If you believe in the basic tenants of capitalism, you've seen this all before -- although admittedly not at this level of magnitude. Free markets are free to make mistakes, create bubbles, burst bubbles, wreak havoc. But then the system heals naturally, like a cut finger. Under this view, after the recession hits its bottom, markets will recover, we will learn our lessons (or not), and move on to the next crisis in a decade or two.
If you believe in this scenario, you, like Warren Buffett, use this time to exploit bargain-basement prices and invest in the equities, properties, and people that are going to help you lead the recovery. Read Buffett's NY Times op-ed, Buy American. I Am.
Here is his long-term perspective on the crisis:
"In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."The Uh-Oh Scenario
And then there is the opposite view. This crisis changes EVERYTHING. All the old rules no longer apply. Global economic interdependencies will deepen the crisis and slow recovery. Capitalism itself is on the brink; market forces are no longer the self-correcting balm they seemed to be. You nodded in recognition when Alan Greenspan told a Congressional subcommittee, "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief."
In the this-changes-everything camp sits Umair Haque, whose consultancy works with companies to create radical business management models. Blogging on Harvard Business Publishing, Haque advises us to throw out the old playbook and start doing business in a new way. Says he:
"The tactics of recession-as-usual are neither necessary nor sufficient for firms to weather the global economic superstorm -- because it's no ordinary squall, but a once-in-a-lifetime gale ripping up the very foundations of the global economic order."His remedies include shifting corporate focus from short-term monetary gains (which encourage financial games playing) to creating long-term value for society. He also says the traditional sources of business advantage -- brands, scale, proprietary knowledge, relationships -- lose their power in this new world, replaced by advantages for firms that are adroit experimenters, have capacity for tolerance and difference, and are willing to act as global citizens.
"And though it's a scary, frustrating time," Haque continues, "the cool part is this: it's up to us to reimagine, reconceive, and reinvent (institutions). We get to rethink the institutions of capitalism for a new century."If you are in this camp, your business investments become much different than Buffett's. Suddenly you are looking at changing the very nature of your corporation, its DNA, as Haque terms it. Instead of making small bets to ride out the recession, you are thinking nimble, quick, and aggressive, like a surfer staying on top of a giant wave, ready to see where its going to break next.
Make Your Bets
I'll admit to being closer to Buffett than Haque on this one, although with a dose of dazed Greenspan thrown in. How is your world business view changing? Are you beginning to steer your company or department in a new direction because of this change? What's your next step?