Face up to reality.

Why the economy should prepare itself for turbulent times.

(Prepared for the management column of the Süddeutsche Zeitung)
 

The republic is under orders to be optimistic. Whether Chancellor, Economic and Finance Minister, or Minister of Social Affairs: they all preach optimism and hope for significant economic growth - a growth that should supersede the major problems of the country before the beginning of 2007 when tax increases take effect. Objectors are reprimanded and accused of being jointly responsible for the sluggish economic development – objections such as:  enormous structural problems in society, administration, and politics are standing in the way of this calculated optimism; the permanent growth longed for is not possible; and practically all noble political goals have failed in the end.

Optimism has indeed proven to be an important impulse for development and progress. However, it is only positively effective when it is justified and accompanied by realism.  But this is an exception in politics.  And there is yet another shortcoming: a lack of stringent concepts.  In fact, depending on the degree of suffering, an individual problem is taken up and, with much time and effort, treated in isolation – whereby attention is often given to the problems’ symptoms instead of their underlying causes.  Difficulties cannot be eliminated in this manner. This can be clearly seen now in the labor market, statutory pension insurance, and the environment.  

Yet, not only in politics is calculated optimism replacing comprehensive, overall analyses and far-sighted behavior. Based on the experience of half a century of post-war development, many businesses are also nurturing false hopes that the economy would grow steadily and perpetually – interrupted at the most by short, isolated setbacks. Quantitative growth is, however, merely a temporary occurrence in the development of systems capable of long-term survival. And history shows:  Phases of perpetual development are followed by turbulence; and phases of growth by contractions. That is why business experience existential difficulties when they indulge in calculated optimism and the hope principle, instead of preparing themselves with scenarios for turbulent times.

Why are we standing at the beginning of an era of economic turbulence? The Federal Republic of Germany has experienced enormous economic development in the last fifty years. The annual economic performance of the Federal Republic of Germany has increased approximately with an inflation-adjusted factor of 6 between 1950 and 1990 alone. This development was made possible in particular because, after the war, fundamental needs had to be met. Subsequently, wealth could be created which led to abundance. At the same time, technological advances on the world market enabled high export performance while domestic markets were partially partitioned.  To exponentially (!) expand annual economic performance from this high level is not possible in a market economy. This is all the more true considering the fact that the economy is currently being retarded by a society that has been living beyond its means for decades.

That production overcapacities have been built up in many industries worldwide in the past ten years make it even more difficult. This is the result of, among other things, the collapse of the iron curtain, the economic opening of china, and the efforts of many economies to solve their problems by increasing output.  Parallel to this, Europe has lifted a series of protectionist measures in order to increase competition in the domestic markets.

Altogether, markets, as well as societies worldwide, will undergo change faster than ever before.  The perpetuity of the age of economic wonder is history.  Instead of focusing on continuing past development, businesses should be optimizing their survivability.  In addition to organizational measures, this requires knowledge:  knowledge concerning the effects of external factors on the business. What is the effect of increasing global competition? What do increasing raw material prices as a result of increased worldwide production mean? What will a shrinking population and aging society bring? Further important questions are: What effect will the change in values have? What chances and risks will businesses face, considering the fact that the state is losing its capacity to act? And what will be the consequences of the creeping climactic change, with its manifold and far-reaching effects? 

If such questions are systematically developed and answered in a manner specific to each individual business, the result is an expanded view of the business.  A view that helps those responsible organize the business to better assure a guaranteed future: through innovations for new customer needs and social necessities; through new strategies, such as the sale of utility instead of products; through an early warning system for external “shocks”; and through scenarios for economic crises.  In this manner, the future can be faced with justified optimism.