Small Business

The Pendulum of Human Endeavor


By Christopher Kenton A few weeks ago, I promised I would explore some of the issues that led us into the current economic calamity. It's easy enough to say that fortunes ebb and flow, but it's a preoccupation of every business person and investor to try and understand why -- and when -- the cycles change. I've watched my own business and my client's businesses rise and fall with the markets more than once, and I'm constantly trying to understand the trends that will shape my business in the future.

In the wake of the recent boom and bust -- what we might as well call the "boomb" -- a lot of finger-pointing continues to focus on businesses guilty of everything from unmitigated greed to outright corruption. Much of it is true. I saw my own share of businesses built on nothing more than a cynical plan to raise capital with a flimsy business plan, go public, and cash out. Now we're hearing an increasing call for more regulations and policing. Fair enough. But haven't we been here before?

ALTERNATING CURRENTS. In fact, our history is full of swings back and forth between regulation and deregulation, and the resulting effects on our economy have been dramatic. In the Oct. 17, 2002, of The Wall Street Journal, Jacob Schlessinger wrote a front-page article tracing the history of economic policy in Washington leading up to the current crisis. The general thrust of Schlessinger's piece is summed up in these two paragraphs:

"From the 1930s to the 1970s, Washington embraced an ever-greater role for the federal government. But the economic stagnation of the 1970s convinced politicians in both parties that the pendulum had swung too far. By the decade's end, Democrat Jimmy Carter launched the modern deregulation movement by freeing up the airline and trucking industries. His successor, Ronald Reagan, even more enthusiastically embraced the wisdom of markets over bureaucrats.

"The reforms, the officials believed, would unleash innovation and raise living standards. Those good things did happen. Deregulation and low interest rates spurred a burst of technological investment that accelerated the growth of the economy and slashed the unemployment rate. But the savviest policy makers knew they were making a choice "between economic growth with associated potential instability, and a more civil...way of life with a lower standard of living," as current Fed Chairman Alan Greenspan recently put it."

NAME YOUR POISON. The decision between unstable growth and stable "stagnation" was not a choice for which anyone voted. It was a political trend among unelected economic policy makers that cut across party lines and that may have been, when you get right down to brass tacks, a collective desire among the majority to feel a little more wind in their hair. It certainly worked for a while, but now that we're feeling the instability no one seems to remember how calculated many of the moves were that got us here. It's as if we've been so busy worrying about which sails we should be hoisting we forgot to look where we're actually headed.

When it comes right down to it, where we're headed depends entirely on the current economic and political conditions. When times are hard, we head for safety and stability. When we actually reach stability, we're willing to risk it for growth. You see this reflected in politics, with the regular swing of power from one party to the other, and in economics, with the regular, but slower, swing from regulation to deregulation and back. The result is a system by which we steer our economy -- not by setting a straight course, but by making constant course corrections as partisan factions fight for the wheel.

So the unfortunate answer to the question of how we got here is that we chose to be here. We may not have voted for the economists who made the decision to choose opportunity over stability, but their decisions accurately reflect our cultural values -- just as the corporations that take advantage of relaxed regulations reflect our own patterns of consumption. Simply put, we'd never settle for a two-bedroom/one-bathroom as long as there's an opportunity for a mansion with a gas-guzzling SUV in the driveway. What could be more American than that?

SIGNS OF SPRING? What we don't want to accept is that the price we pay for times of great opportunity and growth is having to endure times of hardship and decline. Despite the promises we all heard about the New Economy, things don't always get better. There's simply no guaranty that the economy will return next year, or even in five years. We can argue about the social and political ramifications of accepting such an environment -- and we should -- but the business ramifications are clear. We need to learn to see early signs of how business cycles change and be prepared to adjust our businesses approach without waiting to run into a wall.

For my own business, when the headlines talk about companies "focusing on profits," I know it means job cuts are coming in the next quarter. The first budgets and jobs to be cut are almost always marketing, which means our business will dry up quickly. On the flip side, businesses tend to reinvest in marketing once they believe the worst is over, which means our business can often recover long before the economy at large.

In the last 3 months, we've seen a growing interest in marketing programs from our clients. That doesn't necessarily mean a recovery is around the corner, but it does mean that opportunities are beginning to open up, and that businesses may be starting to believe the worst is over. For the first time in 18 months, I'm considering once again the prospects of growth. Christopher Kenton is president of the marketing agency Cymbic and a director of Touchpoint Metrics. He can be reached at ckenton@cymbic.com


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