Page 17 - Accelerating out of the Great Recession

INTRODUCTION

better-than-average growth—to companies that are positioned
to exploit them.
As we will see, history teaches us that past periods of slow
economic growth have been brought to an end by waves of
innovation. Thus, in the same way that economies of the past
were resuscitated by technological advances—such as the com-
mercialization of electricity or the invention of the internal
combustion engine—today’s damaged economy could well get
a boost from advancements and breakthroughs in such fields as
biotechnology, nanotechnology, material science, renewable
energy, defense, and health care.
Even if this happens, however, we do not expect to see a return
anytime soon of the kind of profit levels witnessed from 2005
through 2007. As research conducted by The Boston Consulting
Group (BCG) shows, most industries earned record-high profits
in those years. The rising share and profitability of the financial
sector contributed to these profit levels, as did high global growth
rates, easy access to pools of cheap labor around the world, dereg-
ulation of markets and industries, and lower tax rates.
All these factors, which had such a positive influence on
profits in the past, are now likely to go into reverse.
In early 2009, Frank-Walter Steinmeier, then Germany’s vice
chancellor and foreign minister, told the Financial Times that
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“the turbo-capitalism of the past few years is dead.” He laid
much of the responsibility on shareholders obsessed with short-
term profit making. And among the political elite in Europe, his
is not a lone voice. Accordingly, we might see changes in capital-
gains tax rates as well as the introduction of incentives that favor
longer-term investments and discourage shorter-term gains.
Therefore, if this is the environment in which companies
must compete, what of the companies themselves?

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