SAN DIEGO - Is your credit union prepared for the “Scissors Economy,” or are you about to be cut out by consumers who seek to slice costs by serving themselves?
Todd Buchholz, managing director of the $15-billion Tiger hedge fund and former director of economic policy at the White House, told attendees of WesCorp’s recent Future Forum conference here that credit unions need to find their niche within the “Scissors Economy.” Driving this economy, he said, is the Internet, which is allowing consumers to save money by cutting out the middleman. As an example, he cited consumers self-booking travel, which has led to the demise of 10,000 travel agencies since 1999.
“In the modern economy, everyone is a salesman, everyone is a middleman,” he said. “Sam Walton helped create the Scissors Economy by bypassing middlemen to sell goods to his shoppers for less.”
In the early 20th Century, a forward pass was illegal in football. For the 1906 season, the rule was changed and a new era of sport was born. Buchholz said those who took advantage of the new rule–which effectively allowed quarterbacks to become middlemen, distributing the ball to their teammates rather than running it themselves–had an advantage over those who continued to play by the old rules.
“The world economy is shifting before our eyes. We are in an era of hyper-competition. The opening of Eastern Europe, India and China has added billions of workers, which the world economy is still trying to digest.
“And it is not just manufacturing jobs, the service sector is seeing increased competition,” he continued. “Globalization means increased commodity prices, at the same time it is more difficult to earn higher wages. The middle class is caught in a pincer movement.”
This is a “painful economic time,” Buchholz assessed, but he said it also is a time for teamwork, not trench warfare. He said people want solutions, and credit unions can be part of an upswing.
“When your members come in, they don’t just want a CD, they want help. Understanding financial instruments today is like drinking from a fire hydrant. Your members want to know how they can save for retirement.”
Credit unions must take advantage of technological improvements that will help them better serve their members, Buchholz insisted. He said globalization gives consumers more and more choices, which “puts more pressure on producers, who must compete with everyone.”
Buchholz advised CUs to avoid “Commodity Hell,” which he defined as multiple suppliers all offering the same products for about the same amount of money. He said credit unions must look to innovate, open new markets, control costs and do a good job of branding themselves.
The Federal Reserve is in the “right place” with interest rates, but Buchholz said Fed Chief Ben Bernanke lowered rates in “a clumsy manner” that “weakened confidence.”
“The economy is stagnant, and it feels weak,” he said. “I do not believe we will get to the classic definition of recession, two consecutive quarters of negative growth, because pink slips are not going out as fast as previous slowdowns. Good workers are hard to find as baby boomers retire, and companies have sufficient cash on hand, so the job market is holding in there.”
These are “treacherous times,” he said, but America has lived through tough times before. “In chaos, there still is opportunity.”
