It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.-- Charles Darwin
NEW YORK (TheStreet) -- I am often asked: "When do you think the economy will return to normal?"
My response: If by "normal" you mean what we had from the 1980s to 2008 -- the "if you build it, they will come" economy -- the answer is, not anytime in the foreseeable future.
The economic environment has permanently changed, and businesses that don't adapt to the new environment will become extinct like dinosaurs. Think about Kodak and Polaroid. They were big, strong and probably smart, but they didn't adapt.
In the new business environment, economic growth will be much harder to achieve, the income gap will continue to grow and bigger and more intrusive governments at all levels will demand more revenue.
In mid-February, the Congressional Budget Office concluded that potential economic growth for at least the next 10 years will be much lower than what we have experienced for the last few decades. They attribute this to the health system known as Obamacare as well as disincentives to work.
A Growing Income Gap
The growing income gap is well documented. What's not well documented are the causes.
There are two major ones starting with government policy. Federal Reserve money printing, for example, benefits the most affluent and Wall Street's financial institutions. Government policy to under-report inflation (which began in earnest in 1994) reduces budget deficits by limiting payouts to Social Security and Medicare recipients and saves interest costs on the debt. But it has kept wage rates from keeping pace with inflation.
If inflation has been understated by just three percentage points per year since 1994, then wage earners, who have only received "cost of living" adjustments, have lost 55% of their purchasing power. No wonder both spouses have to work (some with two jobs) and still have a hard time making ends meet.
But, there is another factor at play here. In the Industrial Revolution, innovation benefited all workers. It wasn't hard for workers with little formal education to learn how to operate machine tools, and they could master skills needed in the new industrial economy.
But, that is not true today. In fact, the National Federation of Independent Business's surveys have for some time now shown an increasing trend that businesses cannot find the skills they need. As a result, jobs go unfilled. The jobs that are available require skills only learned through and intensive educational process, such as majoring in engineering or computer science at a university.
These are the folks who are getting the high paying jobs. Those with few or no skills must take much lower-paying service type or minimum wage jobs. In the latest unemployment survey, the unemployment rate among college graduates was 3.3%, for those with high school degrees it was 7.3%, and for those with less than a high school diploma, it was 11.1%. Thus, it appears that the nature of the new technology revolution is also contributing to the income gap.
Other Endemic Factors
For the past five years, multinational corporations have been hoarding cash. Capital expenditures are at their lowest growth levels in six decades. Perhaps these large businesses have recognized that growth will be slow and that revenue growth will be a function of acquisitions.
Finally, new laws, regulation and taxation strangle small businesses -- the recognized driver of economic growth for the past 60 years. The stranglehold that regulators have on community banks that restricted lending to small businesses is just one example.
Unfortunately, instead of recognizing that government policies have both slowed the economy and widened the income gap, politicians are likely to use these as wedge issues. So it appears that more regulations and increased taxation on small businesses and higher income earners is certain.
The Survival Mentality
In such a tough, low growth environment, businesses must be more innovative. For instance, 80 million Millennials (those between 15 and 35 years old) will soon have more spending power than any other generation in history. The common characteristic of this generation is they make spending decisions only after consulting social media (friends, Web sites, comments from strangers).
Businesses have to recognize this and play in that space. This generation also has different attitudes toward such things as cars. They are more interested in convenience and access than ownership. In addition, the recognition that the more highly educated are likely to have the disposable income may dictate marketing strategy.
In conclusion, don't expect a return of the "if you build it, they will come" economy. Without an approach that is fundamentally different from what has been the norm for the past 30 years, many businesses will become extinct.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.