Over the last several months, we've all heard the comment that "things will never be the same".  Given the severity of the financial crisis and the erosion of wealth in this country and around the world, it's not surprising that many of us have made this comment and believe it. But what has really changed? And how will these changes affect your business?

I've been asking this question a lot and the answers are unclear.  On the one hand, a number of people predict a long extended period of economic malaise as the systemic and global nature of the recession will require time to recover.  On the other, some believe that the massive amount of stimulus and the likelihood of a simultaneous global recovery will accelerate the turnaround generating momentum as jobs and spending return much more quickly.  While I'm certainly an optimist and the worst is most likely behind us, the conventional wisdom suggests the recovery is more likely to be slower and take longer than most of us are prepared for.

So, what does this mean?  During this past week, I asked this question of two experienced leaders and each arrived at the same answer.  In one, I spoke with a CFO of a previously high-flying consumer products company who now finds himself in a struggling business with limited access to bank financing.  In the other, a leading consultant described the competitive pressures in the market and the inability to control pricing.  As the CFO described, "We thought we would benefit from the consumer trading down, but what we didn't understand is that consumers are trading all the way down or completely eliminating unnecessary spending where they can."  He went on to highlight the success of McDonald's and WalMart in the market and stated that "we're lost in the middle".  The consultant's view was much the same as his premium level service remained strong but the effort to bundle services and charge more just wasn't working.  He stated, "clients can do much of the work on their own and they are more selective while also demanding deep pricing concessions.  We'll just have to skinny down our business to survive."

Both comments reflect the explosion of products and services which have become available today.  Quite frankly, we've simply got too much of everything and the capacity in most industries will need to be reduced and refocused to meet the demand.  Whether it's reducing the number of breakfast cereals on the shelf or car dealers on the block, companies will need to get smaller, more focused and more efficient.  In such an environment, the premium product strategy with the ability to maintain pricing is attractive, and the low cost and high volume strategy will deliver success to the most productive and aggressive.  What isn't entirely clear is how businesses will survive positioned somewhere in the middle.  You're either the best or the most affordable option or you may find yourself "lost in the middle".

Let me know your thoughts.  How do you think things will change?  Will the markets ever be the same and what are the trends we're likely to see in the new normal?

As we all know, the debate rages on as free market advocates wrestle with the almost unprecedented government intervention led by the Obama administration.  While The New Deal legislation in response to the Great Depression is the historical comparison, we've entered a new era and looking to the past gives us perspective, not a roadmap.  This week, General Motors declared bankruptcy in what most expected would come, but the reaction to the government's activism raises questions again from the free marketers.

During the last several months, I've had this conversation with many of the brightest minds in business.  From CEOs and CFOs of large corporations to senior partners in some of the world's most successful private equity firms, the conversation is very similar.  Experienced business leaders are uncomfortable with the government's role in TARP, the "stimulus" plan, AIG and GM, and the prospect of a big government spending plan and intervention in healthcare raises further anxiety.  The argument is simple - government's share of GDP is becoming unsustainable and will squeeze out the more efficient and productive influences of free markets.  With very few exceptions, business leaders do not like big government.

In spite of such a consistent chorus of doubters in today's business circles, Obama's popularity remains high as the general public continues to look to Washington to cure our economic woes and the stock market rebounds while most believe the financial system crisis is almost certainly in the past for good.  What hasn't been factored in however is the rising cost of doing business, and what is sure to come from massive government spending - higher taxes, higher interest rates, higher rates of inflation and lower standards of living.  Today, few feel these effects as the Fed fights to maintain low interest rates to support housing and the consumer, and the contraction of our economy has dampened the inflationary pressures that will come. 

While most leaders in business today oppose the massive government spending on the horizon, few have confidence in the Republican Party leadership and most blame Congress and not Obama for the inefficiency of government.  What surprises me is that the Republican Party hasn't figured this out - the party doesn't need to radically change or even take on Obama directly.  All they really have to do is lead with great ideas based on strenghtening our economy and foreign policy.  After quieting Cheney, leaders in the party should join Obama on foreign policy and demonstrate the patriotism Americans expect.  On the economy, they should simply promote efficiency of government and restraining it's share of GDP rather than use the "tax and spend liberal" argument - a subtle difference but an important one.

By avoiding the traps set by the talking heads from the right wing of the party, the Republicans could harness the strength of business leaders and provide some useful balance to the big government advocates.  Bigger government is certainly not the answer over the long term, but in a vacuum there is no other attractive choice.  Where is the Republican Party and why haven't the reasoned voices of today's business leaders made an impact in Washington?

Let me know your thoughts.