Monday, September 6, 2010

Tax Incentives and Economic Stimulus - Macroeconomics from a Marketing Perspective

As we sit here on Labor Day weekend, there are a lot of news stories being published about the poor economy, the high unemployment rate, and about how much these things suck and that they don't seem to be getting better with any speed. In politics, the current economic situation typically get's split into two solution paths:
  • For Republicans and conservatives, it's all about tax cuts. The strategy basically boils down to the proposal that, "if we can just make it less expensive for business to buy new equipment, they will buy new equipment, grow their business, and that investment will trickle down through the economy."
  • For Democrats and some liberals, it's about economic stimulus. This strategy basically boils comes down to the idea that, "if we spend money to fix roads and the transportation infrastructure, then all of those people who build roads will have money to spend. When we fix the roads, it will make transportation easier for everyone and society will benefit. In addition, it will make it easier for manufacturers to transport their stuff."
Now I realize that these two positions overly simplify the debate over economic stimulus and how to fix the economy, but this simplified approach will make it easier to get to the issues that I want to focus on. Keep in mind, I'm not an economist, just a marketing professional with an understanding of politics and some common issues that businesses wrestle with.

Tax Incentives, Infrastructure Stimulus, and The Myth of 'If We Build It, They Will Come'
Everyone remembers that quote from Field of Dreams, but this is a common theme in the business world. Despite MRDs, PRDs, user profiles and various other customer requirements documents, business people (sales, marketing, and engineers) love to design and build without taking customer usage or markets into account. Often, these forays into bad design result from good intentions, but like kitchen-sink functionality, the sum of it's parts is often worse than a simpler, more well-designed and focused product. That being said, let's ask some questions and do some target market analysis to evaluate the actual opportunity for success from the various approaches.

For me, the tax incentives for businesses to invest in their capital equipment is fairly easy to deconstruct. While it's easy to see that businesses have a lot of money and business spending certainly drives the economy, businesses don't behave like individuals. You won't find a business sitting around waiting for the price of an XBox to drop $50 before they buy one. Instead, if there is a market, or a demand that they can't meet with their current equipment, then they will invest. And while the tax incentives may help tip the scale in terms of some ROI edge cases, it isn't the kind of thing that you can count on for long term growth -- if you could by a refrigerator every year because you got a credit on your taxes, would you go through the hastle and cost to do it particularly when this year's model doesn't change functionality much beyond last year's model?

Meanwhile back in the other camp, while I like the idea of smooth roads and infrastructure, at best this is only a partial solution -- like the number of companies that added 'app-stores' in the wake of Apple's success with the iPhone. While it's probably a feature that has been long neglected, is it a platform-changer? In other words, does it change the status quo enough to open up new investment, new growth, new technologies and markets? Instead, I would suggest that it's akin to trying to solve the problems of traditional media by having the government buy new printing presses.

Market Successes in the Heart of the Economic Downturn
If you want to find the engines for economic resurgence, look at the markets that have been successful in the past year or two and what's driving them. Here are a couple that I would highlight:
  • Green Tech
    • Solar
    • LEDs
    • Hybrid vehicles
  • The Smart Phone Economy
    • Smart Phones
    • Applications and software for smart phones
    • Social networks
These market segments have been growing in spite of the struggling economy. What's driving them? What's the secret to success? Why are average, everyday consumers spending for precious dollars for products in these segments in spite of the bad economy? More importantly, what can we do to facilitate these markets? Or markets like them? Here are a few topic areas -- some of which have come up, others haven't.
  • Expanded wireless spectrum availability or mandated investment
  • Expanded broadband coverage
  • Expanded communications network bandwidth
  • Network Neutrality
In the end, should we be focused on paving the highways or the 'Information Superhighway'?

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