By Digoy Fernandez
IN the typical Western corporate setting, the initial reflex action in severe downturns like what we are beginning to go through is to lay off staff, close down plants, and cut both expenses and benefits in an effort to pare down costs. Of course, if one multiplies this action thousands of times over as companies across the international spectrum tighten their collective belts, the more pernicious effects of a severe recession become like a self-fulfilling prophecy. The more people lain off and plants closed result in lower spending power all over the world’s markets, making the downward spiral not only inevitable but also longer lasting. There was a trigger, to be sure, and this was the debacle in the sub-prime housing loans and the discovery of crappy credit swap default loans in the portfolio of many an otherwise respectable financial institution. But the period of fault finding is over. Now is the time to think positive to get ourselves going, even if the economy is headed the opposite direction.
With the loss of jobs coming along like a tidal wave, it boggles one to attempt to visualize the effect this will have on consumer spending, the subsequent decline in production, the ejection of families from their homes, and a general sense of malaise. What is one to do then, when faced with an unpalatable situation such as this one?
In our country where the family system remains alive, it is easy to think of a dispossessed family moving back into the parents’ household, or being given the use of an underutilized asset. Not so in many Western countries where homeless or church shelters often provide the only possible fallback for a family that hits bottom. At the very least, in the more socialized economies, there will always be welfare to lean on…but even this is not a bottomless fund and many governments may prove reluctant to support an army of dispossessed people who will not be able to find work.
At the risk of going against the grain -- something I have always had the habit of doing all my life -- I would suggest that companies try to hold on to their people for as long as possible. In this case, I am sure -- or at least, hope -- that the shareholders will understand that the people who make up the organization are important stakeholders, people who spill blood and guts each day for the companies they work for. Will it hurt for companies to go into emergency mode and try to figure out a course of action for survival of the company and its most important assets, its people? Maybe, as another form of corporate CSR, companies can extend some form of microfinance assistance to help fund projects that their employees could undertake in order to maintain some semblance of self-respect as they earn a bit more in the process.
Why not do CSR right in one’s own backyard, and, in the process, help put the brakes on the worst effects of the downward economy on the corporation’s employees? A corporate pipe dream? So were many other wild schemes proposed by many people in the past, now hailed as visionaries. It just needs a bit of guts and some determination on the part of corporate leaders, instead of their acting like ostriches and hiding their heads in holes on the ground.
Downturn becomes a self-fulfilling prophecy
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Now the chickens are coming home to roost! This is the first time in this excellent blog that I have read about why the proper explanation for the ongoing crisis is crucial to understanding which can go right (or wrong). It is an admission that there is an element of indeterminacy (in complexity jargon, non linearity) behind the operation of a system such as an economy. You call it "self fulfilling prophecy" here, but the terminology is secondary to the phenomenon - that beyond some point the behavior of a complex system can not be described in terms of "cause and effects" let alone attributed to such simplistic factors like "greed" "ideology" let alone "selfishness" because past that tipping point, is a world where nothing can lend itself to easy explanation, no matter the temptation of the simple mind to find causes for complex things if only for psychological comfort. It was the way with the financial crisis long before the subprime mess blew up into the convoluted mess it is today. Attempts to explain such things by resorting to what the simple mind can grasp is to court even worse disaster. At the very least it allows demagogues and politicians to indulge in their favorite sport (or fooling the people all the time, like the gang that lit the fuse to the crisis then holding congressional hearings to find out who did it). Like you wrote, past some point there is no point to blaming, but you did not disclose that the reason is inherent complexity, plus the fact that jumping into the fray will only make things worse.
It (non linearity) is actually only one of several such phenomena and it is not even the worst. The most perverse of them all is the antithetic principle, one whereby what one thinks or does brings results that are precisely the opposite of what he thought or did. This is most cruel, because it is nature at its most adverse. So one thinks that "spreading the wealth" will help relieve poverty? Result: it makes poverty worse. So one thinks that eliminating greed will lead to greater equality and economic justice? Result: it only concentrates power in the hands of another group, which then extracts and destroys wealth even more.
More regulation will make the market give up its "excesses"? Result: the market dies down. Kill all the Greedy capitalists and restore the markets to their pristine state? Result: nobody takes risks and progress slackens, not the least because attempts to control the markets just ends up destroying value (at a scale that dwarfs the amounts stolen by those crooks, even if they seemed most odious thanks again, to simplistic thinking abetted by a leftist media. The fact is that nature abhors simplistic thinking, no matter how well they seem to fit casually observed "facts" when all they do is make people only feel relieved of their innate insecurities. And so forth and so on and the economic world is so full of that it boggles the mind how many folks do not see it, and thus they commit the same mistakes over and over and over again.
The scary thing is that the pressure to do something (like finding the perp in a crime) may only make things worse, and in the present case, even tip the world into the point of economic no return. And all because it made simpletons feel good?
To make a long story short, reality is never the clear cut and straightforward thing that superficial thinkers believe them to be. Lesson: be careful of what you wish, you could end up far worse than you ever thought. That indeed is why the third world is where it is, so poor, because most folks there do not care to think beyond what they see. Unfortunately most people will never listen or believe, and so they end becoming victims of their own "uncricial" ways of thinking. Oh, well, too bad, that is just the way with life it is at times.