Hurricane Sandy and Income Inequality debates..

Came across this article on Reuters from Pulitzer-prize winning columnist David Rohde "A Hurricane's inequality". The article points out how even a natural disaster like Hurricane Sandy affected the rich and the poor differently and how the event highlighted income disparities in New York. The author used examples like the rich evacuating to hotels while service folks continued servicing. He then goes on to point out that "Last year the wealthiest 20 percent of Manhattan residents made $391,022 a year on average, according to census data. The poorest 20 percent made $9,681".

While I appreciate the point he is making, I am not sure the analysis is entirely fair. First of all the fact that everyone, irrespective of being rich and poor should have been able to retreat to safety. I view the fact that service folks continued servicing as a failure of the City authorities to enforce safety measures- businesses had no business (no pun intended) keeping employees back beyond a certain point.

That said, the income disparity between the top vs. the bottom quintile shouldn't be surprising based on economic behavior. The top 20%'s earnings being high is an artefact of NYC's ability to attract highly skilled labor that commands a wage premium, which in turn creates an abnormal demand for a secondary market of relatively lower skilled labor (nannies, waiters etc). Urbanization is known to create income inequalities for this reason- cities tend to attract from cheaper labor markets (immigrant, students etc). This is partially related to the Kuznets curve effect:

Except that the inequality continues to rise exponentially due to a free inflow of unskilled labor that is willing to compete on price with existing unskilled labor. Comparing top-bottom quintile income disparity in a city that is only ~400 Sq miles yet boasts 1.2 Trillion dollars in GDP is pointless- there is an extreme division of labor and a continuous supply of labor (skilled and unskilled) that is more than willing to compete on price. Profits/income are inversely correlated to competitive intensity, labor markets are regulated in order to contain this profit-maximizing behavior within rational limits. Now what is worrysome is that based on New York State's minimum wage and a 40-Hour work-week, the lowest wages should be ~$15,000 p.a, the fact that it averages $9,681 in the bottom quintile could indicate a significant number of the labor market working below minimum wages, which probably reflects a failure in enforcing minimum wage discipline.

Is your Vision damaging your business?

…it is if your business planning cycle is typically 3 years or lesser. The longest planning horizon for most businesses entails new product development or acquisitions at around the 3-year horizon mark and marketing activities like advertising communications and pricing/promotions are typically planned annually.

Brands aren’t built overnight and sustainable brands need an evolving strategy that will navigate economic cycles that are a lot longer than 2 or 3 years, in fact typical economic cycles are 7+ years.

What you are missing out on is an opportunity to understand how your customers are adjusting their consumption behavior as the economy waxes and wanes. Granularity of information flooding researchers in recent years has motivated business strategy to be focused on maximizing short term profits and opportunities. Don’t get me wrong, short-term planning is important- the short-term is the bridge to the long-term and public companies are answerable to shareholders in the short-term. At the same time the most sustainable brands and businesses are the ones that have the information and experience to help them adjust to economic changes. In that respect, Businesses need to be like Neural Networks- learn and adapt based on past experiences, while adjusting to newer paradigm shifts. While lifestyles evolve and change much more rapidly today than they did 10 years back, there are some consistencies that business managers need to take into account especially if they are in the B2C domain.

For example how people adjust to economic upheavals, what spending categories do they curtail during a downturn and which ones do they prioritize coming out of a downturn. If you compare the growth in Retail spend data by segments from the U.S. Census Bureau from 2004 to the spending from 2011 (2 years post the respective recessions), you will notice some remarkable consistencies. The top 3 segments by growth vs. prior year in both cases were Building Materials, General Merchandise and Restaurants, while Electronics, Apparel and Sporting/Music stores were bottom segments.

How cool would it be if you could predict how your customers are going to change their consumption preferences in a sluggish economy and an expanding economy, what trade-offs in terms of share of wallet would they make as the size of their wallet shrinks or expands? And how cool it would be if you were able to anticipate these changes in consumption preferences and adjust your product portfolio, assortment and marketing/pricing strategies accordingly? So one would think it is easy for businesses to compare what their customers did in the Great Recession vs. the 2001 Recession, but you would be surprised even with big data how few companies have less than 5 years of data readily accessible for analysis. However different we are today compared to 10 years back, some elements of history do tend to repeat and if you chose not to learn from history you may well be condemned to repeat it.