking is required to job creation. A study done last year by the Kauffman Foundation of Entrepreneurship shows the extent to which job creation depends on new business creation. Using Census Bureau data, the Foundation examined net new job creation in terms of firm age rather than firm size. From 1980 to 2005, nearly all net job creation in the United States occurred in firms less than five years old. Without start-ups, net job creation for the American economy would be negative in all but a handful of years.

Estimates from the Panel Study of Entrepreneurial Dynamics samples suggest there are about 12.6 million U.S. nascent entrepreneurs. "Add to this the swelling ranks of the unemployed and there is substantial latent entrepreneurial job creation potential in this country," says Kevin Kimberlin, Chairman of Spencer Trask - the Venture Capital company that has supported some big job creators dating back to Thomas Edison. "We need to help these budding companies achieve liftoff. Failure to launch need not be the norm. With the proper incentives and platforms in place, we could quickly create hundreds of thousands of new jobs."

Because of the Internet, small companies can have the same capabilities as large companies, without the same liabilities, like bureaucracy and legacy cultures, processes, people and systems. The world's most dynamic innovators are using the Internet and new business models to transform industries ranging from manufacturing and transportation to fashion and retail.

So rather than simply debating the merits of fiscal stimulus, the task before us is to support more start-ups that lay the groundwork to get the country back to the high level of pre-recession job creation. A moratorium on capital gains for start-ups would be a good place to start. More on this is subsequent articles in this series.

The list goes on. In Macrowikinomics we discuss the sparkling initiatives underway to rebuild our stalled institutions. But these initiatives need to be come mainstream and not just light house undertakings.

So rather than simply tinkering, leaders in business need face up to the new realities and get going on rebooting their industries. Paul Krugman writes that "financial crises have consistently been followed by long periods of economic distress." Among others, he's calling for further stimulus. But the fact of the matter is that this just isn't going to happen. With a congress in stalemate we need to seek other solutions. Instead, let's use this opportunity to rethink and rebuild many of the organizations and institutions that have served us well for decades, but now have come to the end of their life cycle. If we do this there can be growth, jobs and a new time of prosperity.