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Nancy F. Koehn

Nancy F. Koehn

Posted: January 29, 2010 04:43 PM

Rebooting Households: The View From Davos

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The World Economic Forum is in full throttle in Davos, Switzerland this week. There are the usual list of heavy-hitters and loads of conversations about the world's most pressing challenges and the importance of global cooperation and cross-national creativity in meeting them.

Yet, in all the bustle of power and celebrity amassed there at 5,118 feet of elevation, there is considerably less attention being paid to how individual households--income earners, consumers, potential entrepreneurs--are rethinking and rebuilding and what it means for economic and social welfare.

Let's roll the tape backward to try to understand what is happening to families. Between mid-2007 and early 2009, household net worth in the United States fell more than 20 percent as real estate prices declined and the stock market imploded. Following right on the heels of the 2008 financial crisis was a wide, deep recession which quickly begat 10 percent unemployment.

Although the stock market has staged a robust recovery beginning in the second quarter of 2009 and housing prices have slowed their declines, unemployment is not expected to abate for a long time. Ironically, the lean, efficient supply chains created over the last 15 years by companies worldwide, particularly U.S. companies, are partly to blame. The very efficiency that helped fuel the prosperity of the mid-1990s and mid-2000s has come back to bite families and thus consumers in the form of "sticky" unemployment and (much) more volatility in the traditional job markets.

As 2010 opens, households globally have less wealth, fewer employment prospects with established institutions, and in many cases, reduced social welfare benefits, as cash-starved governments and non-profits curtail assistance. All of this has come at individual families harder and faster than in past recessions.

So, how are households responding to this socioeconomic shock and awe? What are they doing, as Bono (who is a Davos regular) might say, to reboot themselves? We see early indications that families are "taking back the financial night," to gain more control and security for themselves through their own agency and apart from government and corporations. For example, the personal savings rate in the United States has jumped from an average of 2.5 percent over the past 10 years to as high as 6.5 percent in May 2009. Personal savings rates often increase with the onset of the recession, but relative to earlier downturns , this is a bigger bump up, and it will likely last well into the recovery as households begin to create safety nets they can control.

In the wake of so many organizations dropping the responsibility ball, trust is especially important right now for American families. As consumers, families are looking to brands--new and established--that are worthy of their hard-earned dollars and their trust (think Apple, Hyundai or McDonald's). They are using the Internet--more intensively than in the past--to help define value. They are using it to create a more communal, active aspect to consumption. Individuals from all walks of life are deliberately participating in social networking resources, consumer-feedback and rating sites, product blogs and other online locations where they can find guidance, information, and, at times, self definition about what to buy and why. They are also increasingly using the Internet to tell companies what they (really!) think of them. Consumer activism is no longer the sole province of dedicated organizations. With families trying to reclaim the power they feel they've recently lost, consumer activism will become a much bigger force on the global stage.

One of the most important potential responses on the part of households to the economic shocks of the past two years is entrepreneurship. Historically, entrepreneurial innovation has been a very powerful engine of macroeconomic growth, technological breakthroughs and job creation. Consider Marshall Field, Cyrus McCormick, and Gustav Swift, each of whom came from relative obscurity to found businesses that--in the midst of the economic turbulence of the late 19th century--revolutionized retailing, farming and meatpacking respectively and helped make Chicago one of the nation's preeminent cities. In our own time, the Information and Biotech Revolutions were ignited largely through entrepreneurial agency. Much of the continued green revolution in alternative energy sources will doubtlessly unfold on the backs of individual entrepreneurs now working in all kinds of garages.

At this critical inflection point for the United States, what can be done to light the kindling of entrepreneurial initiative among American families? If we start with young people, we can look for inspiration to the Network for Teaching Entrepreneurship (NFTE), an organization that works with schools and communities to help youth in low-income neighborhoods build their skills and unlock their entrepreneurial creativity. Each year, the NFTE sponsors a national business-plan contest in which students put forth their own concepts and practical models for new enterprises (Last year, 24,000 entrants submitted plans). Or consider the Center for Women in Enterprise (CWE), a New-England based organization dedicated to helping women start their own businesses. CWE offers workshops, training sessions and networking events for women at all stages of the entrepreneurial cycle--from the earliest glimmer of an idea to raising money to managing growth and cash flow. If we look farther afield, there is Kiva, the online microlender created by an entrepreneurial family--Matt and Jessica Jackley--to connect small lenders all over the world with promising entrepreneurs in developing countries. Almost five years after its founding, Kiva has helped raise more than $100 million to fund 239,000 entrepreneurs. Most of this money went to enterprising individuals in regions like Africa, but last year, Kiva opened its services to U.S. entrepreneurs as well.

These three organizations--each of which came out of the private sector--are forces of (credible) hope and change. Each starts from the premise that the unleashing of individual possibility and responsibility is a critical road to our collective well-being. And each is focused on targeted action now to help fuel the fire of entrepreneurship. As the high-level conversations at Davos continue this week, government officials and other participants would do well to consider what is happening to families, the central unit of economic and social welfare, and how public institutions can help unlock the entrepreneurial power that exists around all those kitchen tables.