What’s Offline: Requiem For The Good Times

ECONOMIC growth is almost certainly decelerating and could soon cease altogether. The implications of a significant U.S. slowdown or extended depression, accompanied by inflation, are frightening.

That is the conclusion Robert Ayres, a scholar at the International Institute for Applied Systems Analysis in Austria, has come to.

Writing in Rotman, the magazine published by the University of Torontos business school, Mr. Ayres, a former professor at the international business school Insead, argues that the period of gaining economies of scale from international trade has probably peaked and that growth through deficit financing can last only so long.

The U.S. now has a huge and growing trade deficit, entirely financed by foreign investment in U.S. government securities by exporting countries, he writes. The deficit currently approaches $800 billion, or 7 percent of the U.S. G.D.P., and absorbs close to three-quarters of the savings of the rest of the world. This is unsustainable.

On top of that, he says, the United States is running out of natural resources including water, fish and virgin forests, and the fact that global reserves of easily recoverable petroleum, natural gas and high-quality metal ores are also finite merely adds to the problem.

Even technology advances cannot offset all the problems, he contends. Barring a miracle (i.e. a scientific breakthrough of huge proportions, or a radical change in government policy), only further slowdown can be expected in the future, he writes in his depressing depiction of Americas future.

DOWNSHIFTING Smart Money identifies three companies, well-known names all, that are coping extremely well with slowing growth and increasing competition.

I.B.M. has successfully reinvented itself, leaving behind its hardware roots and making strides in the more profitable software and burgeoning services business, Reshma Kapadia writes. Earnings have topped analyst estimates in the last two quarters and the company has also raised its dividend an average of 15 percent a year over the last five years.

Waste Management has ended its acquisition spree and is now focusing on its bottom line, in large part by raising rates, Ms. Kapadia writes.

McDonalds, she adds, is also betting on becoming better rather than bigger, boosting return on invested capital rather than crowding the world with too many golden arches. Instead of putting more and more restaurants closer together, as it was a couple of years ago, McDonalds is trying to attract more customers at each one, for example, by improving its breakfast offerings.

The magazine talks to analysts who expect the share price of each of these companies to increase this year.

THE COMPETENCY TRAP It doesnt matter if you are selling soap or software, the process is invariably the same. You introduce a product and if it succeeds, over time you figure out the best way to focus your resources on that line so that you can make more money. The more you sell, the more specialized you become.

But that specialization keeps you from adapting when the competition figures out what you are doing, or market conditions change. You are caught in what Jeffrey Pfeffer, a Stanford professor writing in Business 2.0, calls the competency trap. He has three suggestions for avoiding it.

¶Avoid excessive specialization: Toyota has never put all its eggs in one basket. It makes high-quality trucks, minivans, even hybrids.

¶Develop peripheral vision. Markets dont change all at once. Pay attention to the facts, not what you want to believe.

¶Understand that the competency trap is real and that a companys great strength can become its greatest weakness when circumstances change. To offset it, build a mind-set of continuous learning and vigilance.

FINAL TAKE Money reports that a third of men it surveyed said they preferred that their partner not get them anything for Valentines Day.

Maybe they expect to be disappointed. On average men will spend $138 on Valentines gifts for their significant others. Women will spend slightly more than half that — $74 to be precise — on their beaus. PAUL B. BROWN

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