Matthew Lynn
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Our picture of the 1930s is dominated by grainy shots of Jarrow marchers and dust-bowl migrants — but there is, to borrow a phrase from politics, a whole other narrative. That decade also saw the commercialisation of a range of products that remade the world economy. Car-making, helped along by the new highways built with all that deficit financing, became a giant industry. A huge range of new electrical goods came on to the market. In 1931 EMI was formed, and opened a studio in Abbey Road to make gramophone records. Dire though conditions were, what turned out to be the key growth industries of the 1950s and 1960s got started during the slump of the 1930s.
A close look at other seismic economic shocks proves just as instructive. The financial panic of the 1870s, which many experts believe is the closest parallel to today’s crisis, saw its share of innovation. Amid bank runs and stock market collapses leading to what is now called the ‘Long Depression’ (to distinguish it from the Great Depression of the 1930s), Thomas Edison was setting up General Electric, and wondering if there might be a market for light bulbs. In Germany, Deutsche Bank was started to help finance a new wave of industrial plants.
Likewise, the economic turmoil of the 1970s threw up plenty of notable new businesses. Amid soaring oil prices, rampant inflation, collapsing monetary systems and industrial militancy, entrepreneurs such as Bill Gates of Microsoft and Steve Jobs of Apple were fiddling around with computers, creating the great growth sector of the past 30 years.
Of course, not everyone sees it this way. ‘In “normal” recessions there are plenty of examples of economies renewing themselves via the switching of resources both within and between sectors,’ argues Professor Peter Scott, director of the Centre for International Business History. ‘The 1989 recession saw the emergence of new retailers such as Poundland [founded in 1990], which secured vacant retail premises at cheap prices. However, Britain is currently in depression, rather than recession.’
That, he argues, makes the outlook fundamentally different. The economy isn’t about to correct itself in the normal way without drastic action to pull it back up. But even in depressions, new businesses and new industries are born. Indeed, oddly enough, such times may be better for radical entrepreneurs. In the great boom the UK has witnessed over the past 15 years, relatively few new stars have emerged. Even Sir Philip Green, probably the most successful British businessman of the Brown era, is chiefly a clever trader of existing assets rather than a creator of new ones. The likes of Sir Alan Sugar and Sir Richard Branson emerged from past recessions. In crumbling economies, old slates are wiped clean: when there’s no money to be made in old industries, you might as well start new ones. And since the greatest companies are usually founded on a shoestring it doesn’t make much difference if there isn’t much capital around.
So where should we be looking now? You may not want to be caught talking about ‘green shoots’, like business minister Baroness Shriti Vadera — now referred to by Whitehall officials behind her back as ‘Shooti’ — but there are two places to start the hunt. In a recession, governments do lots of things to stimulate demand. And space is freed by the closing of old enterprises.
Government rescue programmes provide fertile ground for entrepreneurs. The recovery of the 1880s, for example, was based on railroad networks built after the American government decided to give away land and mineral rights to stimulate the economy. The post-1930s recovery was based in part on the fact there were suddenly lots of new roads (good for the auto industry) and lots of cheap electricity from hydro-electric dams and new power stations (great for new businesses like EMI).
Much of the money now being thrown at collapsing economies will no doubt be wasted, just as it was in the 1930s. Still, even the most crack-headed administration can’t spend a trillion dollars without getting something back. Barack Obama is throwing money at new rail lines, cheap electricity from renewable resources, and healthcare research. The Germans are hurling euros at healthcare, energy efficiency and green cars (with allowances for trading in your big old gas-guzzling BMW). In time, all that will create opportunities for new businesses.
Likewise, the collapse of old industries is going to leave a lot of space for new ones. The average high street will have masses of empty shopfronts going cheap in the next few years: anyone who can think of uses for them can make money. If you can usefully deploy an army of smartly turned-out, perennially optimistic young men and women, then you can build a mighty business employing all the people who used to be estate agents. The point is that in a depression, the prices of raw materials, property and people drop dramatically, creating the opportunity to turn them into something new without spending much.
At this stage it has to be pure guesswork which industries will see all this wonderful creativity and growth. Credit looks like one opportunity. With trust in the banking system broken, possibly beyond repair, anyone who can figure out how to reconnect savers and borrowers in a way that leaves both sides feeling they are getting a fair deal may do very well.
Food could be another winner: growing vegetables through the British or German winter might make a lot more sense than flying them in from Africa if you could find a way of doing it efficiently and cheaply — perhaps using all that renewable energy about to be unleashed by those stimulus programmes. High-speed trains look like a good bet and so do electric cars: just think of all the money the record companies made when we replaced our record collections with C Ds and multiply it by about 10,000 to imagine the fortunes available if we all replace our petrol-driven cars.
Further out, there will surely be plenty of big opportunities in the ageing of the developed world’s population: someone has to think of a way of bringing together the richer old people with the poorer younger ones in the developing world. Likewise, the re-integration of Africa into the global economy looks like a task for a new generation of entrepreneurs to match the likes of pre-decessors such as Tiny Rowland of Lonrho.
Naturally, we have no way of knowing which will be the mighty industries of the 2020s and 2030s: anyone who knew for sure would be too busy making money to tell us. One thing is for certain, however. The giant companies of that era are being dreamt up right now.
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