This post is long and filled with a lot of informative links. It also might be a wake-up call for those who have laid low for a while and tried to ignore the economy.)
Those who have followed me for the nearly four years I’ve been blogging know I have always drawn attention to the client’s perspective when one is considering creating, building, renovating and changing a solo practice. I’m personally fascinated (and we’re all impacted) by everything relating to global economics and changing demographics and I have had to exercise considerable restraint when writing on this blog so as to keep it in line with my readers’ expectations.
As a knowledge worker and one who serves individuals with services, the economics of this country and changing demographics profoundly impacts you and your law practice. If you are not consciously aware of what is going on around you, you can be left trying to sell sunscreen in a snowstorm and wondering why you’re starving.
Why 2011 Is Different – A Layperson’s (mini) History Lesson
With the threat of a default which many guarantee will not happen (and which, contrary to popular belief, has happened several times in our country’s history – 1779, 1790, 1862, 1934 and arguably 1971 when Nixon broke the link between gold and the dollar), there are numerous discussions about the fallout on the United States. Chances are good this will not happen. However, we are still in serious economic quicksand many have likened to the Great Depression. There are two things which are profoundly different than 1929, however, and which will dictate how Americans will come out of it on the other end:
1. During the Great Depression there was no middle class to destroy because a middle class did not exist. The middle class was a post-war phenomenon borne out of #2;
2. Post-Great Depression big money and corporations poured their wealth back into this country – not out of benevolence or patriotism – but because there were no other ‘emerging markets’ or an interconnected world allowing for less costly production of products. Cheap labor and other incentives to achieve a global position or record profits were not as readily available.
After the World War II we saw the creation of the middle class for many reasons. However, two events are particularly noteworthy:
1. The reduction in the production costs of food making us truly the land of plenty;
2. The abundance of jobs being created through manufacturing on our own soil which put millions to work.
With job creation and, for the first time, disposable income for a significant portion of the population, our economy boomed and the middle class was born.
This burgeoning middle class had money to pay for and sustain the livelihoods of knowledge workers….like lawyers.
Today, with the Great Recession quickly becoming the Great Depression, when we emerge from it life is going to be profoundly different and the distribution of wealth is going to be permanently altered.
1. The Great Recession and world events (including natural disasters) are now forcing our food prices (and other items we use on a daily basis) through the roof eating up our disposable income.
2. This Great Recession is seeing the destruction of the middle class which has fueled this economy for the past seventy years. It is forcing the majority of those once in the middle class to be top-tier lower class or poverty-stricken. The corporations responsible for breathing life back into this country after the Great Depression now have options to increase their profit outside our borders – overseas labor happy to work for pennies and more than three billion newbie capitalists on the other side of the world earning the money once ear-marked for our workers. And they are spending! Our corporations will ultimately build other countries while they become even richer instead of rebuilding the United States. The middle class will be but a memory.
I just want to share some statistics with you…not to depress you but so you can understand what is happening to your neighbor, your client:
#1 Only 58 percent of Americans have a job right now.
#2 Only 56 percent of Americans are currently covered by employer-provided health insurance.
#3 The median yearly wage in the United States is $26,261.
#4 The average American household is carrying $75,600 in debt.
#5 Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
#6 At this point, American families are approximately 7.7 trillion dollars poorer than they were back in early 2007.
#7 The poorest 50% of all Americans now own just 2.5% of all the wealth in the United States.
#8 According to one study, approximately 21 percent of all children in the United States were living below the poverty line in 2010.
#10 According to Newsweek, close to 20 percent of all American men between the ages of 25 and 54 do not have a job at the moment.
Americans are also being told they need to accept that are going to suffer a decline in their standard of living relative to the rest of the world: (Of course, this comes from Billionaire Howard Marks but it doesn’t make it any less truthful.)
“In addition to balancing the budget and growing the economy, I think we have to accept that the coming decades are likely to see U.S. standards of living decline relative to the rest of the world. Unless our goods offer a better cost/benefit bargain, there’s no reason why American workers should continue to enjoy the same lifestyle advantage over workers in other countries. I just don’t expect to hear many politicians own up to this reality on the stump.
Where does that leave the lawyers who have traditionally built livelihoods servicing the middle class?
I was reading this article from the New York Times called The Start-Up of You which discusses the changed mentality one must have to succeed in this world while focusing on the growth sector of our economy – the Facebook’s, etc.:
Look at the news these days from the most dynamic sector of the U.S. economy — Silicon Valley. Facebook is now valued near $100 billion, Twitter at $8 billion, Groupon at $30 billion, Zynga at $20 billion and LinkedIn at $8 billion. These are the fastest-growing Internet/social networking companies in the world, and here’s what’s scary: You could easily fit all their employees together into the 20,000 seats in Madison Square Garden, and still have room for grandma. They just don’t employ a lot of people, relative to their valuations, and while they’re all hiring today, they are largely looking for talented engineers.
Indeed, what is most striking when you talk to employers today is how many of them have used the pressure of the recession to become even more productive by deploying more automation technologies, software, outsourcing, robotics — anything they can use to make better products with reduced head count and health care and pension liabilities. That is not going to change. And while many of them are hiring, they are increasingly picky. They are all looking for the same kind of people — people who not only have the critical thinking skills to do the value-adding jobs that technology can’t, but also people who can invent, adapt and reinvent their jobs every day, in a market that changes faster than ever.
(First, note that this growth sector has nothing has to do with producing widgets. It has to do with the ability to capitalize upon knowledge). These are powerful words for knowledge workers.
You have to be willing to adapt, invent, value-add to that which technology cannot do in order to survive ‘in a market that changes faster than ever’.
And our world is changing rapidly.
In addition, word came out today that Legal Zoom is positioning for an IPO. Legal services are always needed. Whether or not this economy will force more DYI’s is another issue.
I don’t have the answers. What I do know is this New Economy is going to shake up a lot of lawyers who are ill-prepared, rigid in their ideas or smug about the way they currently do business. It is also going to lay the groundwork for tremendous successes for those who understand what is happening and make efforts to be creative, capitalize upon technology and move quickly. Legal problems will never go away for your clients. The delivery of solutions is what is ever-changing. Understanding what you’re clients are up against is half the battle.
We can play the blame game but if you are reading this blog, you know I’m a firm believer in being practical. Casting blame doesn’t put food on your table, pay your students loans, or build a solo practice enabling a livelihood. Understanding what you need to do to compete and then implementing it as a professional does.
What strategies are you implementing to stay in the game and to stay in the game profitably? If you’ve read this post you will see all kinds of opportunities for your practice.