An economic paradigm shift occurs over a long period of time.  As a consequence, it is often not recognized by most people as it is happening.  This seems to be the present situation with China.   It is not until a new paradigm reaches an inflection point of change that it becomes obvious ... at least to some.   My belief is that we in the United States have reached an inflection point in our transition from an Industrial Economy to a Knowledge/Service-based economy.  This will have a major impact on economies all over the world … especially China.   After all, we are the world’s largest economy.

The first economic paradigm shift (from agriculture) started in 1811 with the introduction of textile machines and English workers (Luddites) rebelling in the belief it threatened their jobs.  The Industrial Revolution began to accelerate in the second half of the 19^th century with the emigration of Andrew Carnegie (Scotland) and his creation of Carnegie Steel (later named U.S. Steel).  Manufacturing “seemingly” continues to this day with Tesla Automotive’s Elon Musk, an immigrant from Lebanon.

However, there is a critical difference between the two “manufacturing” companies.  Carnegie Steel hired unskilled manual laborers by the tens of thousands.  Recently, Elon Musk placed a national ad to hire “hardcore software engineers.”  He was looking for just sixteen-hundred.  A Knowledge/Service- based economy does not require manual laborers but rather STEM workers.  STEM workers are those whose educational background trained them in Science, Technology, Engineering or Mathematics.  This requirement for technical training is what eviscerated the middle class in the new economy.

To create a sustainable growing economy a country needs to create new businesses that did not previously exist. Facebook, Google, and Netflix are representative examples.  The good news is this reality is what the United States and The American Dream have always been about.  It is what attracted immigrants Andrew Carnegie and Elon Musk.  Owning natural resources such as copper mines, zinc mines, or oil wells does not help create anything intellectual.   Commodities are the fuel for an industrial economy; but we are no longer an industrial economy.  An economy based on commodities is simply economic renting.  And this is exactly what many of the world’s economies have done.  Examples:  Russia, Mexico, Canada, Venezuela, Norway, Australia, South Africa, Peru and the entire Middle East.

In 2015 30% of the S&P 500 declined 20% or more; the old line companies.  However, there were nine stocks that advanced significantly in an overall flat market.  They are known as the “Nifty Nine.”  They include: Facebook, Amazon, Netflix, Google, Priceline, EBay, Starbucks, Microsoft, and Salesforce.com.   What do they have in common?  They are all entrepreneurially run Knowledge/Service based companies; businesses that did not exist before.  The NEW ECONOMY is The Really Big Picture.   

-Francis Patrick Boland