I’ve been bothered in the best possible way by a comment made by Richard Davis, President and Chief Executive Officer of U.S. Bancorp. In almost a throw away fashion Richard told an audience of business executives in Orange County California, that the economy is going through a process of “repricing ” downward.
Clearly we know this to be the case in the housing industry, as those of us with houses have seen about 25% or more of the assessed value of the house disappear. As troublesome as this has been for many people, it has not stopped there. Just look around and you’re seeing it in the automotive business, grocery stores, and restaurants offering significant discounts. In the labor market, those getting new jobs are doing so at often dramatically lower salaries. Everything it seems is ratcheting down, finding a new market clearing level.
This deflation, or to be more positive, repricing, has consequences which favor highly efficient, low fixed overhead companies over those with large superstructures of bureaucracies. As we’ve seen, some companies can relieve some pressure by laying off labor, but those companies (I’m thinking GM) with lots of large buildings and large fixed expenses, can’t adjust sufficiently and quickly enough. For these large companies, it is exceptionally difficult to accommodate to downward price adjustments, hence they fail.
Companies which do succeed in these environments are new ones. These companies benefit by being new and not around so long as to have large fixed expenses, these are the entrepreneurs. The best way to grow our economy is for the US to have a brisk entrepreneurial bias in its policy decisions. In this Economy, as serial entrepreneur Ken Forbes, CEO of AppointYou in Aliso Viejo, California told me, it is easier to create a job than get one. This is the best time for the creative among us to leverage their comparative advantage of being lean, to get their products and services into the economy and make wonderful things happen for us all.
Thomas A. Coss
