Global Trend

The United States Has Entered a New Era in History

To understand how momentous this trend is, we need to take a step back to get a better perspective. The primary mission of Trends is to prepare our subscribers to anticipate the threats and opportunities they’ll face in the future. Most of these threats and opportunities occur at the intersection of three broad forces: demographics, technology, and values.

Demographics, or who we are, is the most stable of these forces in that it describes society’s population size, income distribution, racial makeup, age makeup, educational attributes, and family structures. The needs of people change as their age, income, health status, racial background, and physical location changes. These variables change only slowly, if at all. Trends analyzes evolving patterns in demographics to help you anticipate the implications of changing demography.

Technology is rapidly changing, but with rare exceptions its sophistication and penetration increases over time, and its cost decreases. Therefore, we often speak of technological trajectories. Technology determines how we are able meet the needs of people. Trends monitors evolving technologies from their infancy in academic papers through the commercial lifecycle so that you aren’t blindsided.

Values, or attitudes, include the beliefs and assumptions of the people in a society. Values tell us why we do certain things, and choose not to do others. They shift more slowly than technology, but more rapidly than demographics. Values determine what we perceive to be our needs and how we prioritize them. Trends constantly takes the pulse of the nation’s values so you know how consumers’ needs and wants are evolving.

An understanding of those three variables provides the crucial insights needed to understand the present and anticipate the future.

Most of the time, our reporting focuses on a very specific trend; a new demographic group, a newly emerging customer preference, or a change enabled by technological evolution. We examine its immediate implications, and our forecasts grow directly out of those implications.

However, it’s sometimes necessary to discuss the long-range secular trends that provide the context within which other trends must be interpreted. This is one such moment.

From 1968 to 2004, we’ve lived in a so-called “libertarian era.” Every year, we could count on the free market becoming increasingly accepted as the economic “gold standard.” Just as surely, every year brought socialism and the welfare state into disrepute. From the collapse of the old Soviet Union to the opening of China to capitalism, the theories of Adam Smith were applauded and those of Karl Marx were ridiculed. And, each year, the rate of movement toward embracing laissez-faire capitalism seemed to accelerate.

Throughout those same years, our moral standards continued to be transformed toward the full realization of unquestioning tolerance. But, over the course of time, we saw the relentless pace of social liberalization progress slowly. The so-called “progressive momentum” was increasingly countered by “conservative resistance.”

To enable the cultural duality of the libertarian age, U.S. voters elected a split government. Except for eight of those 36 years, the American people chose to elect Republicans in one branch to ensure the advancement of free markets while they elected Democrats in another branch to ensure the ongoing liberalization of social conventions.

Most of us became managers and investors in the years after 1967. Therefore, we’ve always known a world in which we could expect social policies to get more liberal, and economic policies to get more conservative. More importantly, we’ve lived in a world in which consensus values were shaped by the libertarian zeitgeist; in other words, “anything is OK as long as it doesn’t demonstrably hurt someone else.” Corporations are already finding out ? to their dismay ? that that era is over.

However, before we discuss the new era and its implications, let’s explore exactly why we’ve reached this turning point, and why we can predict with confidence that this is not some momentary political mood swing, but a long-term trend.

There are two crucial dimensions of every culture:

1. A moral or spiritual dimension
2. An economic dimension

Over the long run, society pivots back and forth on both dimensions. One extreme of American economic values is represented by the unregulated world of the 19th century robber barons. The other extreme is seen in the quasi-European welfare state Lyndon Johnson tried to build under the Great Society. Historically, a reversal in direction occurs every 72 years, as public opinion rebels against the excesses of one extreme or the other.

Similarly, over the long run, society pivots back and forth on the moral dimension. In theory, this could vary between total moral relativism, as represented by the old USSR, to total moral absolutism, as embodied in the modern Iran.

However, because of its pluralism and tradition of freedom, the United States has been exempt from the extremes of the Soviet Union or Iran. Nevertheless, there is a definite pattern of movement from one extreme to the other that business people ignore at their peril. And just as with the economic dimension, there is a pattern in which moral direction reverses every 72 years, when public opinion rebels against the excesses of one extreme or the other.

We can think of these two dimensions ? moral and economic, as perpendicular axes. [See Figure 1.] Then when we plot the two extremes of each dimension, we create four quadrants:

Quadrant 1, which reflects a preference for laissez-faire capitalism and God-centered moral absolutism, is referred to as the conservative quadrant. The United States was last in such an era from 1860 to 1895 when robber barons ran businesses and Victorian values dominated popular culture.

Quadrant 2, which reflects a move away from laissez-faire in the economy but a continued reliance on moral absolutism, is referred to as the populist quadrant. The United States was last in such an era from 1896 to 1931 when trust busting and income tax reflected our economic policy and drinking alcohol was illegal.

Quadrant 3, which reflects a preference for European-style socialism in the economy and man-centered moralism in the culture, is referred to as the liberal quadrant. The United States was last in such an era from 1932 to 1967 when The New Deal and The Great Society dominated economic policy and the sexual revolution dominated the culture.

Quadrant 4, which reflects a move away from socialism and back toward laissez-faire on the economic dimension even as popular culture continues to move toward the extreme of man-centered moral relativism, is referred to as the libertarian quadrant. This libertarian era from 1968 to 2003 still seems the most normal because that’s the period in which most of us reached adulthood. It was the era of welfare reform and Roe v. Wade, airline deregulation, new gun laws, junk bonds, and gay marriage.

In 2004 we entered a new conservative era. In this era, our economic bias, encouraged by the fall of communism and the rise of globalization, will continue to move away from socialism and toward laissez-faire. But the relentless movement from moral absolutism to moral relativism that we witnessed from 1932 through 2003 is totally spent, and the direction has reversed. [To get a more complete understanding of how the cyclical nature of American economic and moral bias has played out over the course of our national history, please refer to Figure 2 on the following page.]

To fully understand what this new era will mean for us as managers, investors, and individuals, we need to examine the three mechanisms that determine how social values impact economic policies and the business environment:

1. Individual responsibility
2. Charity
3. Institutional accountability

With regard to individual responsibility, moral absolutists and moral relativists see the world through totally different lenses. Relativists argue that society, rather than the individual, is responsible for individual actions and welfare. To the relativist, society is one big family with everyone responsible for everyone else. Absolutists argue that each individual is responsible for his or her own welfare and actions as well as the welfare of his or her own family. In the past decade, relativist Senator Hillary Clinton and absolutist Senator Rick Santorum highlighted this distinction in the titles of their respective books, It Takes a Village and It Takes a Family.

Moral relativism gave us the New Deal and the Great Society. Specific programs included Social Security Retirement, Social Security Disability, Social Security Survivors Payments, Unemployment Insurance, and Medicare. Each of these programs implicitly affirms the idea that the government can take care of each individual better than the individual can take care of himself. The economic underpinning correctly rests on the concept of “shared risks” that also underpins private insurance.

Unfortunately, when coupled with the collectivist central planning mindset of the liberal era, these programs became untenable. As a result, while the aims of each of these programs were noble, objective analysis has shown them to be extremely costly for the benefits derived, relative to alternatives involving individual responsibility. In fact, some of these programs are financially unsustainable in the face of shifting demographics.

Over the next 25 years, expect to see all of these programs radically redesigned as part of an overarching Ownership Society. The first salvos of this transformational battle have been directed at the relatively “low-hanging fruit” of Individual Accounts within the Social Security Retirement Program. We expect to see a much larger battle as we struggle to introduce individual responsibility into Medicare. The coming Medicare debate will not only revolve around issues of individual responsibility, but the fundamental concept of charity.

The way in which charity is understood represents the second major difference between moral relativists and moral absolutists. Every Western nation has taken it upon itself to ensure that the least equipped among us have what society defines as a minimally acceptable quality of life. And in the last century, this belief has influenced social policy, to some extent, in virtually every corner of the world.

The moral absolutists’ responsibility for the poor and infirmed goes back to the ancient Hebrew laws and is embodied succinctly in Jesus’ admonition, “as you have done it unto the least of these, you have done it unto me.” For the moral relativists, a parallel admonition to give is at the center of Marx’s doctrine, “From each according to his ability, and to each according to his need.”

Prior to the last liberal era that lasted from 1932 to 1967, Americans generally assumed that charity was the duty of individual private citizens and private institutions. Whether they were moral absolutists like John Adams or moral relativists like Thomas Jefferson, our founders implied that it was the individual responsibility of each relatively affluent person to give.

However, it was obvious to most relativist policymakers that, with the pressure from neither God nor the state, many individuals could not be trusted to give. Therefore, the government in effect mandated giving through coercive taxation, and the government distributed the collected charity through new programs such as Medicaid, Aid to Families with Dependent Children, and Public Housing. Unlike the traditional charities, such as the Salvation Army, these new government programs did not explicitly ask recipients to change the behaviors that had led to their destitution or infirmity.

On the contrary, they often created economic incentives to continue in those habits. Consequently, study after study ? beginning with that of Daniel Patrick Moynihan in the early 1970s ? have concluded that these programs have typically exacerbated the social problems they were designed to address.

Over the next two decades, you can expect to see such programs totally redesigned to resemble government-financed versions of the programs that were in place before 1932. The first wave of this is the so-called Faith-Based Initiatives sponsored by the Administration.

And, at the same time we see a redesign of public charity so it increasingly flows through more efficient private delivery mechanisms, we also expect to see a dramatic increase in private philanthropy. As revealed in a recent national study, moral absolutists tend to give much more generously than moral relativists. For example, the study revealed that people in morally absolute Mississippi gave the greatest portion of their net income to charity. On the other hand, it found people in morally relativist Massachusetts giving the smallest portion. As our nation moves toward moral absolutism, expect a huge windfall for charities.

The third difference between moral absolutism and moral relativism relates to institutional accountability. In our society, there are at least three types of institutions:

Private for-profit businesses, which employ most of the people and produce essentially all of the wealth.

Government organizations, which employ most of the rest of the workforce and, at a minimum, enforces laws and provides protection through agencies like the Department of Defense and FEMA.

Not-for-profit non-government entities, such as churches, charities, and educational institutions.

Institutional accountability refers to the need of these institutions to operate as promised for the benefit of society. Society as defined here represents individuals living as households. The press, most broadly defined to include everything from traditional media to bloggers, is responsible for making sure information is available to everyone in such a way as to ensure sufficient accountability from these three institutions.

Throughout the liberal and libertarian eras, the United States put in place a so-called “nanny state” of regulatory agencies in the belief that accountability could only be ensured through regulation and reporting. Today, an alphabet soup of agencies ? like the NRC, FTC, FAA, FCC, FERC, FLSB, and EPA ? try to specify nearly every aspect of business operations.

The rate of promulgation for new regulations slowed markedly during the libertarian era from 1968 to 2004, but it has never really reversed itself. Consider testimony before the House Government Affairs Subcommittee in July 2005, which cited five examples indicating the growth of regulatory burdens:

The number of pages per decade of the Federal Register has increased steadily. The number rose from 170,000 in the 1960s, to 450,000 in the 1970s. Then it grew to 530,000 in the 1980s, to 620,000 in the 1990s, and to a projected 730,000 pages in this decade.

The Code of Federal Regulations has grown from 23,000 pages in 1960 to 102,000 pages in 1980, and to 148,000 pages today.

The federal government’s costs to develop and enforce rules, measured in year 2000 constant dollars, grew from $21.4 billion in 1995, to $25.7 billion in 2000, to an estimated $36.6 billion in 2004.

The average number of rules finalized between 2000 and 2004 was more than 4,000 per year.

Despite decades of deregulation legislation, federal agencies still take more action to increase regulation than to decrease regulation. In fact, 75 percent of major final rulemaking efforts in recent years have increased rather than decreased regulatory burdens.

Based on this understanding of the ongoing shift in the popular zeitgeist from libertarian to conservative, we offer the following nine forecasts:

First, as the pendulum swings further toward laissez-faire, expect politicians to redouble their efforts to get rid of the regulatory burden on business. This will remove many restraints that are holding back the U.S. economy.

Second, as the individual responsibility associated with moral absolutism replaces collective responsibility, expect to see the more aggressive enforcement of fewer laws and regulations. One hallmark of moral relativism is to put in place a lot of rules and then give people a slap on the wrist when they break the rules. Moral absolutists generally believe in promulgating just few laws with strict enforcement and harsh penalties. This leads to our next forecast.

Third, in the conservative era from 2004 to 2039, expect to see real prosecutions with real teeth. The 25-year sentence recently handed down against Dennis Kozlowski of Tyco will be typical of this new era. The combination of tough prosecutions and the elimination of frivolous regulations will be extremely positive for society.

Fourth, another factor that will militate toward tougher laws with aggressive enforcement is the greater need for institutional accountability brought about by the ownership society. As the investor class includes more and more unsophisticated individuals who’ll become increasingly responsible for their own financial security, mechanisms will have to be put in place to ensure that they are protected from unscrupulous institutions. Similarly, shifting funding of charity increasingly to the private not-for-profit sector will require enforcement of laws to encourage honest use of resources.

Fifth, even as the U.S. shifts from moral relativism to moral absolutism, it’s important to remember that neither extreme ever disappears from society. Certain moral absolutists thrived in the 1960s, and certain moral relativists survived in the 1890s. What’s important is whether their numbers and relative influence is increasing or diminishing. For the current era, think Antonin Scalia beating Ruth Bader Ginsberg; think Billy Graham beating Hugh Hefner; and think The Passion of Christ beating Brokeback Mountain. Values more than anything else determine what people want to do and it’s values, more than anything else, that give meaning and purpose to doing it.

Sixth, a major paradigm shift in the new era is the relative importance of advocacy groups. During the liberal and libertarian eras, groups on the social left almost always won the day. However, that pattern has changed with a vengeance. As companies like Wells Fargo, Target, Kraft, and Ford have recently learned, ignoring the demands of groups like the American Family Association or Focus on the Family can have serious bottom-line implications. For example, James Dobson has a daily radio audience worldwide of over 300 million. That’s over seven times the audience of Rush Limbaugh and Howard Stern combined. And, the power of activists on the religious right will only increase as they gain more friends in Congress and on the courts.

Seventh, in many ways, the new conservative era will parallel the last one. Just as the last conservative era started in 1860 with the nation divided between pro-slavery states and pro-freedom states, this era began in 2004 with the nation again divided between red states and blue states. And, just as the free states started with an advantage in population and industrial resources that inevitably won the war, the red states start with major demographic advantages. To begin with, moral absolutists have more children per capita and children tend to adopt the worldview of their parents. Similarly, while professionals immigrating from Europe and Asia give a slight edge to moral relativism, the enormous number of less-skilled immigrants from Latin America skews heavily toward moral absolutism. Finally, the population migration trends explored in prior issues ofTrends will tend to shift population to the red states and away from the blue states over time.

Eighth, expect to see the elimination of the so-called “separation doctrine” between church and state overturned by the Supreme Court. According to Fortune magazine, as many as 95% of Americans say they believe in God, and the Princeton Survey Research has found a major increase in religious beliefs and practices just since the mid-1990s. The growing importance of religion is one reason the “faith-based initiatives” will begin sailing through Congress. Another implication will be the rise of school choice, leading to public funding of students who can choose from a menu of public and private schools.

Ninth, those firms that can market believably to those with absolutist values can reap huge benefits. According to the Book Industry Study Group, religious books are the fastest-growing category of the publishing industry, with $1.9 billion in sales. They achieved an 11% increase in 2004 alone. The Book Industry Study Group projected that religious book sales will increase by 50 percent over the next five years, while total book sales will rise by only 18 percent.

References List:
1. FutureThink: How to Think Clearly in a Time of Change by Edie Weiner and Arnold Brown is published by Prentice Hall. ⓒ Copyright 2006 by Edie Weiner and Arnold Brown. All rights reserved. 2. It Takes a Village by Hillary Rodham Clinton is published by Simon & Schuster. ⓒ Copyright 1996 by Simon & Schuster. All rights reserved. 3. It Takes a Family: Conservatism and the Common Good by Rick Santorum is published by Intercollegiate Studies Institute. ⓒ Copyright 2005 by Rick Santorum. 4. The Fourth Great Awakening and the Future of Egalitarianism by Robert William Fogel is published by The University of Chicago Press. ⓒ Copyright 2000 by The University of Chicago. All rights reserved. 5. The San Francisco Chronicle, December 6, 2005, “Christian Group Pulls Wells Fargo Accounts,” by Wyatt Buchanan. ⓒ Copyright 2005 by Hearst Communications. All rights reserved. 6. Fortune, July 2001, “God and Business Bringing Spirituality into the Workplace Violates the Old Idea that Faith and Fortune Dont Mix,” by Marc Gunther. ⓒ Copyright 2001 by Time Warner, Inc. All rights reserved. 7. To access the Book Industry Study Groups forecast of growth in the religious market, visit their website at: www.bisg.org/news/press.php?pressid=27