Don’t throw the productive baby out with the cost-cutting bathwater
John Kenneth Galbraith said: “Faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof.”
Well, there is going to have to be a lot of changing of minds if we are to get through this latest economic how-do-do with our sanity intact.
Our finances are going to get a clobbering, whether or not we descend into a fully-fledged recession. Money comes, money goes.
The ability to keep a clear head and to put events into some kind of historical perspective is, I submit, more valuable than treasure. Well, more valuable than the latest room-sized plasma TV screen, for example.
So let’s try to get a perspective on what is happening to the UK economy now. Sure, the headlines are making for grim reading.
It comes as a shock when companies like Rod Ackrill’s Chase Midland group of building companies calls in the administrators and Taylor Wimpey cuts 900 jobs in one go.
Inevitably, housebuilders were going to be first in front of the firing squad when the property bubble burst, as it now has.
But there is more to it than that. An added super ingredient in this particular economic pickle is the fact that the banks are not there to help out otherwise sustainable businesses over a cash-flow hump.
They’re too busy trying to suck in new capital to shore up their own balance sheets thanks to America’s latest gift to the free world, the sub-prime crisis.
Some time ago I wrote in this column something to the effect that we should never be surprised at the ability of the banks to lose money, their own and their customers.
Since then they’ve proved it in spades. Unfortunately a lot of innocent people are being hurt as a result and the casualties can only stack up in the weeks and months to come, even though one respected economic commentator puts the chance of the UK entering a downturn that matches the technical definition of recession as between 40 and 45 per cent.
Harking back to JK Galbraith’s words, just as people think every boom will last for ever, so they convince themselves that every downturn is going to be both eternal and terminal.
For a lot of companies, of course, that’s the case. Lay-offs are an all-too-easy short-term solution to the problem of falling demand.
Except, of course, they’re not. Well, not always. Wielding the jobs axe can often result in self-inflicted injuries.
A raft of redundancies can give a short-lived boost to your share price, but “downsizing” and “rightsizing” can, and often does, leave a company unable to pick up the pace when markets recover.
Too many productive babies are thrown out with the cost-cutting bathwater.
I especially relish the story of the manager who, in a fit of job-cutting zeal, sacked his own PA.
Several weeks later he realised he hadn’t had a single letter since she left. He didn’t twig that there was a mountain of mail addressed to him that simply hadn’t been collected.
I wonder if that experience means he has changed his mind.
