When Growth Goes Flat

By Mark Roberti

Some economists predict many more years of sluggish demand, which means companies that want to grow their profits will need to invest in new technologies to cut costs.

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In Japan, they call it “Ushinawareta Jūnen“—the Lost Decade. After the Japanese housing bubble burst in 1991, the country’s surging economy slowed to a crawl. In fact, it is still limping along at a sluggish rate. There has been some pickup recently, due, in part, to Prime Minister Shinzo Abe’s government stimulus program, but past jumps in economic growth have been short-lived. Some economists are now predicting a similar situation for Europe and North America, which means companies that want to grow profits cannot rely on a general increase in consumer spending to carry the day.

I will explain the current arguments (as I understand them) and how companies can respond. And then, at the end of this piece, I’ll outline why I don’t fully accept the current consensus of thinking among economists.

So the theory goes that after the collapse of the housing bubble, consumers and many businesses were saddled with debt. As consumers “deleverage”—I love that word for “reduce their debt”—they have to spend less on cars, refrigerators and nights out. Businesses invest less in hiring, research and development, and expansion.

Consumer demand is weak. Central banks lower the interest on borrowing in an effort to free up money to stimulate demand, but interest rates have been near zero for years. There is little more that central banks can do. Governments could spend money to stimulate demand. Deficit spending could work, but most governments are so deep in debt themselves that spending more risks a loss of confidence by investors buying their bonds. So that is not an option in most countries (particularly the United States).

If demand remains low for a decade or two—or more—businesses need to find ways in which to steal market share from competitors, or boost profits by cutting costs. Taking market share from competitors is something most companies try to do every day. So it is not easy to grow by doing this—remember, they are trying to take your share, too.

That means investing in new technologies that can cut costs and grow your business. In my view, the most powerful technology available to do this—no surprise here—is radio frequency identification. Billions of dollars are wasted each year in every industry.

• Fifty percent of all food produced is never consumed.
• Employee theft cost U.S. retailers $14.4 billion in 2009.
• Total retail shrinkage in 2009 was $32.3 billion in the United States alone.
• Hospitals in North America lose an estimated $5,000 worth of equipment per bed per year.
• Lost and mishandled luggage costs the airline industry $3 billion annually.
• The automotive industry replaces 7 percent of containers annually.

I could go on, but you get the picture. There is a lot of waste in the world, and it exists because up to now, we have had no way to track and manage things in the real world in real time. RFID makes that possible, by reducing shrinkage in retail and the loss of equipment in hospitals, and by enabling automotive companies to track parts containers. It makes it feasible to spend less on replacing lost or stolen items, and, therefore, to earn more profit. In addition, RFID can boost productivity, which also adds to the bottom line.

And here is why I don’t think we are doomed to suffer low economic growth for the next 20 years: Eliminating waste and boosting productivity are forms of wealth creation. If the U.S. retail sector can cut losses from $32 billion to, say, $8 billion, that means $24 billion becomes capital to invest in new stores or new productivity tools, to give to employees in the form of higher wages, or to share with investors as dividends.

That money helps the companies that make productivity tools. They can then hire more workers and expand. Employees or shareholders will go out and spend the money that has been put in their pockets. The stores at which they spend that money will benefit, and if this occurs across many industries simultaneously, the economy will grow more quickly. Some might think I’m crazy—it has been said about me before—but I believe RFID technology is so powerful that widespread adoption will impact economic growth globally. Remember, you heard it here first.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog, the Editor’s Note archive or RFID Connect.