Can We Grow Our Way Out of the Current Economic Condition?

Vast amounts have been said and written about the world (at least the ‘west’s’) current economic demise, with passionate debate from politicians, economists, journalists and pretty much everyone else. Opinions abound. In January 2010, Mckinsey Global Institute actually produced a paper that analysed 45 episodes of economy de-leveraging since the Great Depression, 32 of which followed a financial crisis. The article is attached at the end for convenience, with acknowledgement to MGI and the authors: Charles Roxborough, Susan Lund, Tony Wimmer, Eric Arnar, Charles Atkins,Ju-Hon Kwek, Richard Dobbs and James Manyika. The url is:

http://www.mckinsey.com/Insights/MGI/Research/Financial_Markets/

Debt_and_deleveraging_The_global_credit_bubble_Update

On only one occasion in the entire period was it seen that economic growth resolved the problem and this was in the exceptional period 1938-1943, when the stimulus of world war provided the ‘engine’ to overcome the economic problem. Today, this might seem an extreme mechanism to overcome the current difficulty.

 

Beyond this, 4 ways of overcoming the debt de-leveraging crisis were found:

 

  1. Massive default
  2. Rapid economic growth (once in 43 events)
  3. Austerity (operated on 50% of occasions)
  4. High Inflation; that erodes debt levels (seen on 25% of events).

 

Conclusion:

 

Unless we can invent a 5th approach, and assuming we don’t want World War III, a combination of the above seems to be the solution. Our politicians appear to be arguing over the best balance. It is harder on this occasion because of the scale of the event. Given that a political solution is being looked for to handle an economic problem, we are likely to prolong the agony because the electorate is generally against their standard of living being adversely affected and politicians like to be re-elected.

 

Our fate may well be to live in western economies at least, in a kind of limbo, not worsening a lot, but not recovering well either (see Japan). This might be defined as a depression. Whatever it is called, it is likely to go on for some time.

 

Climbing out of this particular hole will be helped by companies adding value to the economy. The more progress we can achieve at the company level, the more the national economy will improve. Focussing on delivering improved company performance is the way to eat the very large dish before us – like the proverbial elephant; one mouthful at a time.

 

Enter professional interim executives who have been through a few of these situations – it is time for stakeholders to engage with the solution to improving performance.

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