Preparing for a world after the crisis

2009-05-07 00:00

The current global crisis is far different from previous recessions, the exception being the Great Depression of the thirties. The world economy is not simply experiencing a cyclical downturn. We are witnessing a complete restructure of the global economic order. Business enterprises and people everywhere are paying the price for the greed that has been symptomatic of that brand of capitalism ushered in by Margaret Thatcher and Ronald Reagan during the late seventies and early eighties, and driven harder by successive Bush administrations. The late Peter Drucker, arguably the greatest management thinker of the 20th century, once made himself persona non grata with corporate America, when he castigated many of the country’s corporations for retrenching vast numbers of their employees, only to later announce improved shareholder dividends. The current economic manifestation is the result of such seeds being sown unashamedly. Consequently, many businesses are staring survival in the face.

The luckier ones are working their way through a tunnel which is not only fraught with uncertainty, but also offers little indication as to its length. While they may well be considering the strategic ramifications of a post-crisis world, they will need to factor into their deliberations two powerful forces which are emerging. Firstly, there will be less financial leverage within the new economic system. Previously there was a genuine increase in debt as a consequence of the development of new financial tools aimed at reducing the risk of doing business, and the creation of a credit bubble brought on by irresponsible lending and even fraud. The new dispensation will usher in an era whereby companies will be rewarded not for exploiting high financial leverage, but through better productivity.

Secondly, there will be a greater role for government to regulate investment vehicles, and in many instances to examine corporate business practice. Naturally, the risk of financial protectionism will make it difficult for companies to move capital into areas where it is most needed, potentially creating adverse effects on economic growth, especially in developing economies. Experts like Ian Davis, worldwide Managing Director of McKinsey & Co., believe that those organisations looking for better growth rates in income and consumption will look to Asia. Davis makes the point that productivity gains, technology adoption, as well as cultural and institutional changes were not thwarted by the Asian economic crisis of 1997, and that the current dilemma will not prevent the continued development of Asian economies. In my book, The Making of South Africa Inc., I noted that as recently as 2004, economic analysts were predicting the expansion of the Association of South East Asian Nations (ASEAN) into a broader Asian economic community. This bloc would not only comprise half of the world’s population, but would also be larger than the European Union in terms of economic output. It would generate more trade than its North American counterpart, viz the North American Free Trade Agreement (Nafta), holding foreign reserves greater than the European Union and Nafta combined. Given the potential for Western-style capitalism to be blamed for the current crisis, and for countries to retreat into protectionism, Asian economies collectively will continue to pull the global economic centre of gravity towards that part of the world, but only if blame apportionment can be avoided. Preparation for the post-crisis world must include analysis on what will change, and what will remain the same for companies, as well as for both their customers and industries. Memo to all CEOs — embrace the changes, look for and exploit the opportunities, and turn the current situation to your advantage.

• Paul Dorrian is a management consultant, author, speaker and business thinker. This is his last article in this series.

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