Will societies emerge from economic hardships happier and stronger?
“Only when the tide goes out do you discover who's been swimming naked” is a memorable and still classic quote from billionaire investor, Warren Buffett. Its wisdom is rooted in a long held insight that like the seasons of nature, economic cycles are a healthy and necessary thing.
Not unexpectedly, the cyclical nature of economics is again receiving some attention in the current global slump. Early 20th century Russian Economist, Nikolai Kondratieff defined “super-cycles” as being 50 to 60 year waves broadly based on periods of innovation and implementation. Cycles have received much attention in authoritative research and economic theory, with one of the best known being Joseph Schumpeter who dissected Kondratieff’s wave into four main cycles.
Downturns not only reveal who has been swimming naked, or which businesses are flaky and unsound, but those that do survive are affirmed as being viable and most likely sustainable. Even those who did not make it will have learned valuable lessons to apply in a next attempt or venture. This applies as much to individuals, societies and countries as it does to business. Will Greece or Spain ultimately emerge stronger from their current woes? Will Europe likewise be stronger and more cohesive? Or even if the Eurozone falls apart, will it be to the ultimate benefit of those departing and those remaining?
One cannot help wondering whether the current global economic slowdown, with its extended stop-start nature, and business confidence here in South Africa falling to a 12 year low are not reflections of a much deeper adjustment process that will change many conventional insights about economics itself.
It’s been a long while since I last adorned my ill-fitting guru gown and then despatched it in pieces to the bin reserved for car cleaning rags. But one does not have to be a futurist or highly paid scenario planner to sense intuitively that there are major economic shifts happening beneath our feet. It may eventually manifest itself in a completely new economic model which, as the Wall Street Journal reported some time back, has been the subject of some serious study involving a number of different disciplines. Even some countries, like Malaysia’s growth focussed approach and Bhutan’s Life Satisfaction focus, are reflecting a desire to experiment with different ideas that could contribute to a melting pot delivering a model that breaks from traditional ideological paradigms.
But the toying with ambitious new models is not the only reflection of the shift. It is more clearly discernible in tangible events that undoubtedly will leave the world a different place in the next few decades, albeit mostly structural. An obvious one is the rapid growth in government involvement in economies which up to know have been defined primarily as being Capitalist or Free Market. In many, including the United States, government’s share of Gross Domestic product has reached a post war high.
Mixed economies are with us, whether ideologically correct or not. And there’s little likelihood that government involvement will be rolled back when the global economy returns to growth. In future, assessing the health of economies will have to be based to a much larger extent on the behaviour of the government. Measurements such as GDP will increasingly lose their efficacy as assessors realise the importance of other criteria such government debt, productivity, accountability and effectiveness.
Another slow but inexorable development has been the growth of international government. The impact of international rules covering key areas such as labour, trade, environmental protection and financial controls are being felt on an ever increasing scale. Environmental considerations themselves will inevitably in time reflect important structural shifts in a number of areas, particularly in industry and manufacturing.
Companies are feeling the winds of change too. They may appear to be responding very reluctantly and slowly as evidenced by repeated misconduct based on greed, short-term profit maximisation and obsession with shareholder value, but public disapproval has been mounting and has become more tangible in protests, media attention, and rules and regulations covering business conduct, governance, transparency and sustainability.
Financial systems are already being overhauled and have been since they were primarily blamed for the crash in 2007. New rules governing banking and regulation of financial markets are being written regularly, and will continue until misconduct such as the recent Barclays Bank LIBOR fiddling is finally a thing of the past.
The fact that financial manipulation of that magnitude could still occur five years after the players in those sectors were identified as the main perpetrators of the financial calamity reflects a much deeper underlying malaise – an inability to confront the strong likelihood that the entire global financial and monetary system needs a major overhaul. Thus far, governments and regulators have bent over backwards to preserve the vestiges of a system that let it down in the first place. In the process they have shifted mountains of debt to individual taxpayers, moving the burden to ordinary workers and citizens and not flushing out the speculative froth that made a select few inordinately rich in the three or so decades to the mid-2000.
All that this means is that the real much needed transformation -- that of individual behaviour -- will be very slow and most likely incapable of coping with the regularly postponed but inevitable day of reckoning. The very things that slumps, downturns, depression and deprivation were supposed to have taught us will be absent.
There’s only so much an individual can do to cope materially. It has to go much further than having an emergency fund, savings or life insurance. That day will require people who are independent and self-reliant. They will need to be innovative, prepared to take risks, aspirational and expecting little in the full realisation that they are not in control of anything but themselves and their own responses. Prudence, patience and flexibility will be key attributes to survival.
I’m left wondering how we as South Africans will cope.