It’s Time for “Trickle Up” Economics


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The business landscape right now is hardly a happy place. Beyond the dead bodies in the mortgage business, malaise dominates the business environment. Dreary sight. But why should things look so dark, when most major businesses hold strong cash positions, have low inventories and have already trimmed off lots of organizational fat, at least in manufacturing?

Until recently, strong business fundamentals like these would have “trickled down” to consumers and driven the storm clouds away, at least in theory. But life has changed. And good business fundamentals are no longer a match for the lousy consumer fundamentals created by the mortgage mess—as well as predatory lending practices in general.

Why the change?

We have to go back 25 years to find the answer. Although in hindsight, most business pundits recognize that the early- to mid-1980s gave birth to a fundamental economic change. Fueled by new production and engineering technologies, aggregate marketplace supply in developed countries gradually started topping demand. On a market-by-market basis, supply-demand vectors began crossing over in the ’80s and continued into the ’90s, with very few left to cross today. And so ended decades of suppliers’ markets, and so began the new era of buyers’ markets. Along with this transition, customers became the primary driver of economic growth and health, replacing business.

When sellers help their customers succeed, customers have more money to buy and more reason to.

Viscerally, rapidly increasing customer empowerment has grabbed most of the attention paid to the buyer-seller role reversal. Armed with expanded supplier choice and increased leverage over sellers battling for their business, customers are exercising more control over buyer-seller relationships. Companies accepting this new balance of power and adapting business models accordingly are reaping handsome rewards. However, those resisting change are paying steeper and steeper prices by the year—occasionally the ultimate price. All before our very eyes

However, creating marketplace winners and losers represents only a portion of the impact of the supply-demand cross-over. In fact, the entire hullabaloo about buyers’ markets, increased customer power and customers holding company fates in their hands has masked an even greater change affecting business and customers alike. Today, economists estimate that consumer spending drives an unprecedented 70 percent of U.S. economic growth—a direct outgrowth of the change from a supply-side to customer-side economy.

But just as consumers drive economic growth, they also drive economic slowdowns or outright contraction—as we see in vitro today in the aftermath of the financial harm to consumers caused by the customer-unfriendly mortgage business and nefarious other lenders. Now, I’m not forgetting caveat emptor. But when business plays the pied piper leading customers off a cliff, business needs to own up and accept responsibility.

When individual companies hurt consumers, they actually hurt the economy as a whole—if only by an imperceptible, infinitesimal amount. But when a whole industry hurts whole classes of consumers sufficiently, the economic damage starts showing. And when business inflicts egregious financial pain on a broad swath of consumers, as in today’s mess, the resulting economic damage nicks almost all of us.

Considering this dynamic, I would argue that a very symbiotic relationship has evolved between treatment of consumers and the state of the economy. When business offers consumers true value and helps them make appropriate decisions, consumers flourish—and then spend. When they spend, they not only boost the retail sector, but also they help pump money up-line, right up to makers of machinery that makes the goods and to raw material suppliers. And I would argue the very same point on the B2B side. When sellers help their customers succeed, customers have more money to buy and more reason to, which similarly pumps money all the way up the supply chain.

So, if my argument is valid, how did we ever get to “trickle down” economics in the 1980s? Politics aside, in a sellers’ market with an overall imbalance of demand over supply, one could craft an economic rationale for trickle down. Building up the supply side helped increase production of goods that met waiting demand, which created economic growth—in theory, at least.

But today, our economy doesn’t need more supply. It needs cash-in-hand demand, which is especially lacking because the mortgage and housing disaster has left consumers with reduced discretionary income, which means much less money is trickling up. Without in any way discounting the importance of oil prices and monetary policy, a robust, “trickle up” economy is a must for repairing the damage done by customer-unfriendly lending practices and the resulting credit crunch. To right the economy, we don’t need to stimulate capital formation. We need to get discretionary spending dollars into consumer hands. And that brings us right back to putting customers first.

Customer-centricity does feed individual seller bottom lines. But just as importantly, it creates upstream revenue flow that continues recirculating—and strengthening our economy. We just have to get used to thinking “trickle up”—with customers now the primary driver of a healthy economy.


  1. It’s Time for “Trickle Up” Economics
    Dick Lee
    The business landscape right now is hardly a happy place. I agree that we have dry leaves all over the economy books and practices. There is no sign of a sliver lining however, my one question is, “Where are the ones who pioneered the economics the way we see these days?
    Most of the economics to me, I am talking of the modern economics when the transactions have travel at the speed do of the light. Most of the war majors, and generals who really thought about the strategies on how to position their battalions and win then used the same to write the books albeit the tone was on the cannons of economics we see today. There was supply, demand, choice, money and the main theme that we had come from barter. The last one I remember as a good one was Peter Drucker.
    The rest now I find are more politically motivated and go more for the political economy rather then the economy for the people. In other words, we have the economists who are for the elite and gone are the ones for poor. Here is one solid example that may lure you into thinking otherwise. We have a meeting in Rome for the rise of foods. Did we have such dynamics before? No. Why? We left the poor in one corner and carried on our way to enrich ourselves. Then we see demonstrations on the street about the price of rice, wheat and oil going up and few to give us a good explanation. All point to one farced theory. The war was wrong. But then that was . Why do we not get up from there and brush up to look forward.
    We seem be having more movies and books now by those who sat in the White House talking the ill of the White House rather then patching up the holes.
    Read the Death of Economics, Read The Globalization cannot work, read many on the economics, we are getting conflicting reports rather then one cannon that we were taught.
    The authors I understand have not been in the battle, look up the TV, and rewrite the books in their tones.
    I do not think you will have any new ideas in economics. It is just like the cards shuffled backwards or any way but the deck has the same number
    I thank you
    Firozali A. Mulla MBA PhD
    P.O.Box 6044
    East Africa

    Firozali A Mulla MBA PhD
    P.O.Box 6044
    East Africa

  2. As always, you present an interesting take on this, Dick. It is a fundamental shift away from the “business” side of distribution and management, to the customer-centric side.

    In the “Old Days,” it was enough for a manufacturer to simply fill their quota to a supplier, who then sold it to the retailer, who then sold it to the consumer. The “choice” of the consumer was limited to the choice of the retailer, almost without exception.

    As you stated, we don’t need supply, we need “cash on hand”–and the only companies that will continue to get the cash will be the ones that prove time and time again that they will not sacrifice the quality of their service to get it, because there are no longer any rocks to hide under in the Web 2.0 age.

    Good article.

    The Lead Management Company

    See the MIT research study that demonstrates the value of Web leads decreases 1000 percent in the first 24 hours.

  3. Firazali – thanks for your thoughtful comment. Sometimes we, including myself, get so caught up in the economics of developed markets that we neglect the failures of ecomonomic policies to help the underdeveloped. These costs of ecomomic failure are ghastly.

    Dick Lee


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