Tuesday, July 14, 2009

The New Normal

There has been a great deal of talk about the "New Normal," in this post we will review some of the meanings associated with the expression.

Before we define the New Normal we should understand the period that preceded it. In the pre-recession period, it was normal for the US economy to grow 3 percent per year and the stock market to average about 6 percentage points better than inflation.
In stark contrast the New Normal entails slower growth, higher unemployment and greater government involvement.

The New Normal is a term most recently popularized by PIMCO's Mohammed El-Erian. According to El-Erian's book, "When Markets Collide," we are likely to see slower growth in the West and faster growth for developing nations.

El-Erian predicts slower global growth due to the obsolescence of our economies, regulation, taxation, nationalization and legislation. He also predicts subdued investment activity and the erosion of endogenous credit.

But El-Erian is not the only person to make use of this term, at the end of 2007, Fast Company senior editor Polly LaBarre interviewed visionary investor Roger McNamee who reviewed his conception of the New Normal.

The New Normal represents a departure from the principles of the past decade. "Everything takes longer in the New Normal," says McNamee. "it requires a different frame of reference. ...Patience will once again be a virtue of great consequence."

"In the New Normal, the trick is to get real about the new set of challenges we face and what it takes to win in an environment where there are no shortcuts...and if you're willing to be a little different from everyone else, there are countless opportunities worth pursuing."

As we will explore in the next post, elements of the New Normal are driving sustainablity and in a forthcoming post we will examine the implications for businesses. Consumers are changing, and to be competitive businesses must change along with them.

Some businesses will not be able to transition from the hothouse environment of the pre-recession boom to the cold economic reality of today. But those businesses that can take root will have a good chance of surviving.

Next: The New Normal and Sustainability / The New Normal and Implications for Business

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