The Uneven Economy

THE CALIFORNIA SUN WAS SHINING BRIGHT, AND the lush gardens and redwood groves at real estate mogul Walter Shorenstein's home south of San Francisco were in full spring flower. But the eminent businessmen and academics gathered for the Haas Business School's "New Economy Forum" were feeling gloomy. And they'd found an odd way to express it.

"I think it's an L." "I think it's a U, but an L in California." "A W." "A backwards J." "A V moving to a U."

What they were discussing, of course, was the direction of the economy. Are we in for a short dip and a quick rebound (that would be a V), or a prolonged slump (the L scenario)? The majority, for what it's worth, went for the U. But the longer the conversation went on, the more obvious it became that the question of where the economy is headed is too broad to be truly useful.

Consider that the downturn has had an extremely uneven impact so far. The technology industry is a mess, and the stock market plunge and the pullback in capital spending are hurting manufacturing and financial services. Yet unemployment remains very low by historic standards, and economic sectors such as real estate have hardly been touched.

Geography matters, too. The end of dot-com mania, the associated woes of the tech industry and the scandalous electricity crisis have had a serious impact on California. In San Francisco you can feel it on the streets, where "for lease" signs are suddenly commonplace and once-hot restaurants go begging for customers. Yet, in much of the rest of the country the slowdown is barely visible -- either because the boom never quite happened or because the bust has been fickle, at least so far.

Traditionally, the technology business is always out of step with macroeconomic trends: The innovation cycles of chip companies and computer makers and the general hypergrowth of the sector overpowered broader forces. Today, technology is such a large part of the economy that a cyclical tech downturn can drive a broader downturn. Still, the impact of such a slump is anything but uniform.

Even as the economy becomes more integrated, economists talk about the fate of the California economy as an issue separate from the fate of the economy as a whole. Similarly, the disintegration of wealth that accompanied the Nasdaq's collapse has been felt only among financiers and options-holding tech-company workers.

Much of this may be a timing issue; the industries that are feeling pain right now are the leading indicators of where everything is headed. But I suggest that the economy is now so large and so complex that it simply does not move as a piece, and your personal fortunes or those of your company depend heavily on where you sit.

The economists who sit in university chairs sound pretty pessimistic these days -- much more so than they did six months ago. Company executives, who at some level need to be salesmen, are congenitally more optimistic. But the important issue for most is not which letter of the alphabet best describes a fundamentally inscrutable phenomena. What matters most is what's happening in your industry, your company and your community.

COPYRIGHT 2001 Standard Media International
COPYRIGHT 2001 Gale Group