Are We on the Edge of an Abyss?
Have we lost all faith in the core institutions that have brought the industrial world so far in the past thirty years? Are we poised to abandon the very things that brought us our success or will we dig in and go back to what has worked so well for the past thirty years?
In the past thirty years the democratic industrialized world has prospered as never before. We live longer. Literacy and education are increasing. We have more scientific knowledge, work fewer hours, and have ever increasing conveniences. Yet many of our most learned appear ready to abandon the very establishments and structures that have given us this economic wealth.
World renowned Cambridge Economics Professor Ha-Joon Chang believes the world has not prospered. He argues “We have been made to believe this by it being repeated over and over by those that have stolen prosperity from the masses”. ..Over the past 30 years the world economy has grown more slowly and has become more unstable and more unequal than it was during the preceding 30-year period. The top echelon who control the message have seen their share of economic benefit grow from 10% to 30% since 1979”
The International Monetary Fund in their September 2011 report admits growth is slowing and “relative to our previous World Economic Outlook last April, the economic recovery has become much more uncertain. The world economy suffers from the confluence of two adverse developments. The first is a much slower recovery in advanced economies since the beginning of the year, a development we largely failed to perceive as it was happening. The second is a large increase in fiscal and financial uncertainty... Each of these developments is worrisome and their interactions more so”.
Four elements appear to be driving the current situation:
- The financial markets have clearly become more sceptical about sovereign debt. In turn these concerns have caused a freezing of funding, with banks keeping historically high levels of liquidity wherever they can and tightening lending (IMF report)
- Banks are exercising extremely stringent consumer lending policies following the legacy of the housing boom,
- High unemployment, underemployment and fear is strangling consumer borrowing and consumer spending.
- Corporations are sitting on the highest cash surplus in history.
“Low underlying growth and fiscal and financial linkages may well feed back on each other,(IMF report) leading to a further downward spiral.
But most concerning of all the next round of American elections is preventing the most powerful economy in the world from stimulating their own economy.
Ha-Joon Chang further argues; “On top of this, investment as a percentage of national income has fallen and they have put us in the middle of a financial crisis the end of which is not yet in sight. Unless we reform our system of economic wealth we will continue to have the current problems for the next 50 years”. “We are facing a huge challenge and must restore the balance between the market and the government, finance and the real economy, and material prosperity and environmental sustainability.
He believes the wheels have fallen off in the best and most reliable economies in the world and the poorest in these markets are propping up the richest and falling into the worst economic abyss experienced in their lifetime. The dream of the middle class has failed them and they and the institutions that have created this unprecedented wealth are panicked as never before.
Simply stated ‘Uncertainty leads to a short-term focus and top down direction. Companies are shying away from long-term planning or investing in the future in favour of a shorter-term focus with uncertainty as the excuse. While this might feel right, a failure to maintain a vision and strategically focus on building a disruptive advantage five years into the future can end up destroying the core value of the company and lead to a lingering death.
Prior to 2008 many of the world’s best run companies were focused on achieving enormously ambitious goals and fundamentally changing their business model in order to move their company to a substantially better place. That is rarely true today.
We need to fundamentally change to stay competitive yet the vast majority of companies have stopped, laid off thousands, and focused almost entirely on cash conservation just to maintain executive credibility and this applies to the thousands of firms who were not encumbered with any immediate crisis or need for such constrictive moves. We must wonder if they have thrown away the opportunity to build their intellectual capital, their infrastructure and their competitive advantage.
Whatever happened to the concept of building the right team, organization and culture? As little as five years ago this was the bedrock of wise and prudent management.
The ultimate goal of any organization should be to create a vibrant and exciting future where your customers, your employees and your community are significantly better served. Hoarding cash is a survival action and if not exercised with restraint it leads to all the same bad affects as gluttony and hoarding in life outside of the work environment.
Do you believe now is the time to invest in your people and infrastructure or is it a time to hoard cash and hunker down?
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