Los Angeles Times
The 1970s are back--but that's not entirely bad news. Then, as now, stocks steeply declined. In 1973-74 alone, the New York Stock Exchange composite fell by 44%. Equities did not recover until the early 1980s. Yet the stock market's prolonged stagnation in the 1970s did not signify the end of prosperity. Rather, the nation's capitalist engine was undergoing a critical, albeit painful, recalibration. Something similar is going on today. Call it the emergence of the "post-nomadic" economy. Security concerns will replace speculation, real assets will triumph over paper ones, and more spiritual values will displace materialism.
The post-nomadic trend reflects changes that were building up before the stock market's current turbulence and Sept. 11. As Americans have aged and become ever more capable of settling where they wish, because of the rise of digital technology and the dispersal of economic activity, fewer of them than ever are willing to pick everything up and move in pursuit of quick riches. Fewer than 15% of Americans change addresses in any given year, down from a high of 20% in the 1970s. Contrary to popular reporting, most baby boomers, suggests demographer William H. Frey, "age in place." That is, they stay where they are. This development suggests that residential property may be the "gold" of the emerging economy because the home has become more important to people financially.
But post-nomadism is also about values that place greater emphasis on family, faith and community. At the height of the 1990s stock boom, according to the Zogby International poll, only one in three Americans defined their "American dream" in spiritual, as opposed to purely material, terms. By 2000, a spiritual definition was embraced by 42% of Americans. After Sept. 11, the percentage grew to 52% of adults.
In the post-nomadic economy, the activities of local businesses and entrepreneurs will be more important than the global machinations of speculative capital. The new generators of wealth will be closer to hearth and home: investments in private businesses, houses, real estate and the production of goods that satisfy the essential needs of individuals and families. Industries connected to the post-nomadic economy--health products, appliances, construction, mortgage banking and furnishings--stand to thrive in the new times; all expect to boost payrolls over the next six months. Also benefiting will be the commercial banks, which service the privately held companies that account for nearly 60% of U.S. employment, 78% of all new jobs and more than half of the gross domestic product.
Even among larger companies, the winners will be those that provide basic products and services. Johnson & Johnson, the health-care company that has a history of respect for customers, is one such example. Also likely to do well are companies connected to what may be considered the most essential service of all--security and defense.
The changes in values, both economic and social, will affect the economic landscape. Urban residents, according to Frey, have shown a markedly higher rate of concern over security issues after Sept. 11 than those living in suburbia and the countryside. These attitudes will affect where people and businesses locate, and how people spend or invest their money. For example, real estate agents report a sizable increase in inquiries about suburban New Jersey and Westchester, N.Y., from Manhattanites looking to move outside the "30-mile blast zone."
To see how this post-nomadic economy will play out, it is helpful to look back to the 1970s. Then, the nation's economy seemed highly vulnerable, pinched on the one side by Japanese competition and, on the other, by dependence on Middle East oil. Like today, corporate scandals were undermining confidence in Wall Street. There was even widespread criticism of the accounting profession, which was accused of financial shenanigans to justify the wild ambitions of irresponsible corporate managers. Then, as now, the whole market suffered for the indiscretions of a few. As Forbes magazine noted in 1973: "When the paddy wagon backs up to the door, it takes the good girls, too."
Yet in retrospect, the troubled 1970s laid the foundation for the next two decades of prosperity. Some U.S. companies disappeared, but others, awakened from their long managerial slumber, cleaned up their accounting, restructured and entered the 1980s with enhanced competitiveness. The 1970s also altered, permanently, the balance of power among the country's regions. More than a century of Midwestern and Northeastern economic supremacy ended as the old blueblood, hierarchical Fortune 500 companies fell before the more entrepreneurial, flexible and individualistic economies of the Sunbelt.
History never runs in exact parallels, to be sure. Today's economic conditions are certainly better than those in 1973. Inflation is low. More U.S. companies have retained their competitive edge, and most growth indicators appear to be at least mildly on the upswing.
Yet, as in the 1970s, the current market turmoil may presage a major reshuffling of both the industrial landscape and the regional economic balance of power.
"When people depend on debt to finance operations, they look at things differently than when it's equity," says Andrew Segal, a Houston-based real estate investor with holdings in several heartland cities. "Business now has to look for a more reasonable place. The ugly ducklings are beginning to look better."
Among the ugly ducklings that may be poised for a reversal of fortune in a post-nomadic economy are large exporters in the Midwest. A falling dollar and a greater emphasis on cost controls will benefit these companies. Metropolises like St. Louis, Baltimore, Cincinnati and Indianapolis may become more attractive than the pricier coastal regions for employers seeking to cut expenses in tough times. Recent economic data on job growth and commercial vacancy rates suggest these areas are holding up better than those that participated in the 1990s boom (such as Dallas and Denver).
The news is particularly dreary for some of the most celebrated glitter children of the previous decade.
In the mid- to late-1990s, says Leslie Parks, former economic development director for San Jose, inflated stock prices created a false economy that drove up real estate prices and the cost of managerial and technical talent while driving out more middle-class, blue-collar activities from the Silicon Valley and its urban appendage, San Francisco.
"Economic diversity is a constant challenge here," Parks adds. "A lot of people did not want basic industries. They thought high-tech could solve everything."
An example of the post-nomadic economy lies just across the Bay in suburban Contra Costa County. The county is home to sugar factories, oil refineries, a major military base and health-care providers like Kaiser Permanente and boasts the headquarters of grocery giant Safeway. With much of its economic expansion based on serving its rising population, the area is expected to surpass all others in the region in job growth over the next two decades.
Most ironic of all, the place that Parks and others in the San Jose area now see as a model is Southern California, which many in the Bay Area regard with something between disdain and loathing. Southern California benefited relatively little from either the 1990s high-tech or stock-market booms. In part that's because the Southland economy is chiefly driven by smaller companies, the self-employed and immigrants, none of whose net worth tends to be expressed in stocks. Latino households, for example, are barely one-third as likely to hold mutual funds as Anglos. Instead, their capital fuels a rapidly growing segment of the regional housing and consumer markets.
Although not a guarantee of long-term success, the Southland economy has many qualities that will give it an edge in the coming era. Its industries, besides entertainment, tend to be basic--trade, garment, textile, furniture, construction--and not vulnerable to wide speculative swings. Population growth is solid and steady, providing reliable local markets for basic goods and services, as well as the real-estate market. And the still potent defense industry seems poised for further expansion.
The shift to a post-nomadic economy will prove painful for many people--including Southern California--across the country, particularly for those who relied most on the speculative boom of the 1990s. But, as in the 1970s, the shift to less-speculative financial instruments, a renewed emphasis on grass-roots entrepreneurial efforts and a more rational redirection of human capital will help the economy, even in the most hard-hit regions, to find surer footing, setting the stage once again for a new--it is hoped less-deflatable--boom later in this decade.
Joel Kotkin, a contributing editor to Opinion, is author of "The New Geography: How the Digital Revolution Is Reshaping, the American Landscape." He is a senior fellow at the Davenport, Institute for Public Policy at Pepperdine University and the Milken Institute. Susanne Trimbath, an expert on capital markets, is a senior research economist at the Milken Institute.