I was talking to a former co-worker (I have lots of them) this weekend and of course the topic of the economy came up and we were trying to determine when things would pick up and when we would be out of this thing. I said that six months from now we would most likely be in a much better place. I was then reminded that six months ago I said the same exact thing while unemployment has done nothing but tick upward. It's easy to lose credibility when you keep making the same prediction that never comes true - your sanity will quickly come into question.
We then started to discuss what this recession will do for the industry and how things will look when we emerge from the dark cavern. While it could look like a sea of cardboard boxes housing homeless construction professionals, the more likely situation is one of a construction industry where the stronger companies survived and the weaker companies did not. I don't know what the statistics are for the failure rate of AEC firms during the recession, but I would imagine that the Darwin effect will show some signs of presence in our industry. But the question is if this is a good thing?
Suppose many AEC firms do go under through this whole thing and when things pick up again, new companies will surely emerge in an effort to eat some of the pie. So we're left with an industry that has some of the old strong players and some new rookie firms. But the question remains, is this a good thing?
And the answer is - perhaps. I think we will get a very good look at what kind of firms are doing well in construction by taking note of who is still alive when this thing turns around. What will these companies look like? Will the ones that survive have the better marketing or bidding strategies, or will they just have the most money? Will the survivors have the higher ethical standard, or the more devious and crooked values?
The fact of the matter is that when construction is booming again like it was in 2000 and 2005, we will be looking at a much different construction industry. It could be better and it could be worse, but it will certainly be different. I personally think it will be better. Every organization will be involved in the sustainability and green building movement and since this is a movement that also involves the incorporation of higher ethics and social responsibility, companies will adopt some of these values (or at least pretend to).
Regardless of what the industry looks like, we will in the least have much more people working and this is certainly a good thing. But will we be in a more sustainable, ethical, productive, and cohesive industry and will the unethical and self interested be weeded out?
I hope so.
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It will never be like it was as the government and the banking industry have destroyed our economy. What will rise from the ashes may be more control of finances by the banks/government and less opportunity for the small business to profit. Without abolishing the Federal Reserve System, there can be no economic recovery, as it is the primary cause of debt and inflation.
ReplyDeleteHi John,
ReplyDeleteIt is a very nice article. I sure believe that construction industry would benefit to some extent due to the recession. This would be largely due to elimination of redundancy in the construction and the ancillary support process as well. For instance, excessive workforce would be eliminated, due priority would be given to man and material management to reduce costs, etc.
The cost cutting options exercised in the process would enable the firms get though the recession and firms with inadequate expertise in optimizing their resources would find it challenging to survive.
At this juncture I would like to point toward one question "Can construction industry not reduce the dependency on the uncontrollable (economic situation, market trends, etc.) and focus on optimizing the controllable (construction processes, industry operation, etc.) to have a much stable and a flatter business cycle?"
Construction industry worldwide has been reactive and furthermore, the impact of any variation is compounded due to improper, inflexible and mistimed remedial strategy. Simple proactive measures (like redundancy elimination during the boom period) would improve the performance, profitability and stability of the whole industry.
I would like you (John and other blog readers) to share your opinion on the thought. My email id is sharathsampath@gmail.com
Thanks,
Sharath
While large-scale construction, especially commercial, is depressed, home remodeling is booming. It's the territory of mostly small firms, however. I'd guess that office renovation would also be a good territory for marketing and innovation, and one that AE firms should be looking at.
ReplyDeleteIf there is no federal reserve, do you believe that congress should directly control the monetary supply? Populism is a bear to work with when wielding a central bank. I don't think you've thought things through very well.
ReplyDeleteAlso, the repeal of the Glass-Steagal act is what wrecked our economy if you want a specific bogeyman (in reality, it was about a dozen different things from international trade laws to chinese currency manipulation).
Thank goodness that SS wasn't privatized as well or we'd have seniors eating catfood.
There is another aspect that will rise out of this economy and that I think will be the diversification of income resources. Companies will no longer ever again specialize. For instance, in Georgia or Texas, companies can incorporate making money for the sale of natural gas due to deregulation. I know I have found a comapny where I market thier gas and make money doing it. Not like the good old days of the monopoly getting it all.
ReplyDeleteCall me, Durand Seay, if you want to know more 678-644-0400
Good question John – Construction as with many other industries has entered a Darwinian period, one third of the top 100 residential builders are expected to fail and the same will be true in the commercial sector. It would be hard for anyone to say if this is a good or bad turn of events. It is certainly no fun for those us who have worked in the construction industry all of our lives; however in the end it is the process of capitalism at work.
ReplyDeleteAnother reality that we all have to come to grips with is more than likely will not see levels of construction experienced in the 90’s and a few post 911 seasons. The reason for the largest economic expansion experienced in US history in the 90’s was due to the relaxing of post depression banking regulations; this in the end lead to massive unsecured borrowing and lending. It created a massive financial bubble that began to burst late 2006 with residential mortgage and other credit defaults. It just started to effect commercial construction in 2008 and we may not see it bottom out until late 2010. Banking reforms are inevitable, rules similar to those put in place during the 1930’s to avoid another global banking crisis are being formulated as we speak. Given this, it is going to require more equity and top notch credit in the future to build a house and many other commercial projects which will drastically limit the recovery in provide sector construction. In closing there are some areas of real promise that could get us closer to that of 2000 and 2006 level you were talking about and that is institutional and infrastructural projects. There is still a huge pent-up demand for schools, healthcare and public works construction. Once employment begins to improve and state tax coffers start filling up you can look for these areas to bust loose, but for the most part they are funded by state income and property taxes which tied directly to employment.
claverjoe,
ReplyDeleteNo. Abolishing the Federal Reserve implies moving back to a gold standard. The Fed was established in 1913 and Nixon moved us off a gold standard in 1971. Americans real wages peaked in 1973.
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
-Thomas Jefferson
Photo Caption: "What recession?"
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