Creative Class

For the first time in over a decade, the DOW closed below 7,000. For a little history, the DOW was around 1,000 in 1982 and then steadily rose to 14,000 over the course of 25 years. We have now returned 50 percent of that and the future does not look very good for getting it back anytime soon. The Nikai in Japan fell from 30,000 in 1989 to just around 7,500, losing more than 75 percent of its value in 20 years.

What is happening is that we are at the end of an era. It is the end of highways, sprawl, cheap everything, and we are also at a the end of globalization as we knew it.

How to move forward is the $64,000 question. What is clear is that we are just thrashing around, like a whale beached on the shore. There is no one around to put us back in the water. Perhaps the best solution would be for someone to slay the whale. In the Farrow Islands, when a whale beaches they come out with knives, jump on its back, and hack it to death. They have a big dinner of whale meat. In California, they call out a team of doctors to examine it and then it dies anyway. No dinner!

The problem is that everyone (read: economists) studied the 1930s and how to get out of the depression. People forgot that what got us into the 1930s depression was the 1920s! What got us into this depression is the 2000s (leverage, borrowing, housing investment, deregulation) – they were just like the 1920s. One thing is clear, the best way to heal this event is perhaps just to wait it out and not spend trillions and trillions to try and save it. We will heal in due time.

The lost decade is often talked about in Japan. From 1990 to 2000, the Japanese economy was stuck in the aftermath of a burst housing bubble and the inability to channel investment into the “next big thing.” Of course that was the Internet. Today the U.S. is in a similar situation. We are in a post-housing bubble, a credit and banking crisis. We also face the difficult choice of figuring out the next big thing to invest in. If we miss it or do not get it right we will be Japan in the 1990s and Germany, Singapore, China, and Denmark will lead the next economic expansion. Where to put the money? The answer is simple – it’s The New New Deal. The Obama administration has a chance to set America on the right course. The question is… will it?  Will they cave in the old New Deal (bail out the auto industry) or can they embrace the New New Deal? What is the New New Deal? According to Jefferey Sachs:

• The development of mass-market, battery-powered autos that achieve at least 100 mpg of gasoline on fleets by the year 2015.
• An efficient power grid that can carry renewable energy – solar from the Mojave Desert and wind from the Great Plains – to the population centers of the U.S.
• A utility industry that can reduce 80 percent of emissions per kilowatt on newly built power plants by 2016. For the U.S. to achieve this it will have to decrease consumption and increase investment. One policy to help would be for a gasoline tax to keep gas prices high to reduce consumption and create tax revenues to fund R&D. I would suggest a tax that would keep gasoline prices at $4.00 a gallon rising by 50 cents a gallon over the next four years. This would create the incentives to invest in our energy efficient and sustainable future.

Zoltan Acs has an interesting report on global entrepreneurship which finds Tokyo as the least entrepreneurial city of any his team measured. What are we to make of this? When I go to Tokyo I am amazed at the creativity. A walk through Harajuku, Omote-sando, Ginza, Kichijoji, or any number of other neighborhoods scream creativity to me. In Kyoto we find Nintendo, Kyocera, Wacoal, and many other firms that are global-class innovators. Some of the new movies coming out of Japan are beautifully shot and fascinating studies of the human condition, as “creative” as anything coming out of Hollywood. Shifting frames, Japanese automobiles, machine tools, and various other manufactures are global-class.

This suggests a question that is worth thinking about. Namely, what is the relationship between entrepreneurship and creativity? We might accept that entrepreneurship is creative, but is the opposite true? Is a non-entrepreneurial society not creative? Or, to go even further, this obviously rhetorical question, are non-entrepreneurial societies not prosperous? What does the community think?