We were told that business was relying on increased consumer spending over Christmas to boost the economy.
So we were told – by commentators with little or no first hand experience of commerce. Those of us who have been in business for more than a year or two know that an extravagant Christmas means an austere New Year – or, sometimes, vice versa. There is never something for nothing in economics. Simply waiting for consumers to spend more ignores the fact that their resources are finite. If they go beyond their limits, there is a price to be paid later – and if business profits from their self-indulgence, it must also pay its share of that price. That is basically why our economy is now so weak: we partied for more than a decade and now the bill has arrived.
More importantly, just hoping that consumers acting stupidly will solve their problems for them distracts businesses from trying to solve those problems.
There are two sides to economics, supply and demand. Most media commentary focuses on the demand side, consumer spending. Politicians are also obsessed with it because everyone is a consumer but only a minority are suppliers – and, in our materialistic democracy, high consumption is equated with happy voters.
Yet many of the problems in the West in particular – especially Europe, Britain, and the United States – are due to a failure to address the supply side. During the party years of high demand, the money kept on flowing – much of it borrowed but no one cared so long as it kept coming. Structural inefficiencies were increasing, but they were tolerated because no one wanted to be the party-pooper.
Now the cheap money is gone and we find ourselves in a far more competitive world, and the West is at a disadvantage. Much of our leadership is short-sighted. Executives are largely untrained and come out of university with unrealistic attitudes. Directors often pay themselves too much relative to their results. Workers in Britain and America in particular are poorly educated. Unions still impose restrictive practices. Government adds to costs, increasing risks and decreasing rewards, through excessive taxation and regulation.
Western businesses need to stop waiting for the next one-off spending spree and knuckle down to the hard, unpleasant, unpopular work of restoring their competitiveness.