How: Dov Seidman May 18, 2010, 2:22PM EST

The Economy: Don't Reach for the Reset Button

Let's not go back to the way things were and set ourselves up for the next cyclical crisis, says Dov Seidman

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With apologies to rapper-actor L.L. Cool J and his song Mama Said Knock You Out, don't call it a comeback.

In fact, let's not call our wobbly progress from the brink of a global financial meltdown a "recovery." Why? Because we are doomed by our collective mindset to plunge into more financial crises as soon as we recover. Some of the world's top business leaders, including General Electric (GE) Chief Executive Jeffrey Immelt and Microsoft (MSFT) CEO Steve Ballmer, have rightly recognized that we need to create a fundamentally different way of pursuing business and human endeavor.

"This economic crisis doesn't represent a cycle," Immelt recently noted. "It represents a reset. It's an emotional, social, economic reset."

I agree with the sentiment, but I think it doesn't go far enough. I submit that we ought to call our shared endeavor a "rethink." Whereas the term "reset" suggests we need to reboot our business software, the term "rethink" can help inspire us fundamentally to reexamine our companies, institutions, and countries to make them 21st century compatible. The problem is we continue to attempt to function according to a 20th century operating system whose catastrophic bugs have been exposed as critical flaws.

The Same, But Worse

Merely rebooting our financial, political, and social systems will bring more of the same, only worse: more intense crises that strike with greater frequency due to the hyperconnected, interdependent nature of our economies, businesses, and lives.

In reflecting on our current crisis and on the nature of crisis itself, I have come to think that essentially two types of crises have confronted us as humans. The first and far worse type is the End of Life—the crisis that threatens to annihilate us by destroying our very existence. Think about the Cuban Missile Crisis or a massive meteor hurtling toward our planet.

The second type of crisis, what I call a Way of Life crisis, is far more common. While the effects can be devastating, they are not deadly. Unfortunately, we continue to respond to Way of Life crises as if they were End of Life crises, and that's why we need to rethink our response.

Way of Life crises such as the Great Depression, other global financial meltdowns, broken health-care systems, and crumbling infrastructure do not pose the risk of physical annihilation. Instead, these crises disrupt deeply ingrained ways of thinking and behaving. The prices of real estate, dot.com company shares, and tulips, it turns out, will not soar forever. Cheap credit will not always be available.

Trying To Ban Innovations

Yet we react—or more accurately, overreact—to Way of Life crises as if these challenges were the same as having a meteor zeroing in on our planet. "When bubbles burst and are followed by a wider economic crisis, as happened in 2008, the danger is that we overreact by trying to banish the innovations that sparked the boom, rather than learning how to use them wisely," write Matthew Bishop and Michael Green in their book The Road from Ruin: How to Revive Capitalism and Put America Back on Top (Crown Business, 2010).

The popping of a financial bubble, which is another Way of Life crisis, generates irrational states of panic and fear and such behavior as blame, paralysis, and hunkering down.

Hitting the reset button—if one magically existed—would only place us on the path to overreacting to the next Way of Life crisis. We have become locked into these extreme emotional and behavioral patterns, which poses problems on three fronts. First, history shows that reacting to a financial crisis with a mix of fear, panic, and blame only intensifies and prolongs the financial crisis, as the world experienced during the Great Depression.