Adding value?

We are entering an interesting phase of societal and economic development, which could be characterised as the era of wealth disinflation. Consider all the major ‘business innovations’ over the past 10 years, from Amazon to AirBnB. Are they creating new sources of income and a reason to purchase or simply slashing the cost from established industry models?

It is not a criticism of these businesses. Like Uber they have seen a market where the cost base has inflated through lack of competition and have demonstrated that consumers are happy to move to a cheaper offering.

Across a multitude of sectors, from banking to flight sales, we are seeing market disrupters coming in and offering a new lower cost model. For the consumer it is a blessing: across a multitude of sectors prices are falling and choice is increasing. The question arises though, is this good for society?

Are business creating wealth or simply stripping it out of the economy?  For each Uber driver, is there a black cab driver struggling to pay their mortgage?  For each AirBnB owner, is there a guest house proprietor bemoaning their empty rooms?  Monopoly’s Rich Uncle Pennybags would argue that this is free markets working at their best, boosting utilisation as never before with underutilised assets such as spare rooms and cars being used to ever greater capacity. But where is the innovation driving wealth creation? Who is opening the world to new products that consumers wish to purchase?

Debt funding has enabled companies that lose millions a year to keep undercutting established firms, with market share and user numbers placed ahead of profit. Investors are funding businesses that have huge user bases but make no meaningful revenues. The City and pension funds are enabling debt to undercut value. The question is whether this is sustainable and a workable economic model.

Deficit financing is moving from the world of government to the private sector, with market share lauded with the tantalising prospect of monetisation at a later date. In the meantime wealth is eroded from established businesses concerned with remaining profitable and viable. Never in the history of the world have so many businesses making no money been valued so highly.

Are we merely eroding wealth with all the implications for lower tax yield and national insurance? Or should we see it as fantastic, with better competition and labour market utilisation? Have we moved from the era of wealth creation to the era of wealth disinflation?

For communicators it has become easy to champion ‘disrupters’. FTSE 100 companies even want to wear this badge, but increasingly the media and analysts will start to question what underpins this moniker. Communicators will need to justify value before market share, and crisis communications plans will need to focus on societal impact, anticipating a potential media or social activist backlash. We live in an age of the activist and have a political opposition that certainly isn’t championing the gig economy (which underpins many disrupter business models), so companies that claim they will shake up established industries will increasingly need robust communications plans and response strategies to justify the wider societal impact of their transformative models.

Written by Ewan Robertson, Executive Director

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