A Darwinian Gale

2010

The Recovery Consumer Marketplace in the Era of Consequences

A White Paper from The Futures Company

J. Walker Smith,

A Darwinian Gale 2010

Executive Vice Chairman, The Futures Company & President, The Yankelovich MONITOR jwalkersmith@thefuturescompany.com twitter.com/jwalkersmith

Crawford Hollingworth,
Executive Chairman, The Futures Company crawford.hollingworth@thefuturescompany.com 2010 The Futures Company www.DarwinianGale.com Join the conversation and keep up with the latest devlopments: blog.DarwinianGale.com

A Darwinian Gale

The Futures Company is a trends and futures research consultancy created by the coming together in 2008 of Henley Centre HeadlightVision and Yankelovich. We enable our clients to both forsee and capture the advantage in their futures. This white paper is the first in what will be an ongoing series of periodic thought-pieces on key topics in global marketing strategy and consumer trends. These white papers will draw from insights available in the comprehensive backbone of global knowledge and intelligence maintained by The Futures Company as well as the experience and expertise of senior thinkers and consultants at the firm. The purpose is to stimulate thinking and provoke discussion about important business issues in todays challenging marketplace. While these white papers will be definitive in their points-of-view, they are not meant to be the final word. Rather, they are meant to offer an opening perspective in a broader, interactive conversation about the unfolding consumer marketplace. We hope to start a dialogue about the issues set out in this white paper. Please let us know what you think so that we can work together to wrestle these important issues to the ground and create greater success for your brands
Section 2 Endnotes Section 5 Section 4 Section 3

Section 1

A Darwinian Gale

2010

A Darwinian Gale

Contents
Section 1: The Recovery Consumer Marketplace Section 2: The Era of Consequences Section 3: Redefining Value Section 4: Executive Summary Section 5: Working with The Futures Company Endnotes:
page 6 page 18 page 44 page 74 page 86 page 92

Endnotes

Section 5

Section 4

Section 3

Section 2

Section 1

1. The Recovery Consumer Marketplace

A Darwinian Gale

2010

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Section 1:

The Recovery Consumer Marketplace

Endnotes
7

Section 5

Section 4

Section 3

Section 2

Section 1

The Overhang of Uncertainty

What the Great Recession of 2008/2009 has wrought is not what is popularly supposed. One common view, perhaps the most widely proclaimed, is that the recessionary experience of frugality has ushered in an enduring era of penny-pinching and thrift that will wholly define the character and mindset of the recovery consumer marketplace to come. The consumer, it is said, has been changed altogether. At the other extreme is an alternative view that consumers are hardy spenders, acquisitive at heart and materialistic above all else, who will pick up right where they left off the minute this recession bottoms out. By this view, consumers have not been changed at all by this recession, only put into a holding pattern. Neither view is correct.

Consumers wont be utterly frugal

A Darwinian Gale

Clearly, this recession has transformed the ways in which consumers of circumstances. Consumers do what circumstances allow, so the way to anticipate what they will do in the recovery consumer marketplace is to scrutinize the context within which they will engage that marketplace. In the context of the recovery consumer marketplace to come, consumers will be entirely different, not The context of consumption at hand is one that reflects a loss of certainty about risk in the macro-economy; more specifically, a loss of the conviction, pervasive throughout the global economy over the last three decades, that economic risk had been tamed. It has been a generation since planning for and This recession has brought it back. The defining dynamic of the recovery consumer marketplace will be an overhang of uncertainty about economic risk. The rival hypotheses of frugality and of carrying on as before reflect little more than epiphenomena better
Section 5
9

understood in the broader context of uncertainty.

Endnotes

Section 4

protecting against economic risk hung over the global consumer marketplace.

Section 3

the same as before, but they wont be utterly frugal.

Section 2

shop and buy. Yet whats behind this is not a change of heart but a change

Section 1

A New Value Equation

This recession has lowered the curtain on the heady consumption and liberal globalization that energized the global economy for three decades. Looking ahead, economists foresee a global economy in recovery that will be much smaller in size and growth than the peak of the boom just passed. In every market, developed and developing, it will take years to recoup lost wealth and to restore stalled momentum. But a smaller economy does not mean that the consumer imagination will be bereft of ambition or wholly appropriated by a resignation to do without. Even with smaller

household budgets, the capacity for dreaming will be as big as ever. Consumers are not going to give up on their aspirations to a better life; they will just re-channel these ambitions to fit the context of the recovery consumer marketplace. In their quickening immersion in uncertainty, consumers are rethinking what motivates them. The surprise and severity of this recession has unveiled a world in which less was known than was thought, so circumstances are forcing consumers to find new ways to invest their lives with assurance and promise. In particular, consumers are rethinking the definition of value.

The capacity for dreaming will be as big as ever

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The future will see a proliferating mosaic of ever-more eclectic consumer strategies and solutions for building satisfying lifestyles. A multi-polar global economy seems certain, extending the bigger global trend of diversity into the business, political and even intellectual realms of economics and finance. Already, previously dissident voices, long muffled by the concord of certainty, are resounding more loudly and finding fresh resonance with new audiences, often by courting the outrage and frustration boiling over from the uncertainty of economic dislocations. Consumer auteurs are enjoying greater standing, one consequence of a recession that has discredited expert opinions of all stripes. And with consumers actively questioning old habits and old beliefs and reassessing old products and old brands, innovation is primed to thrive.

Consumer behavior will not return to what it was before.1 Its not hard for consumers to see what tipped their personal situationsnot to mention the broader economyover into trouble. It was the prior definition of value and the aspirations to which it gave rise, of which wont go back to these discredited ambitions. The most important question facing marketers is what sort of value will animate the connection between consumers and brands in a recovery consumer marketplace coming to terms with the overhang of uncertainty.

11

Endnotes

Section 5

Section 4

trading up is the one now called into question the most. Consumers

Section 3

Section 2

Section 1

Frugality Is Not the Future

The marketplace ahead will be in recovery not in recession. The prevailing mindset in the recovery consumer marketplace will be very different from that during the recession. Consumers will be looking up again, not continuing to look down, not continuing to worry about how much farther they will drop before they hit bottom, and certainly not abandoning consumerism. This recession has been as distressing for marketers as for consumers, which has made marketers overly and unreasonably gloomy. The opportunities for expansion in the recovery consumer marketplace will be lost if marketers continue to market

Consumers will be looking up again

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to a recessionary mindset, in particular, by focusing on frugality. Anticipating an impending era of frugality based on the economizing that some consumers are doing today is a misreading of whats going on. Make no mistake, in many markets around the world, spending less has legs to it, and in those markets, there is likely to be more of it. But what consumers are up to is more than just buying on the cheap. Instead, consumers are redefining what value means to them and, thus, what does or does not warrant the extra expense. Besides, frugality has not even been the common immersive experience worldwide during this recession. Certainly,

in hard-hit developed markets with severely over-leveraged consumers have had little choice but to be more tightfisted. But in many developing markets, consumers lived sparingly already, and those who did faced slowing or minimally contracting economies, not severe declines. In these markets, the pressure facing consumers in the future will not be to spend less but to that an essential requirement for a truly robust global recovery will be for consumers in developing markets like China to boost their spending and reduce their saving.
Section 5
13

Endnotes

Section 4

spend more. Economists note, for example,

Section 3

not, at least in the big developing markets,

Section 2

contracting

economies,

beleaguered,

Section 1

Wherever and whenever it is seen, frugality arises as a coping mechanism, not as an aspiration. It springs from necessity, not desire, and consumers readily abandon it when the need passes. The emerging ambition is not to trade off everything for price, because despite all that has happened, consumers everywhere still want value-added products, even at a premium.

A literal extrapolation of recent parsimony is not a reliable augury of whats ahead. Consumers are remaking their ambitions by redefining value; they are not resigning themselves to frugality. It is imperative that marketers focus on the bigger issue of the changing value equation and not on the fleeting fact of frugality.

Frugality arises as a coping mechanism, not as an aspiration

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In a world reeling from the abrupt realization that less is known for sure than had been assumed, every aspect of every decision is now being put on the table for review, most especially the full range of decision consequences, or the ripple effects of consumer choices, both for others and for oneself.

this recession is that, notwithstanding the certainty they felt about the containment of economic risk, they were actually exposing themselves to big risks. Often unknowingly and

15

Endnotes

Section 5

One sure lesson that consumers have taken away from

Section 4

Section 3

Section 2

Consequences Matter More

This focus on consequences will be the hallmark of the recovery consumer marketplace to come

Section 1

perhaps navely, their shopping and buying was setting them up for negative consequences to come. Many of the things that seemed to be smart and a great value at the time turn out to have been nothing of the sort, now that the full complement of consequences has been brought to bearpersonal consequences chief among them, but consequences for others, for the environment and for communities, too. It has always been the case that when risk appears to be less threatening, more risk is taken on, frequently without realizing it. The late economist, investor and historian of the finance profession Peter Bernstein noted in his 1996 bestseller Against the Gods, that a credulous faith in risk management encourages us to take risks that we would not otherwise take; indeed, risks that are far dicier than appreciated at the time. Such was the case in recent years as any

appreciation of consequences whatsoever fell by the wayside. A not inconsiderable part of redefining value will entail focusing a wider lens on the panoply of possible consequences. For consumers in developed markets, the challenge posed by consequences is relatively straightforward. But in developing markets, consumers will face this challenge as a thorny clash of valuesthat of reconciling the developmental need and ambition for more material consumption with the recognition that accounting for consequences might require less material consumption. Companies have learned the lesson of risks and consequences, too, which is leading many businesses, separate and apart from any new regulations, to start pricing consequences into the choices available to consumers, and even to employees. In doing so, these businesses are looking to reduce their exposure to risks they

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didnt worry about, or even consider, a short time ago. This focus on consequences will be the hallmark of the recovery consumer marketplace to come. The loss of certainty about economic risk has unleashed a wave of unease and uncertainty that goes well beyond economics per se. It has brought everything into question, especially the definition of value, for which consequences now tip the scale. To be sure, these shifts in risk, uncertainty and value are not the only things shaping business prospects for brands. Demographics have their own momentum and matter a lot, especially the rising generation of consumers under 30 known around the world and technology, particularly the budding new digital+social+mobile technologies. Even pop culture and politics have orbits not

entirely influenced by the consumer context risk. Trends of all sorts are bending to conform to the consumer repercussions of the Great Recession of 2008/2009. To enable brands to fully prepare for whats Company tells this tale about the overhang of uncertainty and then explores the implications of this for the behavioral foundations of a new definition of value in the recovery consumer
Section 4
17

marketplace.

Endnotes

Section 5

as Millennials. The same is true for science

Section 3

ahead, this white paper from The Futures

Section 2

of uncertainty. But dont count out economic

Section 1

2. The Era of Consequences

A Darwinian Gale 2010

Section 2:

The Era of Consequences

Endnotes
19

Section 5

Section 4

Section 3

Section 2

Section 1

A Darwinian Gale
Wrenching recessions and speculative financial panics are not unknown in recent decades. In fact, they have been quite common.2 The Great Recession of 2008/2009, however, has been anything but common.3 And the cumulative experience of weathering prior crises has made this uncommon experience even worse. Nothing in recent memory has been remotely like this recession. Not since the 1930s has a downturn had an effect on the entire world at once like this one. Nor have economic crises in recent decades been as severe as this one. With only a few exceptions, the U.S. was at the center of past rescues, not at the center of the emergency. And no matter how bad things got, there was always a backup Plan B. Not this time.4

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In both origin and solution, past downturns served to validate conventional macroeconomic wisdom. Each was diagnosed at the time as a failure to follow one or more of the key tenets of modern, post-WW2 macroeconomics, for which the remedy was to get back on track. This recession, on the other hand, has called the tenets themselves into question. One capitalist bastion,

The Economist magazine, echoed this sensibility in a July 2009 cover story entitled, What Went Wrong with Economics, that was illustrated on the cover with a drawing of a book bearing the title of Modern Economic Theory melting into a puddle.
5

Nothing had prepared the world for a recessionary gale of Darwinian proportions like this one. From out of the blue it stormed in, catching the world unawares and lashing made ready for it, and, so, much was leveled and lost in its surge. Only in retrospect can the early warning signs be recognized.

21

Endnotes

Section 5

the global economy. Little if anything had been

Section 4

Section 3

Section 2

Section 1

 What happened is more akin to the kinds of catastrophic events that periodically, albeit rarely, wipe the biological or geological slate clean, making way for mammoth evolutionary eruptions of wholly new species of successors

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Every recession clears away inefficiency and obsolescence, making room for better breeds of products and services. But this gale has been much more than this sort of perpetual turnover of the old for the new.
6

This Darwinian gale has blown the Bank estimates that 2009 will see the first contraction in the global economy since WW2. Indeed, its June 2009 estimate predicted a 2.9 percent annual decline, of a 1.7 percent annual decline. The World Trade Organization projects that trade in goods will decline 10 percent in 2009, the largest decline in at least 60 years. Across its countries, the Organisation for Economic Co-operation and Development estimates that through July 2009 15 million jobs were lost due to the recession and another 10 2009 and the end of 2010, which would push the 30-country unemployment rate up to 10 percent. Globally the International
Endnotes Section 5
23

Markets from automobiles to foodservice to hospitality to packaged goods to technology to travel to fashion to retailing and more have been fundamentally destabilized

2.

not

progressively

improvedby

this

Darwinian recessionary gale, and as a result, now face radical reshaping. It is an utterly uncompromising state of survival of the fittest. What happened is more akin to the kinds of catastrophic events that periodically, albeit rarely, wipe the biological or geological slate clean, making way for mammoth evolutionary eruptions of wholly new species of successors.
7

million jobs will be lost between August

Section 4

30 high- or upper middle-income member

Section 3

far worse than its earlier figure in March

Section 2

global economy backwards. The World

Section 1

Labour Organization of the United Nations projects that job losses due to the recession could equal 50 million by the end of 2009.8 As the recessionary gale raged, consumers in developed markets looked on with alarm as the prosperity they had taken for granted went into freefall at near-terminal velocity. They lost whatever certainty they used to feel about continued economic growth. Consumers in many developing markets lost confidence that by tying their futures to the developed global economy they could be assured of a fast track to development, and they began to fret that their dreams of replacing generations of poverty with middle-class comforts might no longer be within reach once the gale passed. Some markets escaped the worst of the gale. But even with growth slowing rather than contracting, they have been affected. Consumer confidence held up better in these

A slower-growing economy can be just as bad as a contracting economy

markets, but worries among consumers over economic risk and the uncertain prospects of the future are as much a factor in these markets as everywhere else. Not to mention that slower growth is feeding an undercurrent of antiglobalization that is now bubbling to the surface as countries like China, India and Brazil start to rethink how they want to be coupled to the web of the global economy. A slower-growing economy can be just as bad as a contracting economy. In China, a minimum of 8 percent annual GDP growth is necessary for employment to keep up with population growth, yet in June 2009 the World Bank projected that annual GDP growth in China would be 7.2 percent in 2009 and 7.7 percent in 2010 (in contrast to 13.0 percent pre-recession GDP growth in 2007).9 To avoid GDP growth slowing this much, the Chinese government stepped up its efforts to boost GDP growth, and as a result, in September 2009, the Asian Development Bank revised its March forecast,

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A Darwinian Gale

raising its 2009 estimate from 7.0 to 8.2 percent percent growth.10 The Chinese government monitors GDP growth closely because when slow growth leaves large numbers of people without jobs, civil unrest and labor protests Similarly, 2009 and 2010 GDP growth projections for Indonesia, Peru, Brazil, India, Poland, the Philippines, Egypt, Lebanon and Australia, all countries that have fared recession (largely, though not entirely, because of slowing rather than contracting GDP growth), are well below the growth levels they enjoyed prior to this recessionary gale.
Section 4
25

Era of Readiness Economic risk ever-present despite best efforts to manage it. Standing on guard.

Era of Indulgence Risk thought to be manageable with high-tech macroeconomic tools. Indulging risk. Value found in... TRADING UP

Era of Consequences Risk abruptly returns unexpectedly, creating uncertainty. Reassessing externalities.

somewhat better than others during this

Value found in... NEW FRONTIERS

Value found in... RESPONSIBILITY

Endnotes

Section 5

Section 3

become a real threat to domestic security.11

Section 2

growth. Its 2010 estimate for China is now 8.9

Section 1

The ruinous shock of this recession is something that everyoneconsumers, financiers, economists, business leaders and policymakers alikethought was a thing of the past, which made it all the more dismaying and which has given rise to an improvised patchwork of remedies. The belief that there was no economic risk to fear because macroeconomics could keep the worst from happening has been belied by the brutal economic realities of this recession.

Since the end of WW2, there have been three eras of expectations about economic risk.12 The recent recession has brought an end to the middle era and ushered the global economy to the threshold of the next. The trajectory runs from an era in which consumers worried over economic risk to an era in which consumers ignored it because it was thought to be completely manageable to the era ahead in which consumers will demand a better accounting of economic risk.13

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The era of readiness ran roughly from the end of WW2 to the mid-1980s. Governments were actively involved in managing their economies as they tried to counter economic swings and harness full economic potential. In the Iron Curtain, as central planning.14 These efforts worked so well for a while that the Social Science Research Council, an international academic organization, held a conference in London in April 1967 was not. Economic volatility, inflation in particular, returned with a vengeance during the 1970s, reigniting concerns about economic risk among consumers who were forced to take it and guarding against it became deeply ingrained. Extraordinary governmental efforts were required to purge consumers of these fears and anxieties.15 But once

27

Endnotes

Section 5

explicit account of it. A psychology of worrying about

Section 4

entitled, Is the Business Cycle Obsolete? Unfortunately, it

Section 3

the West, this was known as the mixed economy; behind

Section 2

The Era of Readiness

Section 1

accomplished, the global economy began a sustained, decades-long upward advance, sweeping the whole world into the flood tide of globalization, economic growth and asset appreciation. Ironically, no sooner had the levers of government succeeded in squeezing systemic problems out of the marketplace the pendulum swung, in both politics and academia, from government to free markets as the preferred means of stabilizing economies, eliminating uncertainty and managing risk.

In

academia,

the

efficient

market

hypothesis, or the idea that unfettered free markets work with optimal efficiency to allocate capital and manage risk, rose to full ascendance in economics and finance.16 In politics, the elections of Margaret Thatcher in 1979 as U.K. Prime Minister and Ronald Reagan in 1980 as U.S. President marked a fundamental shift in public support for free markets over government. The ensuing successes of the U.K. and U.S. economies during the 1980s and 1990s, along with the simultaneous successes of the fellow-traveler economies of Australia, Canada, New Zealand and Ireland, catapulted the so-called Anglo-Saxon economic model of free-market capitalism to prominence.

The pendulum swung from government to free markets

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After the collapse of the Soviet Union in 1991, free-market capitalism stood alone on the world stage. And not just in Western
17

Jimmy Carter on a trip symbolic of the opening up of this Communist nation to capitalistic market forces. Deng famously said of this that socialism and market economy are not incompatible. China took a path that involved a little more of the free market but no less of government, as did some other developing nations. But however free their markets, economies the world over became

intertwined in the globalization that resulted national borders. With government on the wane, the global economy became a winner-take-all free market. Released from overhanging fears of economic risk and jumped in, taking all they could get. The era of indulgence ensued.
Section 3
29

developed countries but in every country, because all were moving in this direction, even China. In 1979, around the time that Thatcher and Reagan were unbridling their markets, Deng Xiaoping, the leader of the Peoples Republic of China, visited U.S. President

freely competing to be winners, consumers

Endnotes

Section 5

Section 4

Section 2

from a freer flow of market capital across

Section 1

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The Era of Indulgence

With the ascendancy of free-market capitalism and the purging of economic volatility, consumers gained confidence that, at long last, economic risk had been vanquished. Maybe not eradicated, but at least contained. What used to be dicey was now safe. This was certainly the view of economists. Nobel Prize winner and University of Chicago economist Robert Lucas, a student of freemarket guru Milton Friedman, made a point

of this in his 2003 Presidential Address to the Macroeconomicswasbornasadistinct field in the 1940s, as a part of the intellectual response to the Great Depression [W]e hoped [it] would prevent the My thesisis that macroeconomics in this original sense has succeeded. Its central problem of depression-prevention has been solvedand has in fact been solved
Section 4
31

for many decades.

Consumers gained confidence that economic risk had been vanquished

Endnotes

Section 5

Section 3

recurrence of that economic disaster.

Section 2

American Economic Association18:

Section 1

Out of such confidence came markedly diminished The concerns about Peter risk.
19

In such a context, its no surprise that consumers, too, became convinced that economic risk was under control, and hence saw no need to temper or rein in their fervid gusto for consumption.
20

There were periodic setbacks. But these occasional emergencies were actually viewed as macroeconomic success stories. As crisis after crisis was kept limited and short-lived, the global macro-economy took on an aura of invincibility. Macroeconomics seemed to have become completely proficient and virtually mistake-free at fixing economies and getting them to work properly again. The accompanying and apparently unstoppable rise in asset values worldwide was regarded as further proof that efficient free markets had eliminated economic risk. Not every sort of risk was taken lightly by consumers during the era of indulgence. In many areas, risk became more salient and a bigger perceived threatterrorism most obviously, along with risks in developed markets related to privacy, health, the environment and crime and risks in developing markets

aforementioned

Bernstein

lamented in a telling observation in early 2008 that [w]e have passed through a period where the appetite for returns was so voracious that considerations of riskiness were significantly downgraded, to the point where risk had vanished from the decision-making process.

For consumers in developed markets, economic risk-taking was treated like sport and play. In developing markets, a deluge of seemingly risk-free capital started pouring in, enabling consumers in these markets to enjoy newly teeming marketplaces and to join the ranks of booming middle-classes.

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from natural disasters, armed conflicts, the capitalism that reigned supreme during the past three decades imposed greater personal risks on individuals as job security and health care in developed markets became less secure were weakened. Consumers have not known a totally risk-free world. economy. Indeed, But they have known
Section 4
33

what they believed was a risk-free macrothreats from other, non-economic risks were made tolerable to a large extent by the ostensibly secure and sure rewards available in the broader economy. But for consumers, the whole compensations turn out to be at risk as well.21
Section 5 Endnotes

bargain is suspect if these offsetting economic

Section 3

and as traditional ties in developing markets

Section 2

environment and disease. Even the free-market

Section 1

Risk is back on the agenda for consumers

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Risk Roaring Return

Economic risk, for so long ignored, has come roaring back. Consumers everywhere have lived through the meltdown of a global economic system that had every appearance and assurance of being indestructible and immune from crises that could threaten ones very subsistence. For economic risk to reappear in the form of the worst global downturn since the governments, regulators and international economic organizations, not to mention consumers, were wholly unprepared. There was no Plan B, for, after all, there wasnt supposed to to begin with.

As a result of this harrowing downturn, with no tolerance any longer for ignoring or indulging it.22 In the future, consumers will bring a different character and mindset to the marketplace. That is to say, consumers
Section 3
35

will think differently.

Endnotes

Section 5

be any possibility whatsoever of this happening

Section 4

1930s is a gale of epic proportions for which

Section 2

risk is back on the agenda for consumers,

Section 1

Looking back, consumers see that many of the things they did with impunity because they felt no economic risk in doing so were utterly foolish and irresponsible. In developed markets, the hallmarks of the era of indulgence easy credit, easy money, easy livinghave been exposed as frauds. What seemed sensible to consumers just a short time agowhat had been trumpeted in developed and developing markets alike as the epitome of shrewdness and touted as the risk-free road to richesnow seems incredibly nave.

Total Agree: I like to take part in activities that have an element of risk or adventure (2009 vs. 2008)
Source: The Futures Company Global MONITOR (selected countries)

France 30%
Down 6 points

Russia 31%

Down 6 points

Brazil 37%
Down 4 points

China 27%

US 34%
Down 5 points

Down 2 points

UK 32%
36

Down 3 points

A Darwinian Gale

In a June 2009 opinion piece in the Financial Times, Olivier Blanchard, chief economist for the International Monetary Fund, wrote that U.S. consumers have learnt [from this recession that][t]he world is more risky than they thought. Stock and housing prices retirement may require saving a lot more than was thought wise before the crisis hit. Recent surveys of U.S. consumers bear Blanchard out.23 But its not just U.S. consumers; its consumers everywhere. Economic risk is going to figure much more prominently in consumer ambitions and decisions. The things that consumers used to do without a second thought will now be done, if at all, only after these second thoughts have been given first priority.

Total Agree: I am happy to have short-term debt to allow me to buy the things I want (2009 vs. 2008)

Down 6 points

France
Down 9 points

USA

UK
Down 4 points

Down 4 points

Down 8%

37

Endnotes

Section 5

Russia

Down 9 points

Section 4

Brazil

Section 3

can go down, and go down a lot. Planning for

Section 2

Source: The Futures Company Global MONITOR (selected countries)

Section 1

Total Agree: I have become more conservative in how I spend my money because of actual changes in my financial situation such as a loss of income or assets or because I fear what might happen to my financial situation in the year ahead (2009)
Source: The Futures Company Global MONITOR (selected countries)

Russia

France Actual

Brazil

US

China Actual

UK

Actual

Actual Actual

69%

50%

61%

Actual

69%

42%

62%

Fear

Fear

Fear

Fear

Fear

Fear

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A Darwinian Gale

An era has begun in which consequences will be front and center. Greater scrutiny will be given to the broader complex of personal risks entailed in marketplace decisions and choices. Externalities will matter more, too.
24

consequences by spending less. This conflict of imperatives is unique to the development path faced by these countries compared to the manner in which these opposing pressures are reconciled will be central to the ways in which consumers in developing markets define and express their aspirations in the marketplace. saw no need and had no incentive to be overly mindful of the consequences, personal or otherwise, of their decisions, mainly because there was no way of accounting for ignored, and even when recognized, were not properly priced in. But no longer.

In developed markets, this means no more indulgence to the point of ignoring the costs. In developing markets, this means learning the lessons of what has happened worldwide in order to vault over the sort of excessive debt and risk-taking that poisoned the well of economic growth in developed markets. Consumers in developing markets will also grapple with a clash of values related to the lessons of consequencesthe burning desire to move up the ladder by spending more versus the critical duty to avert untoward

39

Endnotes

Section 5

consequences. Consequences were largely

Section 4

During the era of indulgence, consumers

Section 3

path that other countries faced in the past. The

Section 2

The Era of Consequences

Section 1

The decision calculus of consumer choice will be different

To say that consumers will take economic risk into account is not to say that a bunker mentality will set in and stop consumers from buying anything but the cheapest essentials. Nor is it to say that frustration and anger will be the only emotions connecting consumers with the marketplace. It is also not to say, at the other extreme, that consumers will sacrifice all material aspirations in order to hold their spending accountable to some higher aim like social responsibility. Instead, accounting for economic risk will change the criteria that consumers bring to the marketplace when deciding what to buy. The decision calculus of consumer choice will be different. Economic risk will find its way into the consumer decision calculus in the form of consequences. Indulging economic risk meant not having to worry about consequences. Thats what indulgence is, and thats exactly what consumers did during the era of indulgence. So, converselyindeed, inherentlytaking economic risk into account in the future will mean that consequences will be a bigger part of the consumer-decision calculus. Even if consumers dont make different choices, the process of arriving at those

choices will be different. Just to do nothing more than sell the same old brand to the same old consumer will take something other than the same old pitch. Consumers wont need a lot of arm-twisting to take account of consequences.25 For example, even before the recession really hit home during late 2008 and early 2009, increasing numbers of U.S. consumers were beginning to recognize the need to be more sensible in the choices they make.26

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A Darwinian Gale

The era of consequences will be guided by a potent ambition of responsibility that will entail a greater emphasis on vigilance and resourcefulness. Spending will be shaped by the necessity to prioritize as consumers orient their shopping in co-ordination with networks of interests that include but also go beyond their own selfish concerns. National
27

What it means to be a good citizen today...

Not buying a home that is larger than you really need to help reduce energy usage
2007- Pre-Recession 2008- Early-Recession 2009- Late-Recession

economies, too, will ally themselves in new networks of alliances for better protection from economic risks. As the marketplace has moved from the era of indulgence through the recent recession to the era of consequences to come, an overarching ambition, reflective of the broader context, has given focus to everything else. Responsibility is the ambition that embodies consequences.

Not buying a vehicle that is larger than you really need to help reduce our countrys dependence on foreign oil
2008- Early-Recession 2009- Late-Recession

49% 46% 56% 59% 61%

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Preparing adequately for retirement so you are not a burden on government programs
2007- Pre-Recession 2008- Early-Recession 2009- Late-Recession
Source: The Futures Company U.S. MONITOR

Endnotes

Section 5

Section 4

2007- Pre-Recession

43%

Section 3

34%

41% 42%

Section 2

Total Agree:

Section 1

The Indulgence Era Consumer Ambition Sensibility Mindset Passion Orientation

Trading Up Exuberance Bullish Accumulation Self-expression

The Recession Consumer

Economizing Anxiety Sober Frugality Self-preservation

The Consequences Era Recovery Consumer

Responsibility Vigilance Resourceful Prioritization Networks

refurbished, new-and-improved version of the indulgence era consumer. Many forecasts of the post-recession marketplace are dark, seeing only the worst aftermath of the Darwinian gale. Certainly, not everything in store will be bright and shiny but all will not be cold and bleak either. Times will be different, and harder in some ways, but consumers in the recovery consumer marketplace of the era of consequences will continue to aspire to a luminous future, as consumers always have.

As is true in every era, consumers will respond in diverse ways. All outcomes, though, no matter how varied, and including the inevitable backlash, will be shaped by the prevailing context of consequences and responsibility.

The current recessionary consumer mindset, like the recession itself, is will transitional. Tomorrows consumer

not be todays anxious, frugal recessionary consumer extended indefinitely into the future. Nor will the consumer of tomorrow be some

42

A Darwinian Gale

The future is not fixed. It can be molded suffered. Taking charge is exactly what consumers are chafing at the bit to do. They dont want brands built on the presumption that the future holds only setbacks and help them handle whatever lies ahead, consequences included, and can offer them entre to the good life once more.
Section 4
43

Endnotes

Section 5

Section 3

losses. Consumers want brands that can

Section 2

and shaped, not simply endured and

Section 1

3. Redefining Value

A Darwinian Gale 2010

44

A Darwinian Gale

Section 3:

Redefining Value

Endnotes

45

Section 5

Section 4

Section 3

Section 2

Section 1

The Behavioral Foundations of a New Definition of Value

As the last remnants of the Darwinian gale scud into the distance, marketers must come to terms immediately with the dashed yet resilient landscape of the recovery consumer marketplace. Though the marketplace is fraught with the overhang of uncertainty, the possibilities for success will begin to crystallize as marketers concentrate attention and resources on the new definition of value and on the marketplace factors that wheel around the core characteristic of consequences. These factors are the behavioral cornerstones that lay the foundation for the marketplace ahead. The Great Recession of 2008/2009 has put many basic marketing questions back on the table. The basis of

consumer relationships for many categories has been turned upside down, from the questioning of need in some sectors to the willingness to spend in others to the loss of trust in yet others, and more. Even the boundaries of categories themselves have been transfigured. In this evolving environment, marketers will do well to revisit many of the basics with an audit of where the recovery consumer marketplace stands, including their brands within it, in terms of the five behavioral foundation cornerstones of responsibility, vigilance, resourcefulness, prioritization and networks.

46

A Darwinian Gale

Netw ork s

fu

Endnotes

Section 5

Section 4

ilance Vig

Pr

io

rit

iz a
ti o n

onsibility p s e R

e Era of Consequences

R es
o
c ur

47

Section 3

Section 2

Section 1

At The Futures Company, these five cornerstones define the surrounding context within which intelligence and insights must be generated, understood and applied and provide the critical context for conversation and engagement about the challenges facing brands. The practical solutions to these challenges will be specific to the particular circumstances of different categories and brands. Questions about the implications of these five elements will be specific as well. The ideas outlined in this section lay the groundwork for answering these questions and developing effective solutions, especially when addressed in conjunction with the unlocking methodologies of The Futures Company, approaches that can connect brands to the big opportunities within reach in the recovery consumer marketplace in the era of consequences.

Connect brands to the big opportunities within reach in the recovery consumer marketplace in the era of consequences.

48

A Darwinian Gale

Responsibility
The Great Recession of 2008/2009 has impressed upon consumers that they must take responsibility, not take things for granted. Above all else, this means being more mindful about decisions.
In the redefinition of value in the recovery consumer marketplace, consumers will adopt a more thoughtful approach to shopping and of consequences.

49

Endnotes

Section 5

buying that will necessarily entail taking account

Section 4

Section 3

Section 2

Behavioral Foundation Cornerstone

Section 1

roadly speaking, for consumers in developed markets, a responsible accounting of

and their feet on the ground, but knowing where along this continuum to pitch them will be a bigger challenge for marketers. Over time, this complexity will moderate as new habits become ingrained. In the meantime, though, brands will have to devise more efficient ways of feeding information-hungry consumers. What this complexity means more than anything else is change. And change stacked on top of complexity means that marketers will have to invest in re-learning what they know by going to school again on the brand value equation. But while there is much to be discovered anew, there are several things with a major bearing on the new value equation that are apparent already.

wholesale forsaking of aspirations or an embrace of absolute frugality. What consumers want in the recovery consumer marketplace is not simply the cheapest price but the best overall value. Household budgets will be smaller, but it is no more responsible to go from the immoderate extreme of extravagance to the immoderate extreme of asceticism.

consequences means an end to indulgent, often reckless, debt-fueled spending in favor of a more tempered approach. For consumers in developing markets, it means detouring around the sort of excessive consumption that wound up battering developed economies and wiping out troves of accumulated wealth.

consumer decision calculus. In the near-term, the calculus by which consumers reckon value will be more complex, because of more consideration given to decisions and more things to consider. Consumer deliberation will become more labyrinthine. Managing risk will mean managing complexity. As always, consumers will have their heads in the sky

he chief impact of a shift in ambition to responsibility will be a restructuring of the

esides, it is just not realistic to suppose that millions upon millions of people will

abandon consumerism. Worldwide, there is simply too much installed infrastructure, too many people entrenched in their lifestyles and life plans, and too much unrequited desire for greater prosperity for austerity to ever take over. In developing countries in particular, consumers on the cusp of finally breaking through to an appreciably better material life are not going to abandon those prospects.

economizing. Responsibility does not imply a

o begin with, the emerging consumer decision calculus will be about more than

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A Darwinian Gale

This wont shut down spending; it will just recenter the crux of the value equation. Even in developing markets where the presumption of spending will strengthen considerably with economic growth, watchfulness about avoiding the mistakes of developed markets will keep traditional savings cultures well-entrenched.

marketplace in developing countries will be the manner in which this clash of values is negotiated.

in the U.S. could easily fall. Martin Walker of the Woodrow Wilson International Center for Scholars has estimated that if instead of the 70 percent of GDP that consumer spending a level corresponding to the upper limit seen between 1946 and 1983, there would have been $1 trillion less in consumer spending. Similarly, U.K. economist Dieter Helm estimates that for the that does not bequeath economic and environmental liabilities to future generations, consumer spending would have to be 20 percent lower than its peak in 2006/2007. Exacerbating fact that many consumers in developed markets were feeling bloated from over-consumption even before this Darwinian gale blew in.

new savvy. The discount economy will thrive. The informal or gray economy will flourish. A cash-economy mentality will displace the debteconomy mentality. Risk-free shopping zones stripped of temptations and enticements to indulge in mindless spending will find particular favor with responsibility-oriented consumers looking to supplant impulsiveness with thoughtfulness.

values that was not present when todays developed markets were at a comparable stage of development. Worries about limits, shortages, externalities, climate change and unintended consequences were not as prevalent or as critical when developed markets were coming of age. The ambition of consumers in developing countries for material progress runs

developing, will be smaller. For example, with

he presumption of saving will mean that lots of economies, both developed and

51

Endnotes

Section 5

this attenuation of consumer spending is the

Section 4

eveloping

markets

will

confront

economic advancement as a clash of

U.K. to reach a level of sustainable consumption

Section 3

n a more thoughtful search for ever-smarter ways to shop and buy, saving will become the

reached in 2007, it was at 63 percent of GDP,

Section 2

owever, the presumption of spending will give way to a presumption of saving.

headlong into consequences and responsibility. A defining aspect of the recovery consumer

the personal saving rate among U.S. consumers picking up since May 2008, consumer spending

Section 1

n the other hand, while economies may be smaller than the recent peak, much of the

drops in every measure of wealth, being average will be exceptional. The lotto mentality of the recent value equation will give way to a new value appreciation of slow-but-steady as the surest measure of success.

anticipated decline in consumer spending is not a true decline but a return to baseline, something that is true of many of the economic indicators that have been in freefall. While it will take big declines over the near-term to get back to long-term averages, these are not indicative of future trends. They are merely the necessary correctives to return to normal growth patterns after many years above trend.

uxury will change, too, under the scrutiny of a more thoughtful eye. This doesnt portend

a retreat from luxuriousness and style so much as a renunciation of wastefulness, particularly in light of heightened social concerns over resource scarcity. Perhaps more than any other single element, not being wasteful will define overall value in the recovery consumer marketplace. This is not the same as buying on price. Avoiding waste will actually give consumers a broader array of options not just the cheapest, but anything, whatever the price, that isnt wasteful. This also offers a gateway to luxury that could enable consumers in developing markets to cosset themselves in the luxury to which many aspire while being responsible at the same time.

n a related vein, affluence will get a second look. It used to be thought of as having the

means to indulge oneself, however it was afforded, with little concern about the jeopardy of leverage. Looking ahead, the security of wealth, however big or small the fortune, will figure in assessments of affluence in both developed and developing markets, and maybe even more in developing markets where the first steps of material progress are as yet a bit unsure and unanchored.

ccompanying the return to baseline will be a greater comfort with average economic

performance. Re-acclimated after years of giddy, often manic, high-altitude adventures in shopping and buying, consumers will be more mindful of the achievement it takes just to stay even and not fall below average. In a recovery consumer marketplace coming off momentous

52

A Darwinian Gale

this economic crisis overtook the consumer marketplace, dis-ownership was well underway in emergent consumption styles centered on swapping, auctions, barter, leasing and rentals, fractional ownership, sharing and freecycling, digitization in place of physical products, and piracy. Although consumers may have less to spend, they will have no less interest in the benefits of whats available in the marketplace, so there will be more thought given to shifts in the value equation that confer legitimacy on alternative ways of acquiring benefits without necessarily having to acquire or own the products that deliver those benefits.

consumers during the era of indulgence. Beliefs that economic risk is a thing of the past, that debt can be resolved forever, that housing prices and stock values only go up, that everyone can enjoy success as a speculator, that globalization is a free ride to riches, and more have all been unmasked. Consumers are becoming more realistic, and thus more thoughtful, about the ways in which they engage the marketplace.

in bucking up to it. As is always true, no matter the overriding sensibility in the marketplace, there will be consumers who go the other way. For every trend, there is a counter-trend. But will still be the defining ambition of the marketplace, shaping not only what most consumers want but also the focal point against which some consumers push back.

53

Endnotes

Section 5

Section 4

Section 3

notwithstanding any backlash, responsibility

Section 2

wnership

itself

will

come

under

increasing scrutiny as well. Even before

alue will no longer be understood in terms of the sort of magical thinking that gripped

inally, some consumers will find more satisfaction in bucking responsibility than

Section 1

54

A Darwinian Gale

Vigilance

In the redefinition of value in the recovery consumer marketplace, vigilance will define the degree to and enthusiasm properly assuaged in order for demand to be unleashed.
Section 5
55

with which consumers engage the marketplace, and thus must be

Endnotes

Section 4

Mindful of economic risk, the sensibility of consumers in the era of consequences will be one of greater vigilance about exposure to risk and more determination to be smart about shopping and buying. This means more questioning, more research, more attention and more review, all of which will depend upon the situations particular to individual categories.

Section 3

Section 2

Behavioral Foundation Cornerstone

Section 1

usual. The recovery will be the beginning of a new marketplace structurea new structure of value, a new structure of competition, a new structure of decision-making, a new structure of communications. Consumers will be vigilant about not returning to the same old habits and goals that got them into trouble to begin with.

he recovery is going to be a restructuring, not a rebound or a return to business as

eclining asset values and overwhelming debt levels plague large swaths of

over, and the monthly payer is out of action. In an accompanying chart, Janszen showed that for the first time since the Great Depression, the total amount of consumer debt in the U.S. yearover-year has not gone up or stayed the same; instead, it has gone down.

consumers in developed markets. In the nearterm, these consumers will be forced to be more vigilant about paying down debt, so they wont be taking on debt merely to indulge in spending. Over the long-term, these consumers are likely to be more thoughtful about incurring debt at all, even if they can qualify for it. These shifts reflect a fundamental rethinking of debt that was noted in a Harvard Business Review article by iTulip CEO Eric Janszen. In it, he proclaimed
28

major strategic challenge is posed by

vigilance bringing an end to debt-financed

consumer spending. That is one of sourcing demand, or finding new sources of demand to replace the past sources now tapped out.29 To find a reinvigorating source of demand, marketers must either figure out how to better secure and build up existing demand or find an untapped reservoir of demand.30 Sourcing demand is no less of a strategic priority for developing markets than it is for developed markets. Much of the recent growth in big developing markets has been from exports to

or products that deliver solid overall value, vigilance will not be a governor on

spending. But such value will have to be readily and unambiguously apparent to consumers, especially in developed markets where many consumers are struggling with balance sheet problems.

the demise of the so-called monthly payer, and thus by implication the passing of the old value equation. As Janszen noted, it used to be that consumers could get away with worrying only about the amount of monthly payments and not the total amount of debt. Thats no longer the case, so, in Janszens words, the era of unbridled, debt-financed consumer spending is

56

A Darwinian Gale

satisfy the debt-fueled demand of consumers in developed markets. As this demand ebbs, developing markets will have to replace it with demand from their own burgeoning populations. Consumers in these developing markets will have to start spending more and saving less, thereby facing the very same thing that confronts consumers in developed marketsa new value equation, and for them, one that balances the clash of consumerism and consequences.

affects every business. Deference to brands and companies is now seen to have created exposure to risk; hence, the credence that brands used to enjoy is flagging, with some consumers even succumbing to outrage about untrustworthy brands, a sentiment that is likely to remain just below the boiling point for the foreseeable future. With unrest and outrage ready to spill over in a heated reaction at the slightest touch of the dial, brands low in trust will have to make sizable investments in proactivepreventivenot reactive-remedialcustomer service systems, particularly for the most loyal, highest-frequency customers. In fact, these core customers take on much greater value in a smaller economy where sourcing demand is a first-order priority and customers of any sort are scarcer.

themselves will matter much more, and not just conduct related to the old labor and environmental issues but conduct related to new issues tied to risks, transparency, The financial crisis has made it apparent to consumers that these sorts of business ethics can have personal relevance, so the commitment of companies to ethical business other brand attributes. As this crisis has shown, sometimes poor ethics can wipe out brand benefits entirely. An anti-greed spirit will pervade the recovery consumer marketplace.

to marketing gamesmanship, which

will contribute to the ongoing weakening of brand loyalty. Brands will be harder pressed to take customer loyalty for granted and, so, will have to invest more to protect it. Service requirements will escalate. Scrutiny of brands will grow. Information will be used to gate emotions and dampen brand passion.

57

Endnotes

Section 5

Section 4

igilance will also mean more resistance

practices will become no less important than

Section 3

compensation and accountability as well.

Section 2

rust is no small part of this. The widespread disillusionment with the financial system

ith brands under greater scrutiny, the ways in which brands conduct

Section 1

ltimately, vigilance is about risk aversion, but this need not limit opportunities. Indeed, it can boost them. Assurances about risk aversion can be motivating, particularly when consumers are concerned about poor product choices that would lower quality, waste money and take extra time. One of the advantages

that a strong brand name usually carries relative to price brands is assurance of performance. This assurance is a guarantee against the risk of making a bad decision. Reframing traditional benefits as guarantees against risk provides fresh relevance for name-brand products competing against price brands. Done effectively, protection against risk can trump price by delivering the kind of value that matters most to vigilant consumers in the era of consequences. A no-risk guarantee, even one that is merely implicit in the branding, is a better price/value because it is insurance against wasted money.

58

A Darwinian Gale

Resourceful

It can no longer be taken for granted that things always work out, so the greater salience of economic risk, along with the focus on consequences, brings with it a resourceful mindset of being inventive, ingenious and handy, or, to put it in a word, practical. To ensure that things get done and work out, consumers will be focusing on practical, bottom-line solutions that are more reflective of risks, limits and consequences.
In the redefinition of value in the recovery consumer marketplace, managing the panoply of personal and external resources will be as big a priority, if not bigger, than managing money alone.

59

Endnotes

Section 5

Section 4

Section 3

Section 2

Behavioral Foundation Cornerstone

Section 1

hether or not money is tight, a focus on consequences will put greater attention

Smaller things now make the bigger statement smaller portions, smaller houses, smaller cars and local communities, among others.

on a wider range of resources. While consumers will attend to the impact of their choices on consequences affecting other resourcesthe environment, energy, the community, other peoplemore attention will be paid to consequences affecting their own resources time, energy, attention, health and emotions. It will be harder to convince consumers to commit their own resources in the pursuit of rewards that have proven to be beyond reach, illusory or unfulfilling, such as the sacrifice of balance while chasing after fortune. To acknowledge these concerns, brands will have to look at structuring offerings that are less wasteful of or more efficient in resource requirements. Unexpected opportunities will materialize from this. For instance, small is making a comeback as the assumption that bigger is better loses sway.

orced back onto their own resources, consumers will see a premium in

acquiring new skills. Manual and craft skills will be more highly valued as a way of saving money by doing things for oneself such as repairs, leisure and hobbies. Knowing how to get by reduces exposure to the kind of marketplace volatility that periodically creates shortages. Negotiation skills will be more important in shopping as consumers haggle and parley more in the recovery consumer marketplace. Simplification, through both efficiency and clarity, will better suit consumers struggling to be more resourceful and looking to get by without indulgent consumerism and the need to pay for it.

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A Darwinian Gale

consumers. More will go off the grid. Survivalist groups will flourish. So will stockpiling. More squatters and castaways will drift along the fringes of urban areas. Nationalist more pronounced. While having the surface appearance of greater social fragmentation, these splinter groups, while by no means the majority of consumers even though growing, greater autonomy and resourceful self-reliance, a sensibility that will resonate throughout society at large. At the extreme, though, this could turn into a new medievalism as some their own power, food, education and security.

61

Endnotes

Section 5

cities and towns start to go it alone, providing

Section 4

will be part of a shared movement toward

Section 3

and protectionist sentiments will become

Section 2

esourceful self-sufficiency will become a lifestyle focus for increasing numbers of

Section 1

n a smaller consumer economy, it will be challenging to keep everybody of working

age fully employed, absent a substantial rampup in government spending. A jobless recovery is predicted already for the U.S. With both under-employment and unemployment likely to be more prevalent in developed markets, resourceful entrepreneurism is likely to grow, not to mention that it will become more acceptable and less stigmatized to be unemployed.

ne hopeful consequence is that getting things done resourcefully could

be a windfall for consumer confidence and optimism. Pessimism prevails when people despair that events are beyond their control. But when people believe that they can influence and control events, optimism flourishes.
31

set in. Consumers are ready to look forward again and are anxious to show that no matter how bad things get they can make a go of it. They are adapting to living with risk, not letting it paralyze them. They want to connect with upbeat, buoyant brands. They want brands that will partner with them to make them more resourceful. Being resourceful to get things done will contribute to a positive view of possibilities, however tough the realities or hard the prospects.

his downturn has been lengthy, even by historical standards. Recession fatigue has

Consumers forced to be more

resourceful will have more chances to discover that they can influence and control events in their lives.

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A Darwinian Gale

Prioritization
Limits wont choke off aspirations, but they will force trade-offs. Trading off will replace trading up. The infatuation with having it alland having it all at oncewill give way to putting priority only on whats most important.
In the redefinition of value in the recovery consumer marketplace, prioritization will replace accumulation as the defining passion of

63

Endnotes

Section 5

consumption. Trading off will be front and center.

Section 4

Section 3

Section 2

Behavioral Foundation Cornerstone

Section 1

rioritization will have a bearing on entire categories. In the new decision calculus,

marketers will first have to convince consumers to consider the category before they can sell them a brand. In this context, there is only one place to beat the top of the priority list. Consumers will buy only their top priorities; it wont help merely to be in the consideration set.

contributing further to the complexity and eclecticism of styles by which consumers make decisions about brands. Consumers will cross over between price and luxury brands by buying price brands in low-priority categories, with no consideration of premium options, while buying premium brands only in high-priority categories. The premium-only buyer will be less common even though many premium brands will still find plenty of buyers.

he bifurcation between price brands and premium brands will be sharper,

consumers will be exceptionally attentive to rational, deliberative factors. Many habits deeply ingrained and long practiced without thinking will be rethought then reset. Impulse buying will still occur and will still be enjoyable, but it will be put under a stronger microscope. So, too, for any unconscious urges that can be brought to the surface. Information will trump emotion more and more as the way to win not just the minds but the hearts of consumers.

Competition will cross over old boundaries. Consumers will be joined-up in new ways of comparing and evaluating options. Brands will compete or trade off against anything else that might take priority, not just other brands in their category. Brands in luxury and other highly discretionary categories will face this challenge the most.

he competitive set for brands will be more complicated to research and address.

elevating rational elements in consumer decision-making. Emotions wont become unimportant; far from it. But forced to think more about what they buy, and joined-up in new ways of getting input and feedback,

he necessity to prioritize will demand greater attention and deliberation, thus

mong

the

things

important

for

occupying the top spot in the consumer

priority list will be innovation. In past recessions, innovation was the best way to ride them out and accelerate into recoveries. An extensive and definitive study of 92 packaged goods categories in the U.S. between 1985 and 2005 found that the best thing for name

64

A Darwinian Gale

brands to do about private label competition during recessions is to introduce truly innovative new products. With old habits, old products
32

of its-good-plus-its-sustainable will have to become the stronger promise of the-fact-thatits-sustainable-is-the-very-reason-why-its-good.

dress up their lives with super-rich accouterments. success. In developing economies, material prosperity will lose little of its resonance among new middle-class consumers. But in the context of consequences, this materialism will have to consume in irresponsible or unfulfilling ways.
Section 3
65

and old brands being questioned as never before, consumers are more open than ever to meaningful innovation.

nnovations with breakthroughs that also lower the cost of ownership or usage will be the most

effective. When the options for consumers are not innovation versus price but innovation at the better price, the choice is easy. It is important not to get caught in the trap of the traditional dichotomy between innovative brands and cheap brands. Innovative brands can be the cheapest brands, too.

find a fit with the countervailing pressure not to

ut it wont be enough just to be innovative. Innovations will have to bear directly

on the brand promise. Secondary benefits like sustainability wont suffice. Certainly, the relevance of sustainability will be greater in an era of consequences, and those who put a high priority on sustainability already will not find it any less important in a recovery economy. But in the overarching context of constraints, sustainability will struggle to offer a compelling reason to buy unless sustainable practices or ingredients contribute directly to the reasons why the brand is superior to competition. The old tiebreaker

n fact, worldwide, happiness is becoming a bigger touchstone of a rich life. Unfettered

Section 4 Endnotes Section 5

materialism has left consumers in developed markets hungering for deeper satisfactions, yearnings that have been intensified by the recession. The growing prosperity in developing markets is being welcomed as the key that unlocks the door to a world of greater happiness and well-being, but only as long as material advances are appropriately balanced and kept in proper priority.

ith prioritization and trading off will come some scaling down. In developed

economies, the mass market will lose much of its affinity with the lifestyles of the super-rich. This gap will widen as middle-income consumers lose access to the credit they depended on to

Section 2

They will have to look elsewhere to gauge their

Section 1

66

A Darwinian Gale

Networks
For both individual consumers and entire economies, networks will provide the back-up, support, resources and safety nets needed to manage risk. No more going it alone or tying in with solitary partners. Thinking will be joined-up, not isolated or singular. At every level, alliances and associations will be the new joined-up units of influence and action.
In the redefinition of value in the recovery consumer will reinvigorate peoples capacity to manage risk in their individual lives while also reshaping global axes of power, influence, leadership and decision-making.

67

Endnotes

Section 5

marketplace, new networks of alliances and associations

Section 4

Section 3

Section 2

Behavioral Foundation Cornerstone

Section 1

Networks of Consumers

ith the return of economic risk, a new breed of networks is springing up to give

consumers the help theyre seekingnetworks that are more tailored to specific needs, interests and priorities. General, mass networks will persist, but they will be complemented by tighter, more narrowly focused, joined-up networks of benefits and support. Similar changes are being seen in other domains such as Web search in which the first era of general, mass search engines is giving way to the next era of smart, decision-oriented search engines. Brands should create tight, narrowly-focused support networks to help consumers engage with one another about tips, ideas, resources, advice, commiseration and celebration.

ontemporary communications networks are populist because they facilitate the kind

of mass participatory dialogue and joined-up interaction that puts consumers in the pivotal position. However, these networks are largely unwelcoming of marketing, so figuring out the permission pathways of where and how to engage consumers will be crucial. Much of this will involve engaging consumers at the perimeter not at the center, thus demanding a different style of being heard, such as finding ways to create and sustain secondary buzz.

onsumers must work harder to make networks of associations more effective in

the recovery consumer marketplace. Networks have been a preoccupation of latethe World Wide Web, of course, along with the Six Degrees of Freedom fad, the newly-rediscovered power of word-of-mouth, interest in research about the wisdom of crowds, social media, usergenerated content, and so forth. As a result, a lot has been done to build networks. But going forward, networks must do more than simply tie people together; they must make people smarter, more efficient and better protected. With economic risk more salient in the era of consequences, tightly woven networks of support will be essential for the sort of safety net needed in this world of uncertainty.

ord-of-mouth is more powerful when social media distribute and amplify it.

This is especially attractive in an environment in which consumers are turning increasingly to networks of others like themselves rather than to experts for help, support and advice. When these joined-up interactions are

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A Darwinian Gale

about marketing, word-of-mouth becomes an indispensible intermediary for making marketing messages stick.

interactions and conversations directly with marketing per se, determines the response of consumers to marketing. Interruptions will struggle to be heard in these conversations, so marketers must learn instead how to get
Section 3
69

ecause of greater networking, other people have become more central to the

ways in which individual consumers define their own interests. Marketing is no longer received and processed by an individual, hence, individual psychology is no longer the only process that governs how marketing makes marketing is vetted, discussed and reviewed by a broad network of consumers. Individuals no longer process only the marketing; instead, they also process the conversation about the thinking and engagement. Moreover, not only are consumers driving conversations with one another, they are also stimulating and driving

invited to join in.

Endnotes

Section 5

marketing. Consumers are joined-up in their

Section 4

an impact. Instead, the instant it appears,

Section 2

brands. So, the conversation, not just the

Section 1

Networks of Market Economies

economies. The notion of networks is an essential concept in understanding not only the evolving interactions between consumers and brands but those among different markets, too.

recession developing markets were widely felt to have become autonomous enough to ride out any swings in the fortunes of developed markets. Paradoxically, this recession has proven this belief to have been both premature and prescient.
33

years. Consequently, for a growing number of developing markets, pulling apart to protect autonomy of direction now seems a surer way forward.34 This is creating conflict as countries are becoming more belligerent about their own interests. While trade protectionism remains well below historical levels, tracking by Brandeis University economist Chad Bown of trade remedy and safeguard actions finds such murmurs of discontent up substantially.35

he idea of networks goes beyond individual consumers; it also extends to entire market

No decoupling insulated

developing markets from the Darwinian gale. In recovery, though, the widely differing prospects across markets will vindicate the notion of decoupling with a vengeance.

mploying associations

networks to

of

alliances

and

Globalization proved brittle during the gale, not robust. The benefits of globalization with its open markets, free trade and transnational capital flows became a bane during the gale as countries around the world discovered that the very global interconnectedness that promised shared riches and greater economic sovereignty exposed them to a merciless, mutual hardship that erased much of the prosperity accumulated during the boom

manage

economic

risk extends to the relationships between market economies no less than it does to the relationships between consumers and brands. Perhaps the most radical of the abrupt changes precipitated by this Darwinian gale has been the decoupling of interests in the global economy. Admittedly, this sounds odd because before the onset of this

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A Darwinian Gale

world American-style capitalism is under fire because of the financial crisis and, as a result, policy-makers in the developing world are likely to slow down the pace of deregulation and consider creating European-style welfare states. Brazils finance minister, Guido Mantega, put it this way in a July 2009 interview with the Financial Times: Emerging markets will come out of the crisis more quickly. They have greater dynamism and smaller fiscal imbalances. The U.S. is no longer the locomotive of world growth. Emerging countries will have to rely increasingly on their own and each others economies. [Emphasis added.]

America, among others.

36

the near-term. Only the very biggest developing economies have domestic markets vigorous enough to fuel their own growth and leapfrog past the rough going that lies ahead for most that if they learn from the gale and react wisely, their time of dominance is at hand. Many ways of coupling on some basis other than the U.S. and the Anglo-Saxon economic model are of business ties and economic objectives will come less allegiance to and investment in a single model and just a few leading economies. The future global economy will be one in which be secured in a variety of independent ways through new roles, new networks and new alliances.37

ecoupling will not be uniform, though. Many economies, including many

a greater or lesser degree to the health of their trading partners and capital sources. And despite a lot of saber-rattling ultimatums by China, the International Monetary Fund (IMF), the United Nations and others about walking away from the dollar as the worlds reserve currency, the financial crisis has breathed new life into the centrality of the dollar to the global economy. As Barry Eichengreen, an economics professor at the University of California at Berkeley and a former Senior Policy Advisor to the IMF, points out, other currencies will match the dollar as an attractive form of reserves only when they

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it is possible for growth and opportunity to

Section 4

emerging. Out of this mushrooming multiplicity

Section 3

developed economies, will remain coupled to

developed markets. China, India and Brazil see

Section 2

arvard Business Review Senior Editor Anand Raman has written that around the

Similar sentiments have been expressed recently by leaders in China, Russia, Japan and Latin

possess equally deep and liquid markets. This may happen eventually, but it wont happen in

Section 1

ven the U.S. will be forced on a different path because, as many economists have

noted, its economic recovery and revival will require a fundamental shift away from a consumption-led economy fueling world growth to an export-driven economy following world growth. For this to work, though, developing markets with strong savings cultures like China will have to change course and stimulate big increases in domestic consumption.

post-gale world of globally entwined local exceptionalism. In other words, the recovery consumer marketplace will embody a far more complex paradox of market drifts, with one reflective of the inherently global spirit of the modern world and the other reflective of the intensely local fiber of consumer lifestyles, both moving in parallel and in combination.

he

pre-gale

presumption

of

global

convergence will be supplanted by a

model will offer fresh possibilities. Local brands with a bona fide indigenous pedigree will be supported by global networks of logistics and production. This model of local provenance with global provisioning will provide another model by which global brands can strike a balance that resonates with local consumers. The importance of local interests and a local presence is evident in the rising value that consumers see in local foods, local culture, hyperlocal news, local sourcing and local jobs.

he old models for managing global and local brands will continue, but a new

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The New Zeitgeist

What markets the world over are beginning to do is the same thing that individual consumers around the world are starting to do as well, and that is to make decisions and plans specter of economic risk but, instead, explicitly take it into account. The new consumer psychology on the rise around the world is one of networks and prioritization, of explicitly and of giving more than lip service to being resourceful and vigilant about downside risks. This is the global zeitgeist now aborning.
Section 5
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pricing in consequences and externalities,

Section 3

for the future that no longer blithely ignore the

Section 2

Section 1

4. Turning Toward Tomorrow

A Darwinian Gale 2010

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Section 4:

Executive Summary
Endnotes
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Section 5

Section 4

Section 3

Section 2

Section 1

There is much to know and learn about the era of consequences. What any of it means for a specific brand must be worked out on a custom basis with respect to that brands particular circumstances. But a few things in particular merit reiterating because they have overarching implications for the shape and character of the recovery consumer marketplace as a whole.

The Recovery Consumer Marketplace in the Era of Consequences

The fundamental fact is that the world has changed. But this change is widely misunderstood. The primary purpose of this white paper is to clearly articulate the nature of the change that has swept through the consumer marketplace and then to specifically identify the crucial characteristics of the marketplace to come.

Key headlines:

What the Great Recession of 2008/2009 has wrought is not what is popularly supposed. As a result of this harrowing downturn, risk is back on the agenda for consumers, with no tolerance any longer for ignoring or indulging it.

The defining dynamic of the recovery consumer marketplace will be an overhang of uncertainty about economic risk. In this context, consumers will be entirely different, but they wont be utterly frugal.

Even with smaller household budgets, the capacity for dreaming will be as big as ever. Accounting for economic risk will change the criteria that consumers bring to the marketplace when deciding what to buy. The decision calculus of consumer choice will be different. In particular, consumers are rethinking the definition of value.

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The future will see a proliferating mosaic of ever-more eclectic consumer strategies and solutions for building satisfying lifestyles.

The era of consequences will be guided by a potent ambition of responsibility that will entail a greater emphasis on vigilance and resourcefulness. Spending will be shaped by the necessity for prioritization and trading off as consumers orient their shopping in coordination with networks of interests that include but also go beyond their own selfish concerns.

A recovery consumer marketplace is in the the backdrop of the marketplace ahead, but that does not mean that consumers will be in retreat from shopping and buying. Instead, it means that consumers will be redefining value no longer be indulged or ignored. The era of consequences is at hand.
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A focus on consequences will be the hallmark of the recovery consumer marketplace to come.

The things that consumers used to do without a second thought will now be done, if at all, only after these second thoughts have been given first priority and after all potential options have been put through the broader scrutiny of joined-up thinking.

to better fit a world in which economic risk can

In this evolving environment, marketers will do well to revisit many of the basics consumer marketplace stands, and brands within it, in terms of the five behavioral foundation cornerstones of responsibility, vigilance, resourcefulness, prioritization context within which brands will operate.
Section 5 Endnotes Section 4

with an audit of where the recovery

Consumers in developing markets will grapple with a clash of values related to the lessons of consequencesthe burning desire to move up the ladder by spending more versus the critical duty to avert untoward consequences by spending less.

and networks that will define the future

Section 2

offing. Uncertainty about economic risk will be

Section 1

Responsibility
The defining ambition of the era of consequences is responsibility. With indulgence discredited and, for many, no longer affordable, consumers are facing up to the necessity of embracing a more responsible approach to shopping and buying.

Key headlines:

markets were at a comparable stage of development. Worries about limits, shortages, externalities, climate change and unintended consequences were not as prevalent or as critical when developed markets were coming of age. The ambition of consumers in developing countries for material progress runs headlong into consequences and responsibility. A defining aspect of the recovery consumer marketplace in developing countries will be the manner in which this clash of values is negotiated.

Responsibility means being more mindful about decisions. In the near-term, the calculus by which consumers reckon value will be more complex, because of more consideration given to decisions and more things to consider.

The presumption of spending will give way to a presumption of saving. This wont shut down spending; it will just re-center the crux of the value equation. Even in developing markets where the presumption of spending will strengthen with economic growth, watchfulness about avoiding the mistakes of developed markets will keep traditional savings cultures well-entrenched.

Perhaps more than any other single element, not being wasteful will define overall value in the recovery consumer marketplace. This will be a critical part of the new decision calculus. Avoiding waste will actually give consumers a broader array of optionsnot just the cheapest, but anything, whatever

Developing markets will confront economic advancement as a clash of values that was not present when todays developed

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the price, that isnt wasteful. This also offers consumers in developing markets to cosset themselves in the luxury to which many aspire while being responsible at the same time. coming off momentous drops in every measure of wealth, being average will be exceptional. Particularly in developed markets, the lotto mentality of the recent appreciation of slow-but-steady as the surest measure of success. The imperative of responsibility means that are not unwilling to spend, but they are demanding better reasons to buy and they are becoming more thoughtful.
Endnotes Section 5
79

marketers will have to work harder. Consumers

Section 4

value equation will give way to a new value

Section 3

In a recovery consumer marketplace

Section 2

a gateway to luxury that could enable

Section 1

Vigilance
With economic risk front and center, consumers are becoming more watchful about exposure and position. Every aspect of spending is being questioned. Vigilance against the mistakes of the past will limit marketplace engagement in the future unless marketers step in to allay consumer concerns aggressively and forthrightly.

Key headlines:

companies to ethical business practices will become no less important than other brand attributes.

Mindful of economic risk, the sensibility of consumers in the era of consequences will be one of greater vigilance about exposure to risk and more determination to be smart about shopping and buying. This means more questioning, more research, more attention and more review.

Protection against risk can trump price by delivering the kind of value that matters most to vigilant consumers in the era of consequences. More vigilant consumers are not retreating

The recovery is going to be a restructuring, not a rebound or a return to business as usual. The recovery will be the beginning of a new marketplace structurea new structure of value, a new structure of competition, a new structure of decisionmaking, a new structure of communications.

from the marketplace; instead, they are ensuring that their engagement with the marketplace is more secured against risk. At least for the near-term, consumers will be much more circumspect with brands.

Vigilance will also mean more resistance to marketing gamesmanship. The financial crisis has made it apparent to consumers that business ethics have personal relevance, so the commitment of

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Resourceful
Consumers realize that much of how they lived and shopped before will not work in a world where risk is back on the table. So, they are becoming more resourceful in the ways in which they engage the marketplace. This puts resources on their radar, making the management and conservation of resources of all sorts more important to them, particularly in light of the new salience of consequences.

Key headlines:

their locus of control to enjoyable areas they that frustrate their enjoyment and mastery.

things always work out, so the greater salience of economic risk, along with the focus on consequences, brings with it a resourceful mindset of being inventive, ingenious and handy, or, to put it in a word, practical.

Getting things done resourcefully could be a windfall for consumer confidence and optimism. When people believe

While consumers will attend to the impact of their choices on consequences affecting other resourcesthe environment, energy, the community, other peoplemore attention will be paid to consequences affecting their own resourcestime, energy, attention, health and emotions.

events, optimism flourishes. Consumers forced to be more resourceful will have more chances to discover that they can influence and control events in their lives. Brands that offer consumers tangible things to be more resourceful will evoke deeper passions with consumers than brands that do not. In the era of consequences, the is to empower them in the most prosaic of ways.

Consumers will look for brands that are less wasteful and more efficient in resource requirements.

Forced back onto their own resources, consumers will see a premium in acquiring new skills. And consumers will look to expand

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way to capture the imagination of consumers

Section 4

Section 3

that they can influence and control

Section 2

It can no longer be taken for granted that

can master, while abandoning other areas

Section 1

Prioritization
Consumers can only want what matters, indeed, only what matters most. It isnt possible anymore to shop and buy without any consideration of limitsnot personally, not globally, not in developed or in developing markets. So, consumers are taking up prioritization as the defining aspect of how they make marketplace decisions, albeit in different ways across markets with different economic or developmental situations.

Key headlines:

with the new middle-class. But in the context of consequences, this materialism will have to find a fit with the countervailing pressure not to consume in irresponsible or unfulfilling ways.

Limits wont choke off aspirations, but they will force trade-offs. Trading off will replace trading up. Prioritization is replacing accumulation as the defining passion of consumption. Joined-up thinking is changing the ways in which consumers understand and access different priorities.

With consumers questioning old habits, old products and old brands as never before, consumers are more open than ever to meaningful innovation.

The necessity to prioritize will demand greater attention and deliberation, thus elevating rational elements in consumer decision-making.

The competitive set for brands will be more complicated to research and address. Brands will compete against anything else that might take priority, not just other brands in their category.

In

developing

economies,

material

prosperity will lose little of its resonance

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Categories are defined by the brand consumer purchases. In the recovery consumer marketplace, many brands will find themselves competing for purchases against alternatives they never worried about before because levels first, well before brand choices come into play. This puts brands into competition with highly dissimilar products. Smaller economies and smaller budgets are big reasons for this in and more cross-over between sectors in terms of consumer consideration, cross-category values will influence brand preferences. Category leadership wont mean the same
Section 5
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thing.

Endnotes

Section 4

developed markets. With wider competition

Section 3

consumers are prioritizing at broader, higher

Section 2

alternatives

that

compete

directly

for

Section 1

Networks
The networks endemic to the marketplace nowadays are changing scope and shape as the era of consequences takes hold. The Darwinian gale made it apparent that for both consumers and national economies, the old networks and alliances offered little shelter from the storm. Going forward, different kinds of networks and alliances will be put together to avoid exposure to the sorts of risks just experienced in the recession. But networks do more than offer a security blanket against risk. They immerse people in a diversity of styles of engagement and connection. With networks growing and consumers remaking themselves, a plethora of innovative and surprising forms and fashions will be seen.

Key headlines: Networks of Consumers

In the recovery consumer marketplace, tightly woven personal networks of support will be essential for the sort of safety net needed in a world of uncertainty. To feed this new hunger, a new breed of networks is springing up, more tailored to specific needs, interests and priorities. Contemporary communications networks are populist because they facilitate the kind of mass participatory dialogue and interaction that puts consumers in the pivotal position. However, these networks are largely unwelcoming of marketing, so figuring out the permission pathways of where and how to engage consumers will be crucial.

Individuals no longer process only the marketing; instead, they also process the conversation about the marketing. Consumers are joined-up in their thinking and engagement. Moreover, not only are consumers driving conversations with one another, they are also stimulating and driving interactions and conversations directly with brands. So, the conversation, not just the marketing per se, determines the response of consumers to marketing.

Networks of Market Economies

Perhaps the most radical of the abrupt changes precipitated by this Darwinian gale has been the decoupling of interests in the global economy.

For a growing number of developing markets, pulling apart to protect autonomy of direction now seems a surer way forward.

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This is creating conflict as countries are becoming more belligerent about their own interests.

The pre-gale presumption of global convergence will be supplanted by a post-gale world of globally entwined local exceptionalism.

The old mantra of Think Global, Act Local is in flux. Local provenance with global provisioning will provide another model by which global brands can strike a balance that resonates with local consumers.

The new consumer psychology on the rise around the world is one of networks and prioritization, of explicitly pricing in consequences and externalities, and of giving more than lip service to being resourceful and vigilant about downside risks. This is the global zeitgeist now aborning.
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Section 4

Section 3

Section 2

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5. Facing the Future

A Darwinian Gale 2010

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Working with The Futures Company

Endnotes
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Section 5

Section 4

Section 3

Section 2

Section 1

The Futures Company

The recovery consumer marketplace presents marketers with a new business context that is characterized by new value dimensions posing radically new challenges and offering dramatically new opportunities for their categories and brands. With economic risk and consequences on the table, the five elements of responsibility, vigilance, resourcefulness, prioritization and networks now constitute the overarching context of the marketplace.

Marketers are facing three key questions:

Marketers had grown comfortable with the meaning of value in the era of indulgence. They knew what consumers wanted, which iconic brands did it best, and provided the models to follow. Today, the marketplace is in transition. In particular, the contextual elements framing value are completely different, and this has implications not only at a brand level but at the wider, overarching level of categories, too. Thus, the first priority is a deep immersion in the five key elements of this new context. Marketers must get comfortable with the new optics of value, or the five lenses through which consumers will define value and make choices in the era of consequences. The Futures Company offers marketers a unique set of resources and a deep portfolio of talent for understanding and addressing the challenges and opportunities of a new era driven by a new context of value.

A question of context:
What does the new marketplace context mean for the ways in which consumers will be defining value?

A question of category:
What is the new structure of competition for brands in the context of these five marketplace elements?

A question of brands:
Where do individual brands stand with respect to these five elements?

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consumers as they incorporate the new reality The 20-country tracking of attitudes and aspirations in The Futures Company Global MONITOR provides a before-and-after look at changes caused by the Great Recession of 2008/2009. The U.S. Yankelovich MONITOR and the U.K. Henley Centre Planning for Consumer Change studies provide in-depth views of their respective markets in this new era. Targeted tracking of multicultural consumers provides additional perspective on the recovery marketplace. The Futures Company Global Streetscapes observational database of trends manifestations brings the attitudes and aspirations of this new era to life in the form of real-world examples of products, activities and behaviors that exemplify how these shifts are being experienced by consumers in their everyday lives. These resources provide a baseline of immersive intelligence that can be deepened through a variety of future-facing qualitative and quantitative research, led by experienced of economic risk and consequences into their shopping and buying. This understanding of context not only The Futures Company frames its thinking about marketing solutions. Beginning at a category level, then moving to a brand level, The Futures Company can help marketers reinvent what within the new context of value. With a solid foundation of understanding about the new context of value, marketers

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they do in order to reconnect with consumers

Section 4

informs marketers, it informs the way in which

Section 3

The Futures Company offers a unique set of resources and a deep portfolio of talent

senior

consultants

and

management
Section 2

advisors. Layered onto existing insights, these innovative in-depth interviews, ethnographic methods, survey approaches and modeling applications yield a richer understanding of what responsibility, vigilance, resourcefulness, prioritization and networks will mean for

Section 1

can begin to apply that at both a category and a brand level. The resources and expertise of The Futures Company facilitate this translation of immersive contextual knowledge into actionable marketing programs. At a category level, whats required is a remapping of the value cartography of a category. Cracks have appeared in the competitive landscape and along these cracks will emerge new trade-offs and fresh chances to differentiate brands in stand-out ways. This is about more than where competition stands today; this is about where competition is headed tomorrow. To explore these category fractures and the ways in which changes in consumer priorities and product innovation are reframing category trade-offs, The Futures Company has developed a unique set of unlocking methodologies that utilize its on-going trends intelligence in combination with qualitative

and quantitative insights techniques. At a brand level, whats required is an audit of a brands readiness for the elements of value in the unfolding era of consequences. This builds upon category-level learning by evaluating not simply where a brand stands today, but where it could and should be in the recovery consumer marketplace. This sort of audit will show how well-prepared a brand is for whats ahead. Once again, The Futures Company has developed a unique set of unlocking methodologies to yield fresh, game-changing insights to guide marketing strategy and execution. These category- and brand-level unlocking methodologies consist of inventive and canny ways of combining approaches and intelligence to yield break-out insights. The Futures Company stands ready to share and discuss ways in which these unlocking methodologies can help brands succeed in the new context of value.

These kinds of unlocking methodologies are the fundamental and differentiating expertise of The Futures Company. Strategic, consultative, integrated and solutions-oriented, The Futures Company is focused on helping marketers address the true dynamics driving category and brand value in the recovery consumer marketplace in the era of consequences.

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A Darwinian Gale
For more information: TheFuturesCompany.com

2010

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Join the conversation: blog.DarwinianGale.com

Section 4

Section 3

Section 2

Section 1

Endnotes
Endnotes
1 Whether that was over-spending by U.S. consumers or over-saving by Chinese consumers or everything in between. 2 A comprehensive database of all financial crises around the world from the 15th Century through the Great Recession of 2008/2009 provides the basis for the detailed analysis presented in This Time Is Different: Eight Centuries of Financial Folly (2009) by Carmen M. Reinhart and Kenneth S. Rogoff. 3 Some recent, widely circulated papers provide comprehensive overviews of past business cycles. Stijn Claessens, M. Ayhan Kose and Marco E. Terrones, What Happens During Recessions, Crunches and Busts? IMF Working Paper WP/08/274. Available at http://www.aei. org/docLib/20081212_IMF.pdf. Marco E. Terrones, Alasdair Scott and Prakash Kannan, From Recession to Recovery: How Soon and How Strong? Chapter 3 of IMF 2009 World Economic Outlook. Available at http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/c3.pdf. Carmen Reinhart and Kenneth Rogoff, The Aftermath of Financial Crises, NBER Working Paper No. 14656, 2009. NBER paper is available for sale, but the December 19, 2008 draft can be found at http://www.economics.harvard.edu/files/faculty/51_Aftermath.pdf. Carmen Reinhart and Kenneth Rogoff, Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison, draft February 5, 2008. Available at http://www.economics.harvard. edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf. The papers by Reinhart and Rogoff are initial drafts of chapters included in their book, This Time Is Different: Eight Centuries of Financial Folly (2009). 4 Larry Summers, currently the head of President Barack Obamas National Economic Council and Treasury Secretary during the second term of the administration of President Bill Clinton (1993-2001), was on the front lines of the economic crises in the late 1990s. He has noted that those crises were triggered by foreign investors losing confidence in an economy and withdrawing their assets all at once. Restoring confidence was the solution, particularly through fiscal reforms. But for the U.S. and other developed markets, the Great Recession of 2008/2009 is not about reassuring foreigners, but maintaining sufficient domestic demand to push the economy forward. In other words, what worked in the past offers no guidance about out what will work today. 5 The Economist, July 18-24, 2009. Some other notable public thrashings of macroeconomics include the cover storyWhat Good Are Economists Anyway? by Peter McCoy, Business Week, April 27, 2009; Missing Links: An Intellectual Bailout by Moiss Naim, Foreign Policy, January/February 2009; Goodbye, Homo Economicus by Anatole Kaletsky, Prospect, April 2009; A Question for the Economists, by Harvey Mansfield, The Weekly Standard, April 13, 2009; Seeds of Its Own Destruction, by Martin Wolf, Financial Times, March 9, 2009, part of the Future of Capitalism series; and, How Did Economists Get It So Wrong? by Paul Krugman, New York Times Magazine, September 2, 2009. 6 In 1942, Joseph Schumpeter famously trumpeted his notion of the perennial gale of creative destruction that incessantly revolutionizes the economic structure from within. He celebrated the erosive destruction of entrenched, established brands through the emergence of innovative start-ups that progressively, even when disruptively, transform demand and re-channel capital flows. He did not shy away from radical economic dislocations. But the economic crash of 2008/2009 was more of a ruinous than a creative destruction. It was a plunge off the cliffs edge of any demand at all following a fullblown flash-freezing of global credit markets. Capital was not rechanneled to chase new inventions; capital was stuffed into mattresses like U.S. Treasury bills by investors frantic for refuge from the raging Darwinian gale. 7 Specifically, it was the downturn in the U.S. housing market (that began in late 2005 and early 2006) that rippled out to the entire world and took it down, slowly at first but then at light speed after the fateful month of September 2008. Between September 7 and September 29, 2008, Fannie Mae and Freddie Mac were nationalized, investment banking firm Lehman Brothers collapsed under the weight of its bad debt, pioneering money market fund Reserve Primary broke the buck (only the second time this has ever occurred), AIG surrendered nearly 80 percent of its equity in exchange for the first of several multi-billion dollar bailouts, Goldman Sachs and Morgan Stanley abandoned investment banking and converted into bank holding companies, Washington Mutual was seized by the Office of Thrift Supervision and placed into FDIC receivership in the biggest bank failure in American history, and the House of Representatives voted down the TARP bailout bill (formally known as the Emergency Economic Stabilization Act of 2008), triggering a Wall Street tailspin that saw a record-setting, one-day drop in the Dow of almost 778 points. (A revised version of the TARP bill later passed the House and was signed into law by President Bush on October 3, 2008.)

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Subprime home loans in overheated Sunbelt American cities like Phoenix, San Diego, Las Vegas, Atlanta, Fort Myers and Tampa had seemed a far remove from the rest of the world. But the perils of being knitted into the global economy became apparent in an instant when the U.S. housing bubble burst, leaving global markets massively exposed to toxic securities based on these loans. In the U.S. and all across Europe, cornerstone financial institutions that were too big to fail had to be rescued with unprecedented alacrity as the global financial instruments on their books literally soured overnight. Many European countries went abruptly into freefall. The colossally upside-down balance sheets of big banks in Ireland, Luxembourg, Belgium, the Netherlands, Austria, Sweden, Switzerland and the U.K. threatened the very solvency of those countries with debt risks exceeding the GDPs of those countries. Iceland did go bankrupt. Italy, Norway, Portugal, Greece and Spain teetered. Throughout Eastern Europe, economies slumped, putting Western European economies into distress, as when Latvia crumbled, tipping Sweden into trouble. The financial crisis took down governments in Latvia, Hungary and the Czech Republic. People took to the streets over lost or threatened jobs in the U.K., France, Greece, Latvia, Bulgaria and Iceland, not to mention China, Indonesia, Chile, Runion, Guadeloupe and Martinique.

8 In June 2008, the JP Morgan Global Manufacturing PMI, an index tracking 83 percent of global manufacturing output, turned negative. It remained negative for 13 consecutive months. It reached the neutral point in July 2009 and finally turned positive again in August 2009. One of the starkest signs of the nadir reached by world trade had to be the 735 cargo ships clogging up the Port of Singapore, one of the worlds busiest ports, at the start of second quarter 2009. Laid up out of service and idling at moorage, these ships had no cargo to carry. Another 150 were moored in the Strait of Gibraltar and another 300 in the Netherlands Port of Rotterdam, also one of the worlds busiest ports. Sensing an opportunity, in June 2009 the Philippines made a push to take advantage of the situation by marketing the Port of Manila as a lay-up port for unfilled, out-of-service cargo ships.

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Section 4

According to New Yorker staff writer John Cassidy in an October 5, 2009 articled entitled, Rational Irrationality, by the time the worst of the Great Recession of 2008/2009 had passed in early 2009, governments around the world had committed an estimated nine trillion dollars to propping up [the global financial] system in the form of bailouts, recapitalizations and stimulus packages.

Section 3

(Probably the fragile moment during this entire crisis occurred after Reserve Primary broke the buck on Tuesday, September 16 because of losses in its Lehman Brothers investments. This precipitated a run on money market funds by hedge funds on September 17 and 18. Had not the Federal Reserve intervened aggressively at that moment to shore up confidence in money market funds, Representative Paul Kanjorski, D-PA, told C-SPAN on January 28, 2009 that these withdrawals would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsedIt would have been the end of our economic system and our political system as we know it. Its no wonder that Henry Paulson and Ben Bernanke were so exercised when they first briefed Congress Thursday evening, September 18, about the need for TARP funds to prevent, in Paulsons words, a broad systemic collapse. A compelling, breathless narrative of the events that unfolded from September 12 to September 19, 2008 can be found in Eight Days, by James B. Stewart, The New Yorker, September 21, 2009. Too Big to Fail (2009) by Andrew Ross Sorkin provides a more extensive recounting of this momentous period of time.)

Overwhelmed by redemption requests of their own and unable during a worldwide sell-off to recruit new investors to pay the old and keep up the faade, the massive, multi-country, the multi-billion dollar Ponzi scheme of Bernie Madoff and the multi-million dollar frauds of others were undone, further undermining confidence in financial institutions. As 2008 drew to a close, panicked consumers abruptly stopped consuming, which punished big exporters of finished goods like Germany, Japan, South Korea, India, China, Taiwan and Singapore and big oil exporters like Russia, the Middle East, Nigeria and Venezuela. In every country, domestic economies downshifted with gears screaming as, overnight, consumers quit spending and consumer confidence collapsed. Piled on top of the financial crisis, this sudden and surprising demand shock triggered the worst global downturn since the depression era of the 1930s.

Section 2

Stock markets around the globe gave up a decade or more of accumulated value as hedge funds let loose the bear by deleveraging en masse as they sold off equity positions into shaky, then falling markets to cover record-setting redemptions. By some estimates, this frenzied race to the bottom cost the world one-quarter of its total wealth.

Section 1

It will take time for economies to fully recover. Macroeconomic consulting firm Capital Economics has estimated that the recession created a 6 percent output gap in the U.S., meaning a 6 percent negative difference between actual GDP and potential GDP. In other words, the U.S. economy has contracted to the point that it has significant stores of unused and under-utilized capacity. According to Capital Economics, this gap will not be closed until 2016. Similarly, the Eurozone output gap is 6 percent and wont be closed until 2015; the output gap in Japan is 7 percent and wont be closed until 2017. 9 See http://siteresources.worldbank.org/INTCHINA/ Resources/318862-1237238982080/5923417-1245206005835/CQU_June2009_full_06-1809.pdf. 10 See http://www.nytimes.com/2009/09/22/business/global/22yuan. html?scp=1&sq=asian%20development%20bank&st=cse. 11 Despite Continued Economic Growth, China Fears Labor Unrest, by Tom Lasseter, McClatchy Newspapers, September 11, 2009, http://www.mcclatchydc.com/homepage/ story/75253.html. China Outlines Ambitious Plan for Stimulus, by Michael Wines, The New York Times, March 4, 2009, http://www.nytimes.com/2009/03/05/world/asia/05china.html?_r=1. 12 Pertinent here is the notion of the risk society popularized in the late 1980s and early 1990s by sociologist Ulrich Beck of the London School of Economics (LSE) and Cambridge sociologist Anthony Giddens, who later was director of the LSE. The risks that shape both attitudes and institutions fall broadly into two categories: external and manufactured risks. As societies become better able to assess risks, avoiding risks becomes a driving factor in how societies are organized and managed. Social class is even affected with the emergence of high-status social risk positions achieved by avoiding risk through wealth or knowledge. The key idea is that perceptions of risk are the very core of how modern societies operate, so the evolving nature of risk perceptions outlined in this white paper is the definitive dynamic shaping each era. In a related vein, social scientists have found that economic crises have lasting effects on peoples perceptions of risk, particularly young people who come of age during recessionary downturns. This research has a direct bearing on the thesis of this white paper. This research also validates the cohort approach that has been central to much of the trends and futures work of The Futures Company, particularly the U.S. Yankelovich MONITOR. Research published in 2009 by U.C.L.A. economist Paolo Giuliano and International Monetary Fund economist Antonio Spilimbergo examined the attitudinal effects of regional recessions in

the U.S. Their research showed that recessions affect attitudes related to risk, security and success, especially for people between the ages of 18 and 25. As they note, Recessioninfluenced respondents expressed a stronger preference for government redistribution and tended to believe that success in life was more a matter of luck than hard work. These shifts in attitudes are permanent because attitudes of recession-stricken individuals remain significantly altered many years after the severe recession ends. This study is available at http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=7399. Research for a 2009 unpublished working paper by University of California at Berkley economist Ulrike Malmandier and Stanford finance professor Stefan Nagel found that different experiences of stock market returns and inflation while growing up lead to differences in the level of risktaking in investment behaviors later in life. A number of studies have shown that differences in attitudes about risk are correlated with very different beliefs about markets and the role of government. 13 The economic histories of the earlier eras of readiness and indulgence have been thoroughly recounted in several bestsellers published just as this recession was taking hold: The Return of Depression Economics and the Crisis of 2008 (2009) by Nobel Prize-winning economist Paul Krugman; The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street (2009) by Time business and economics columnist Justin Fox; The Great Inflation and Its Aftermath: The Past and Future of American Affluence (2008) by Newsweek and Washington Post contributing editor Robert Samuelson; A Failure of Capitalism: The Crisis of 08 and the Descent into Depression (2009) by Seventh Circuit U.S. Court of Appeals judge and University of Chicago law professor Richard Posner; Past Due: The End of Easy Money and the Renewal of the American Economy (2009) by New York Times national economics correspondent Peter Goodman; Financial Shock: Global Panic and Government Bailouts How We Got Here and What Must Be Done To Fix It (Updated Edition, 2009) by Mark Zandi, chief economist and co-founder of Moodys Economy.com. A more comprehensive compilation and analysis of financial crises is provided by economists Carmen M. Reinhart and Kenneth S. Rogoff in This Time Is Different: Eight Centuries of Financial Folly (2009). These economic histories are good, but the impact of recent events on consumer perceptions of economic risk and the resulting character and mindset of the recovery consumer marketplace is yet to be fully appreciated. This is the focus of this white paper.

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Much of the early economic data in support of the efficient market hypothesis came from the observed random movement of stock prices, which was viewed as proof positive that there were no inefficiencies or imperfections in the market. Even if professional investors identify inefficiencies to exploit, it is assumed that other investors quickly respond, thus eliminating any temporary advantage and restoring the market to perfection. Evidence to the contrary was viewed as peripheral to the essential workings of the market or as nothing but the kind of luck that random events always bestow on a fortunate few. In particular, whatever the weaknesses of efficient market theory, no viable alternative theory was, or has been, articulated to take its place, which is the biggest reason that the growing field of behavioral economics, with its focus on irrationality in human decision-making has yet to fully displace the theory of the rational market.

Indeed, on the very eve of the global economic downturn, when events that would precipitate the Great Recession of 2008/2009 were already in motion (i.e., the U.S. housing bust), the International Monetary Fund declared in its April 2007 World Economic Outlook (p. xii) that this World Economic Outlook sees global economic risks as having declined [emphasis in original] since our last issue in September 2006. Certainly this is at odds with

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18 A similar view was stated a year later by Ben Bernanke in a speech to the Eastern Economic Association in which he coined a term now widely used for the success of macroeconomics during this era The Great Moderation. Appointed Chairman of the Federal Reserve in 2006, Bernanke said then, One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility, something he spent the bulk of his speech attributing to the improved performance of macroeconomic policies, particularly monetary policy.

Section 4

16 Also known as the rational market hypothesis, the intellectual nerve center for efficient market economics and finance was the University of Chicago under the ideological leadership of Nobel Prize-winning economist Milton Friedman. The work of Nobel Prizewinning Viennese economist Friedrich Hayek in the 1930s and 1940s helped inspire this view of the market, particularly his concept of spontaneous order, or the notion that no central authority can ever hope to know as much about the market as all of the actors in the market, thus making it impossible for government intervention to work. Instead, when left alone, each actor uses whatever information is at hand to make decisions, communicated in the form of prices, out of which order in the market arises spontaneously.

17 The conflation of the free market with liberal democracy enhanced the sense of climax that many observers felt at the time. In 1992, philosopher Francis Fukuyama famously published his opus The End of History and the Last Man in which he declared that the progression of political ideology had reached an end-point with the triumph of political and economic liberalism, or as Fukuyama put it, with the universalization of Western liberal democracy as the final form of human government.

Section 3

15 Inflation and, with it, economic volatility were cured in the U.S. only after thenPresident Jimmy Carter appointed Paul Volcker in 1979 as head of the Federal Reserve. Volckers aggressive monetary policies to root out inflation put the U.S. economy into a severe, double-dip recession during the early 1980s, but Volcker refused to buckle under to intense political pressure to reverse Fed policies. In order to end inflation, Volcker realized that he had to change perceptions of economic risk. His policies were designed to smother inflationary expectations, and only after this was accomplished did Volcker relax his policies.

Nobel Prize-winning economist Kenneth Arrow had noted in the 1950s that if there was a security in the market for every possible future, then all risk could be hedged, thus providing, as Justin Fox put it in his history, economic equilibrium in the face of economic uncertainty, or, to put it differently, perfect market efficiency. One of Arrows students, Steve Ross, realized in the mid-1970s that the Black-Scholes model for option-pricing was the means of accomplishing in actual practice what Arrow had laid out only in theory, thus setting off an explosion in derivatives that not only created enormous wealth for hedge fund managers but seemingly eliminated economic risk entirely by making the operation of the market perfect.

Section 2

14 The world was run by technocrats, men (mostly) who, in the words of The New York Times columnist David Brooks, believed they had mastered the knowledge required to make a society function macroeconomics, planning, urban redevelopment, logic, technology, systems. Unfortunately, as Brooks put it, things didnt work out so well.

Efficient market theory eventually made its way into actual market practice in the form of derivatives, which are financial instruments whose prices are set on the basis of some other underlying asset, index or instrument. The work of Nobel Prize-winning economists Myron Scholes and Robert C. Merton along with Fischer Black (who died before Scholes and Merton were awarded the Nobel Prize) on option-pricing theory opened up the use of derivatives to hedge all sorts of risk.

Section 1

many recent newspaper headlines and commentary, which have focused on problems related to U.S. mortgages, the potential for disorderly unwinding of global imbalances, and worries about rising protectionist pressures. Neverthelesslooking at the big picture, we actually see the continuation of strong global growth as the most likely scenario. See http://www.imf.org/external/pubs/ft/weo/2007/01/pdf/text.pdf. 19 For years, Yale economist Robert Shiller was the Cassandra of efficient markets, sounding a warning about the dot-com bubble in the 2000 edition of his bestseller Irrational Exuberance and one about the housing bubble in the 2005 revised edition. In a 2009 Bloomberg Radio interview, he looked back on it this way: [W]hat happened was that people thought that we had proven the market smarter than anyone, and as a result, there were no bubbles anymore. In fact, if you look in a traditional finance textbook from the last 10, 20, 30 years, bubble isnt in there. And there isnt another word for it in there either. It doesnt exist. [Emphasis added.] 20 These strands of economic risk perceptions converged as savings plummeted in the U.S., with China happily using its current account surplus to pick up the tab for the ensuing debt, while banks in markets like Iceland made outsized bets on the securities packaged from that debt. Worldwide, risk was embraced and indulged without worry. 21 Additionally, the fraying of safety nets, the decline in resources available to invest in reducing other risks, and the currency, trade and debt risks faced by certain countries, including the U.S., because of shifts in global economic power heighten the feeling of vulnerability. Every risk in life, not just economic risk, looks more menacing. 22 In an April 2009 interview with The New York Times, President Obama promised that future oversight of financial institutions will inhibit some of the massive leveraging and the massive risk-taking that had become so common. Whether such regulations get put in place remains to be seen, but even without them, regulators have learned many lessons from this crisis and will think differently about economic risk. 23 The 2009 U.S. Heartland Monitor Poll sponsored by the National Journal and Allstate found that nearly two-thirds 64 percent agree that [c]ompared to your parents when they were your age, todays economy presents you with more risks that endanger your standard of living. The 2009 U.S. Fidelity Investments Couples Retirement Study found that 41 percent of husbands and 54 percent of wives had a lower risk tolerance for their investments since the onset of the financial crisis. In the 2009 U.S. Yankelovich MONITOR Perspective Dollars & Consumer Sense research, 80 percent agreed, Ive become more likely

to consider the potential risks of each decision I make. The Futures Company 2009 Global MONITOR study found a drop across the 20 countries surveyed of eight percentage points on average agreement with the statement, I am happy to have short-term debt to allow me to buy the things I want. Blanchards reading of U.S. consumer perceptions of economic risk was affirmed in October 2009 by Robert Blendon, professor of health policy at Harvard University in both the School of Public Health and the Kennedy School of Government as well as Chairman of the Department of Health Policy and Management. In assessing President Obamas political management of the health care reform debate during 2009, Blendon said, Obama chose to see the economic crisis as an opportunity for reform. What Obama may have underestimated is the degree to which the crisis and the collapse in peoples retirement funds turned the electorate in a much more risk-averse direction. For them, crisis wasnt an opportunity. It was a threat. 24 Consequences that affect others not directly involved in a choice or transaction are referred to by economists as externalities, meaning the external spillover costs of choices and transactions. 25 While arm-twisting wont be needed, the market is starting to insist on and even incentivize a better accounting of consequences. For example, growing numbers of U.S. companies require employees who are smokers or obese to pay extra for insurance to cover the additional premiums and other costs associated with their lifestyle choices. Externalities are also starting to get priced into other choices as well. Carbon-intensive products are becoming costlier while sustainability practices are proving more cost-efficient. Credit card companies are reducing credit lines and canceling accounts to rein in the default risks of over-indulgent spending. There is even an all-you-can-eat Japanese restaurant in New York City that now adds a 3 percent surcharge to the bill of anyone who leaves uneaten food on his or her plate. Theres no government requirement behind any of this; its all due to companies reacting to market conditions. The structural context of consumption is being reset to fully price in externalities, forcing consumers, whether they want to or not, to be more aware of consequences. One of the many threads of this shift can be seen in the increasingly influential field of behavioral economics, a discipline rooted in the pioneering work of Princeton social psychologist Daniel Kahneman, winner of the 2002 Nobel Prize in economics, and the late

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Stanford social psychologist Amos Tversky, who died before the Nobel Prize was awarded to Kahneman. In contrast to the efficient markets view that prices change as a rational response to real-world developments not the vagaries of investor psychology, behavioral economics puts primacy on psychology and framing situations and cues. It offers an alternative view of how to structure, or price, choices. It takes what social psychologists know about how consumers actually make decisions in order to saturate markets with inducements and cues that tip people toward one choice over another. Regulation is not used to prohibit certain choices; instead, the context of freely made choices is changed. Market efficiency and rationality are not understood in behavioral economics as fundamental forces operating irrespective of context but as derivative forces that may or may not arise within the overarching milieu created by particular incentives and cues. There is a recognition that for markets to operate properly risk must be explicitly accounted for in the ways in which choices are structured and presented to people. Incentives that motivate rather than regulations that dictate will be the preferred means of making externalities matter. One example is seen in the debate about the role of incentives encouraging too much risk-taking by both bankers and consumers during the run-up to this recession. This debate reflects a new-found understanding of the importance of getting the incentives right. The end result is likely to be lasting changes in these incentives. In a 2009 Harvard Business Review article, Clinton administration Labor Secretary and University of California at Berkeley professor Robert Reich foresaw an emerging marketplace in which economic risk will be accounted for by using incentives to price externalities into choices: Over time, economics worldwide will settle on versions of the system thats beginning to emerge in the United States, relying less on regulations that limit or replace free-market transactions and more on incentives that push markets to address public needs. That is, government will be less interested in barring corporate actions that might possibly harm the public and more inclined to reward actions that will almost certainly help. Call it coaxing rather than regulating. Or for consumers, call it a nudge, as did Obama administration official and former University of Chicago law school professor Cass Sunstein in the title of his 2008 bestseller on behavioral economics.

28 See http://hbr.harvardbusiness.org/2009/07/selling-to-the-debt-averse-consumer/ar/1. 29 The Great Recession of 2008/2009 is only partly due to the financial crisis that nearly toppled the global financial system in the fourth quarter of 2008. The root cause of that financial crisis as well as the underlying reason for the ongoing decline in the global economy is the dramatic, unprecedented fall-off in consumer demand. 30 The up-and-coming global generation of Millennials, or consumers 30 years of age and younger, is one such source of available demand (which was a key business focus of the 2009 Yankelovich MONITOR Perspective Millennials Ahead as well as The Futures Company Global MONITOR surveys of 2008 and 2009.) Another is the rapidly growing middle-class in big developing markets like China, India and Brazil. 31 See http://www.bainvestor.com/Learned-Optimism.html. University of Pennsylvania professor of psychology Martin Seligman is one of the founding figures in the field of Positive Psychology and the originator of the related concepts of learned helplessness and learned optimism. As Seligman put it in Authentic Happiness (2002), Pessimists have a particularly pernicious way of construing their setbacks and frustrations. They automatically think the cause is permanent, pervasive, and personalOptimists, in contrast, have a strength that allows them to interpret their setbacks as surmountable, particular to a single problem, and resulting from temporary circumstances or other people. Pessimism can be overcome. Seligman has pioneered a number of independently validated techniques for

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27 The ambition of responsibility is on the table already in various ways that require resourceful vigilance over priorities embedded in a broader network of interests. One example of this broadening of concerns is the current debate over shareholder value, a priority that many pundits believe has distorted and inappropriately narrowed the focus of corporate management, thus adding fuel to the fire of the dot-com and housing bubbles and the ensuing financial crisis. Shareholder value will always be important, of course, but the interests of other stakeholders are now being recognized as corporate responsibilities, too. Increasingly, business managers are counting employees, customers, suppliers, communities, the news media, unions, government and civil society at-large as members of their corporate constituencies.

Section 2

26 The recession intensified these attitudes, as reflected, for example, in the plethora of newspaper stories in the first half of 2009 reporting a sweeping shift in the U.S. housing market to smaller homes.

Section 1

teaching people to be more optimistic, to combat depression and to live happier lives. See http://www.authentichappiness.sas.upenn.edu/Default.aspx. 32 Lian Lamey, Barbara Deleersnyder, Marnik G. Dekimpe and Jan-Benedict E.M. Steenkamp, How to Mitigate Private Label Success in Recessions? A Cross Category Investigation, Department of Marketing and Organization Studies, Katholieke Universiteit Leuven, OR 802 at http://www.econ.kuleuven.be/public/ndbae94/MO_0802.pdf. Of related interest is Lian Lamey, Barbara Deleersnyder, Marnik G. Dekimpe and Jan-Benedict E.M. Steenkamp, How Business Cycles Contribute to Private-Label Success: Evidence from the United States and Europe, Journal of Marketing, January 2007 at https://lirias.kuleuven.be/ bitstream/123456789/101090/1/2008-11-20+-+Lamey+Deleersnyder+Dekimpe++Steenka mp+2007.pdf. 33 For example, an extensive study of 106 markets from 1960-2005 published in June 2008 by the International Monetary Fund found that the peaks and troughs of developed and developing economies were no longer moving in concert. But a mere three months after the publication of this study, markets around the world went arm-in-arm into a synchronized nosedive that betrayed the limits of such macroeconomic models. See M. Ayhan Kose, Christopher Otrok and Eswar S. Prasad, Global Business Cycles: Convergence or Decoupling? IMF Working Paper WP/08/143, June 2008 at http://www.imf. org/external/pubs/ft/wp/2008/wp08143.pdf. 34 What neoconservative columnist Charles Krauthammer dubbed in an oft-cited 1990 Foreign Affairs article as the unipolar moment of global dominance by America and the Anglo-Saxon model of free-market capitalism has finally run aground following its shortlived meteoric moment, just as Krauthammer predicted. 35 Updates can be found at: http://people.brandeis.edu/~cbown/global_ad/. 36 The Premier of China, Wen Jiabao, said that this crisis has fully exposed the existing international financial system and governance structure defects. Russian Prime Minister Vladimir Putin has been blunt, decrying what he believes has been a serious malfunction in the very system of global economic growth in which one regional center endlessly prints money and reaps the benefits. Mexican economic commentator Carlos Mota has

pointed out that [t]heres a growing feeling in Mexico and indeed all of Latin America that the American model isnt the only one. Newly elected Japanese Prime Minister Yukio Hatoyama declared in an August 2009 editorial in The New York Times (excerpted from a longer article that appeared in the September issue of the monthly Japanese journal Voice) prior to his election that the question facing his nation and others is how to put an end to unrestrained market fundamentalism, by which he means the U.S.-led movement that is more usually called globalization. As an alternative to American-style free-market economics, he championed the French-like idea of fraternity...as a principle that aims to adjust to the excesses of the current globalized brand of capitalism and accommodate the local economic practices that have been fostered through our traditions and that gives attention [to] those non-economic values that have been thrown aside by the march of globalism. 37 In developed markets, greater regulation and more transparency are on the table, reflecting a new appreciation of the need to think more holistically when considering risks and consequences. In developing countries many such systems exist already in traditions and institutions that were dialed down in recent years but are now taking precedence again, including strongly managed state banks, powerful national governments and long histories of protectionist, conservative policies. Developing countries are likely to use these traditions and institutions to detour past the sort of reckless super-abundance that has brought developed markets to their knees.

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