The freeze-up in the credit markets is causing some companies to put their innovation and design projects in the deep freezer, I hear. Not good. In fact, it’s terrible.
The sub-prime mortgage crisis has spread to the entire debt/credit market space and beyond. Banks and investment houses don’t know how to price their debt. For sellers, they’re not sure how much to cut the prices of bonds and securitized loans. For buyers, they don’t know how much to offer for this paper. Even in the mundane mortgage market, rates are bouncing around when they are quoted—and there are few quotes. Everyone is waiting.
The big freeze is underway in the housing and art markets as well. No one knows, given the freezeup in the credit markets, how to value real estate or art. No one knows just how much to cut prices.
In the corporate world, the fear is that all this means lower consumer spending, lower consumer wealth and lower prices for stuff. Some managers are taking this as a reason to lower costs by cutting “extra” projects—such as innovation and design. This has been the pattern in past economic cycles.
Today, such moves undermine the long-term competitiveness of companies. Cutting back on innovation now means starving investment for the future. This is precisely the time to increase invesment in innovation. Certainly huge sums of money are going into innovation in Asia and Europe at this moment. If US companies start cutting back, they will have a very dim future. Detroit anyone?
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