Politics Is Bad For Business
Politicians the world over get scared when they see slow or negative economic growth in their country – mainly because it means they may not be re-elected.
A country’s survival and ability to maintain a certain
standard of living and security for its citizens both depend on developing its
“revenue-producing” abilities. These
affect growth which itself depends on a variety of factors, the chief one of
which is confidence that things will
continue in a certain way. If this
confidence exists, businesses can plan to:
·
Invest in their business;
·
Grow their business;
·
Develop long-term growth strategies;
·
Hire, train and develop staff;
·
Obey the laws and regulations of the land;
·
Pay taxes.
One can see clearly the effects of a lack of confidence on
both a “macro” (countrywide) and “micro” (company) level. On a “macro” level, there will be:
·
No investment in a country’s revenue-producing
capabilities (i.e. no new businesses or no increased investment in higher revenue-producing
capacity).
·
Reduced or negative growth and/or reduced
productivity.
·
Companies “hoarding” cash rather than spending
it.
·
Price increases as certain goods become more
expensive (note: this may also happen when the price of commodities such as oil
increases).
·
A “bunker mentality” where people and businesses
simply go into “survival mode”; no investment, hiring, new product development
or unnecessary spending.
·
Increased unemployment as businesses reduce
staff numbers (and therefore costs) to the minimum necessary to survive.
·
Reduced tax income for government as businesses
and individuals cut back and, in the case of individuals, find themselves
jobless.
This results in either increased government
borrowing to fund expenditure (not good in the long term or in reduced
government expenditure which provokes public discontent.
On the “micro” (business/company) level, you will see:
·
Cost cutting as businesses prepare for hard
times.
·
No hiring of new staff due to lack of confidence
in the future.
·
Reduced/no investment in training or R&D.
·
Low staff morale due to cost cuts and reduced
staff numbers.
·
Possible reduction in product lines to those
necessary for survival.
·
Reduced productivity (and therefore
profitability).
·
Shorter working hours.
In the past, governments have increased confidence and
economic activity by increasing the numbers employed on the government payroll
(i.e. the “public sector”). This is a “false
economy”, as it creates initial job growth, but it inflates public spending (to
pay the increased salaries) which has to be covered by raising taxes or
increased borrowing.
From what has been said above, politicians and governments
need to have a clear plan and not to be seen as wavering, indecisive wavering
or delaying policy implementation.
Equally dangerous is an approach which sees constant changes. In hard economic times, consultation and
decisiveness will produce better results than populist decisions based on a
misguided desire to ensure one’s own re-election. This may mean that, occasionally, politicians
will have to take unpopular measures.
Our world is seeing more uncertainty and a faster pace of
change as a matter of course. As a
business, what can you do? I see several
actions:
·
Join your local Chamber of Commerce or Business
Group. Politicians find it easier to listen
to large groups.
·
Engage with your local politician to advise on
your area and business sector.
·
Hold a “cash reserve” as large as you can to
cover your business during hard times.
·
Understand what your “core business” is so that,
should you have to cut costs, you don’t cut the ones that actually bring in
your main revenues.
I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.
Labels: Crisis Management, Financial, Productivity, Regulation, Risk, Selling, Strategy
posted by William Martin @ 16:06
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