Peter Cochrane's Blog: Abrupt change

Abrupt change
19.04.05, 18.40 GMT, Marriott Hotel, Cupertino, California

At university I studied engineering and also took supplementary courses on economics. I can remember thinking how linear and restricted the models were, and how dependent the whole subject was upon the basic assumptions of stability and well-behaved markets.

Surprisingly, I still find that mentality alive and well today. But it is clear that our world is subject to abrupt and unexpected changes. One of the best physical manifestations of this is very visible in Boulder, Colorado. The sheer face of the Flatirons suddenly erupt from the ground to mark the end of the Great Plains and beginning of the Rocky Mountains. There is no precursor, no warning – just near-vertical rock.

Such rapid change is also visible in networks, systems, production plants and most dramatically of all, in markets.

One of the most dramatic examples I've witnessed recently has been the sudden awareness in the US that there is a global oil crisis. Two years ago, the vast majority of Americans didn't seem to know there was a problem; even 18 months ago it was only discussed in professional circles. But recently it hit the media and now it's the talk of the town. Every newspaper, radio and TV show seems to carry a feature on the impending energy crisis.

Garage forecourts are suddenly full of 4x4 SUVs and it's almost impossible to purchase a hybrid vehicle – there is an enormous waiting list. Just about everyone I've met in the last three months is considering changing their vehicle for something smaller, as gas prices slide upwards.

This has wrong-footed the American automotive industry, which continues to produce engines of huge dimension with about 50 to 60 per cent of the efficiency of the more modern EU and Japanese designs. Moreover, body size and weight has remained enormous, and now an abrupt market change leaves the industry with few appropriate products.

The last decade has seen a growing dominance of overseas suppliers in the US market. It now looks as if this dominance is going to accelerate unless the home industry can respond quickly. Surprisingly, they don't seem to have seen this crisis coming. If they had watched the UK they would have seen it several times in the last 30 years!

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