ECONOMIC WOES ARE BEST SOLVED IN THE PRIVATE SECTOR
Posted by Michael Connor on Wed, Apr 08, 2009 @ 10:22 AM
Growing up with six brothers and five sisters, we learned quickly to fend for ourselves and to take responsibility for what befell us on the streets and playgrounds of our youth. And most kids that I knew were the same way. But a few always seemed to need a backup in dealing with life's ups and downs. They dealt with adversity by running to an authority figure like a parent, a teacher etc.
There were far more of those who took responsibility for themselves than those who did not when we were kids, but now that minority has found a way to multiply its numbers so that as a nation, when adversity strikes, far too many of our fellow citizens turn to an authority (the federal government) for help. Worse yet, many of these self-help- challenged folks have become our representatives in congress who, faced with the current economic downturn seek redemption in a massive government stimulus plan (their characterization, not mine) whose only redemption will be a temporary sense of relief that someone bigger than themselves will make everything all right again. They couldn't be more wrong.
The current economic situation is serious. If it becomes a crisis it will be because of the stimulus plan. The country has seen economic downturns in the past, and while this one is more serious than some others, it is not yet close to the dire situation of the great depression, to which it has been compared by those who believe that such a comparison compels the congress to enact sweeping legislation allowing unprecedented government controls on the private sector economy. Those who believe that this government meddling in the economy is an appropriate response to the present economic situation have lost faith in the capitalistic system that has driven this nation to unparalleled economic greatness since its beginnings, and threatens the lifeblood of the economy which is entrepreneurship, and most especially, small business entrepreneurship which in the past has always been the catalyst that ignites a stagnant economy to revive and prosper. Capitalism is able to do this because it has a built-in stimulus plan of its own which goes into corrective mode when triggered by a struggling economy, but those corrective actions are stymied when an overreaching federal stimulus plan thwarts the natural and cyclical efforts of a self-healing economy.
It is interesting to observe how business, especially small business, has reacted to the economic slowdown. The first reaction is typically a hunkering down which is characterized by an immediate cutback in expenses. Unfortunately for those affected, this usually plays out as layoffs. But to put a bright spin on an otherwise difficult process, layoffs are the first sign of a natural corrective action being taken by business to head off the dreaded crisis of a worsening economic downturn. Most businesses anticipate that layoffs are a temporary event that allows them to regroup in an expectation that their economizing efforts will pay off, the business cycle will move forward, and a return to normal business activity will allow the rehiring of the laid off employees.
In smaller economic downturns, this may be all that is required to right the economic ship. In more serious downturns such as the present, other corrective measures have to be taken. It is no secret that at the top of the economic boom, businesses tend to get careless with efficiencies and take for granted that the good times are infinitely sustainable. A business can be fat while its revenues are increasing, but in reverse mode, it must take swift and drastic measures to survive. Hence, businesses in a downturned economy look for efficiencies wherever they can be found, and they are often easy to spot as they typically sit prominently and boldly in the fat created during the boom cycle.
The third reaction taken by businesses to survive and reinvent prosperity is to take a new and creative approach to marketing. Witness the many promotions, sales, and strategies that businesses cleverly invent to entice a confidence-challenged consumer. Even the most wary consumer is hard-pressed to look away when creative business marketers are making offers to sell cars for example that not only are heavily discounted, but come with six months worth of free gas, or lifetime service!
No government stimulus package can come close to reinvigorating the economy like the self-imposed stimulus program put forward by private enterprise in its own self interest to survive an economic downturn, and when allowed to play out as the natural corrective action to the inevitable cyclical economic downturn, it is by far a much more powerful stimulus than a government plan that at best yields $65 per month to the average paycheck, while carrying the downside of a likely increase in inflation, a generational transfer of debt, and a governmental regulatory burden that actually acts like an anchor on the economy, rather than a stimulus.
The private enterprise stimulus package works in another way that a government stimulus cannot; It creates wealth by transferring to customers the benefits of the new found business efficiencies, along with the costs savings to be had in the creative enticements offered by businesses that in their own struggle for self survival, they pass on as financial rewards to their customers.
Is there a role for government in any of this? Of course, but it should be limited to government's ongoing responsibility to help those who truly cannot help themselves, and those numbers naturally increase in an economic downturn. It also rightfully should be the overseer of banking and financial institutions, as it has been shown in the current downturn that when these institutions act in their own self interest, consumers are usually victims, not beneficiaries. In that role, it should take action to see that the credit system has the liquidity it needs, as credit is essential for the private sector to operate, particularly when in the throes of battling an economic down cycle. The government can also act as a cheerleader for the economy, but even in that capacity it should get out of the way and let the real players take the field!
As we learned on the playgrounds of our youth, self determination carries some risks, but the upside is far more rewarding than the shelter of authoritative protectionism. The collective efforts of millions of private sector business people striving together to right a struggling economy is a much more effective economic stimulus than a government stimulus costing billions to present and future taxpayers. Allowed to play out naturally with limited government interference, the economy will correct itself faster and return to a new round of wealth creation driven by the same class of entrepreneurs who have always come through when needed with an appropriate stimulus package.
Michael Connor, CEO, Connor Homes