Progress test 8 (part 1)

The credit crunch has tested the system with a severity that took the experts by surprise. Big banks collapsed, houses that were people’s pensions dropped sharply in value and, in the case of Iceland, a whole country went pop. For a generation since the fall of the Berlin Wall the big problems of the global economy appeared to have been settled. Inflation was tamed and unemployment conquered. Wealth flowed magically from stock markets and property portfolios. New countries made the leap from poverty to prosperity in the space of a generation. All that changed in the space of a few weeks. There is nothing safe or settled about the economy any more.

But a look at the way the system has changed shape over a couple of hundred years teaches us two things, both relevant to the kind of economy we are going to be living with for the next 25 years. First, capitalism comes in plenty of different flavours. Next, it changes in response to a crisis. Out of each past crisis have come new industries, new ways of doing business, and new ways of earning a living. They are created from the ground up by entrepreneurs figuring out new ways of using resources, by workers shifting their priorities and by consumers changing what they buy and how much they are prepared to pay for it.

Great businesses can emerge even in downturns. The motor, electrical and chemical industries that were the backbone of postwar British industry came into their own during the 1930s. To many experts the crisis we have just witnessed is not so much a rerun of the 1930s, which started with a stock-market collapse. The panic began with the failure of an American bank, leading to the collapse of the Austrian stock exchange, ushered in a decade known as theLong Depression. Just as in the 1930s, there was also intense innovation. In America Thomas Edison was setting up General Electric and wondering if there might be a market for light bulbs. In Germany Deutsche Bank was launched as a new type of industrial bank. The 1970s might have been marked by hyper-inflation, oil-price shocks, trade-union militancy and IMF bailouts. But that didn’t stop entrepreneurs such as Microsoft’s Bill Gates or Apple’s Steve Jobs creating the personal computer industry.

In a deep depression, three things happen to kick-start new businesses. First, all the raw materials you need to get started suddenly become cheaper. Shops, factories and labour all tumble in price. Next, big companies become more open to innovation. Lastly, in bleaker times you have to invent your own future. Recessions can have a very beneficial upside because they lead to the survival or renewal of strong companies and the extinction of the weak. Researchers predict, that globalisation, one of the dominant trends of the past decade, is about to be thrown into reverse gear. Instead of making everything in China or Turkey, we are about to bring manufacturing back home again.

In the wake of collapses, new industries are created in part by the stimulus initiated by governments. Plenty of governments have pushed through ‘cash for clunkers’ schemes. Trade in your rusty old gas-guzzler for a newer model and you get a cash rebate. The results are impressive. The US is hurling money at new high-speed trains, at healthcare research and at renewable energy, providing plenty of opportunities for entrepreneurs.

Where will the mega opportunities of the next 25 years lie? The one thing we can be certain of is that the industries of the future will be hammered into shape by restless entrepreneurs seizing whatever opportunities the crisis throws their way. Here are some areas where fortunes are expected to be made.

Local Manufacturing. It doesn't make much sense to use millions of barrels of expensive oil shipping and flying goods around the world when new technologies and lower transport and storage costs mean they can be made locally. Fruit and vegetables could be grown much closer to their markets, using some of that renewable energy created by government stimulus packages.

Talent scouts. In a hyper-competitive world, any tiny shred of creative genius will make the difference between success and failure – and just about every business will have to find ways to source and develop talent.

Finance. The last thing the world wants right now is lots of clever young bankers thinking up new, smart ways of slicing and dicing money. But while that kind of investment banking might be dead, retail banking could get exciting.

M. Lynn. The Sunday Times