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Discuss this article (5 Comments)Executives in denial
by This email address is being protected from spam bots, you need Javascript enabled to view it on Tuesday, 20 October 2009
The collapse that could lead to a 21st century Depression has yet to be taken seriously.
The situation is by no means hopeless; yet the big brand name corporations and family businesses across all sectors including retail, white goods, commodities, etc are still dangerously in denial.
For two years headlines in every hemisphere have focused largely on 3 industries – finance, real estate and automotive; yet the only characteristic the conversation seems to condemn is corruption.
Arabia’s ministers and executives AB, CD and EF held on subornment charges; the West’s shock at Enron’s embezzlements; the bank busts and bailouts; the Detroit car-maker collapses driven by padded spending on failed ventures and opaque unions; the mortgage fee and commission windfalls reaped off toxic, subprime mortgages at Northern Rock (UK) and the FMs (Fannie Mae, Freddie Mac USA) – all these and more reminded us that greed and power corrupts.
And for every large company there are multiple smaller ones with staffers eager to take home bribes or bonuses at any cost.
Certainly, greed and the inevitable thievery, fraud, graft and insider trading it leads to should be highlighted (and if Sharia law were implemented perpetrators would be severely, possibly capitally, punished rather than languish in luxurious jails).
Yet while the measures taken – new laws and jailed crooks – are useful, they are incomplete steps in the right direction.
Equally, the “stimulus” packages various governments introduced are laudable efforts but akin to giving a barefoot traveller just one reinforced shoe.
For example, incentives to trade in old for new vehicles are excellent ideas but don’t necessarily create jobs in an industry with falling demand; infrastructure projects are excellent but don’t necessarily increase traffic to retail environments; and bond issuance is an excellent way to attract stockpiled investor cash, but doesn’t necessarily kick start private sector venture capital.
The fact is that our political and business leaders are in denial which is why only half the problem is being addressed. Some are incompetent while most simply seem detached from a stark reality – market dynamics have irreversibly changed.
If things are to improve, decision makers need to think different. They won’t until executive hubris – which is the other characteristic besides corruption that caused the planet’s financial collapse – is written about by regulators, lawyers, analysts and journalists in bold headlines.
Top executives must be counseled on the humbling effects of depression economics before it becomes a reality.
Unlike greed, however, smugness is not a trait that leaves a clear paper trail; and in fact when things are going well, it is often described as a mark of genius. Arrogance is not as clearly identifiable as a crime the way money under the table is; and it is therefore rarely scrutinized for its impact on economic failure.
Yet traditional target markets are in flux while big business bosses are Antoinettian* in mindset and Neronian* in action. Companies are largely banking on austerity measures (cutting staff/salaries/bonuses; offering slightly painful discounts on old stock) and praying for an upturn; but they are not changing product or pricing strategies radically.
In their shiny boardrooms, they seem not to realize that those without jobs or worried about keeping theirs are hoarding their cash. Nor can they see that humanity is realigning itself across the globe. The world’s middle classes – the source of economic vitality – are moving around in large numbers looking for opportunities. And the destitute are growing in number.
Like it or not, the worst is not over; and those in the upper echelons of corporations are not really helping.
They could, for example by preemptively contributing to a contemporary New Deal (the measures Franklin Roosevelt led in the 1930s to break out of the last depression) rather than await government intervention (but their legal people won’t let them for fear of anti-trust action).
They could also slash prices or rates at below cost for a cycle to encourage spending (but they won’t as they’d fear not being able to increase prices later).
It’s unlikely, unfortunately, that we’ll see leadership from business leaders, which is why Harry Dent, Jr. who predicts a generational catastrophe in The Great Depression Ahead is likely right.
Dent believes it won’t be before 2020 that a broad-based bull market may prevail; and much of his arguments are sound, based on historical economic and demographic analytics. He does, however, keep it positive by offering insights into where the opportunities may lie for investors in the interim.
And there are many opportunities for those willing to change their mind-sets. The age of big business is over or at least culled; and the moving middle classes may well survive if they are willing to compromise on lifestyle or vocation.
If national economies are to survive without revolt, though, it is critical that the Al Futtaims, the Al Rajhis, and the Al Shayas as well as the Macy’s, Selfridge’s and GE’s ask themselves whether they or their executives mislead themselves.
And if they have an epiphany after an honest look in the mirror, they might realize it’s time to re-look at their five-year development plans within the context of socioeconomic recovery rather than returns. Doing things differently is what brought the world out of the last Depression; but this generation may still have to learn that lesson all over again.
* Marie Antoinette was the naïve 18th century queen of France who admonished peasants to eat cake when they rioted against the cost of bread in the country. She was eventually guillotined. Emperor Nero Claudius Germanicus is famous for his despotism and playing a lyre while Rome burned. He eventually committed suicide by thrusting a dagger in his own throat.
Ahmad Abuljobain is the COO of a property brokerage. He was previously Chief Marketing Officer of Tameer and Managing Director of Leo Burnett, Riyadh.
READERS' COMMENTS
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to Ahamad
Posted by Boudi, Sharjah, UAE on Thursday 22 October 2009 at 11:17 UAE time
My dear friend, as see that you remain as optimistic as ever. It is a fact acknowledged by almost every human being that the world is in a great recession, and that the fallouts will continue for a time to come. However, sounding the horn of a Great Depression I believe is goig extreme.
The conditions that existed during the Great Depression almost a century ago cannot be compared to what is going on now. In effect, the main problem stems from practically all the financial instititions in the free world who saw a raw opportunity to make exhuberant profits during the period of (false) economic boom and, as a result, many of these institutions went belly-up with ripple effects touching almost every urban and non-urban human being on this planet. Still, and with the severity of the situation, it would be unwise to predict teh total collapse of the financial system. If it was to happen, it would have already happened.
Had this article been issued at the time AIG, Lehmnan Borthers, and Bear Strens were collapsing, I would have probably given the article more credibility. However, people did not rush to the bank to withdraw their money that were reduced to junk notes and trigerring the collapse of banks throuhout.
To the contrary, stricter measures were put in place by the SEC and other agencies in the USA and througout the world to mitigate the eminent risks and avoid the collapse of other ifnancial institutions through subsidies, take over, mergers, and cash injections. As a result, we see many of these financial institutions reporting profits and the DOW is back over 10,000 points with heavy trading.
Does all this mean that we are in the clear? Absolutely not. I believe however that economies have started the recovery process and I believe that the new world system will be more resiliant.
Would Nero be remembered as the one who alledgedly burned Rome or as the one who build new Rome?
Posted by Boudi, Sharjah, UAE on Thursday 22 October 2009 at 11:17 UAE time
My dear friend, as see that you remain as optimistic as ever. It is a fact acknowledged by almost every human being that the world is in a great recession, and that the fallouts will continue for a time to come. However, sounding the horn of a Great Depression I believe is goig extreme.
The conditions that existed during the Great Depression almost a century ago cannot be compared to what is going on now. In effect, the main problem stems from practically all the financial instititions in the free world who saw a raw opportunity to make exhuberant profits during the period of (false) economic boom and, as a result, many of these institutions went belly-up with ripple effects touching almost every urban and non-urban human being on this planet. Still, and with the severity of the situation, it would be unwise to predict teh total collapse of the financial system. If it was to happen, it would have already happened.
Had this article been issued at the time AIG, Lehmnan Borthers, and Bear Strens were collapsing, I would have probably given the article more credibility. However, people did not rush to the bank to withdraw their money that were reduced to junk notes and trigerring the collapse of banks throuhout.
To the contrary, stricter measures were put in place by the SEC and other agencies in the USA and througout the world to mitigate the eminent risks and avoid the collapse of other ifnancial institutions through subsidies, take over, mergers, and cash injections. As a result, we see many of these financial institutions reporting profits and the DOW is back over 10,000 points with heavy trading.
Does all this mean that we are in the clear? Absolutely not. I believe however that economies have started the recovery process and I believe that the new world system will be more resiliant.
Would Nero be remembered as the one who alledgedly burned Rome or as the one who build new Rome?
Its simple
Posted by Andrew, New Brunswick, Cdn on Thursday 22 October 2009 at 09:37 UAE time
Its true Dubai and the region was effected by the global credit crunch, but its effects will be felt for some time simply there are no real estate laws put in place since 2003/3004 nor the existing ones were enforced. And if both cases applied, the laws are changed almost on monthly basis, so how do want us to be confident even if global economies pick up. Protect our rights and investments, confidence and growth must follow., simple as that.
Posted by Andrew, New Brunswick, Cdn on Thursday 22 October 2009 at 09:37 UAE time
Its true Dubai and the region was effected by the global credit crunch, but its effects will be felt for some time simply there are no real estate laws put in place since 2003/3004 nor the existing ones were enforced. And if both cases applied, the laws are changed almost on monthly basis, so how do want us to be confident even if global economies pick up. Protect our rights and investments, confidence and growth must follow., simple as that.
Great Depression 21st century style
Posted by CT, Dubai on Wednesday 21 October 2009 at 15:11 UAE time
I have to say an excellent piece of journalism. Good points and a lot of truth said and stated. I believe if changes to the way we live and breathe on this planet aren't made now by the people who govern us then other natural laws and the powers that be will make them for us and they will come at a cost too costly to mention.
Posted by CT, Dubai on Wednesday 21 October 2009 at 15:11 UAE time
I have to say an excellent piece of journalism. Good points and a lot of truth said and stated. I believe if changes to the way we live and breathe on this planet aren't made now by the people who govern us then other natural laws and the powers that be will make them for us and they will come at a cost too costly to mention.
UK and USA
Posted by BRANDO, London, GB on Tuesday 20 October 2009 at 20:37 UAE time
PS - My comments were referring mainly to the UK and American economies...you know, the "so called" world leaders LOL
If people ran a business like they have run their/our countries they would have been fired a very long time ago.
The "American Dream" is turning into an American/World nightmare !
PPS - Can anyone lend me $200,000...I promise I'll pay you back before they do....HONEST !
http://www.usdebtclock.org/
Tick Tock...Tick Tock
Posted by BRANDO, London, GB on Tuesday 20 October 2009 at 20:37 UAE time
PS - My comments were referring mainly to the UK and American economies...you know, the "so called" world leaders LOL
If people ran a business like they have run their/our countries they would have been fired a very long time ago.
The "American Dream" is turning into an American/World nightmare !
PPS - Can anyone lend me $200,000...I promise I'll pay you back before they do....HONEST !
http://www.usdebtclock.org/
Tick Tock...Tick Tock
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