We do everything to prevent recessions and by doing that, we reward unsustainable business behaviour, destroy sound businesses and corrupt generations of future managers.
The unfair competition
I was always wondering how a sustainably managed business could compete against a cancerously managed business. Imagine for example a fast expanding company with hyped executives. They squeeze out all existing values (hidden assets and reserves, unrealised gains, customer loyalty, product pipeline, quality, employees, etc.), take high and irresponsible risks and thus generate much more profits in the short run than a sustainably managed business. After a certain time, shareholders of the latter business will look enviously to the much better performing business – and ultimately sell their company to the more successful management. And this management again has new values to squeeze out. This goes on and on and no responsibly managed business seems to have a chance against this winning strategy. Even if they do not sell their company to the faster growing and more profitable company, they will be outplayed in the market by more money and more market power or simply by less or more expensive access to financial resources.
The only remedy would be that in times of economic downturn a responsibly managed business would have all these reserves necessary to weather the recession – in contrast to the cancerously grown and overleveraged business without any reserves left. Nature’s seasons seem to be a good comparison. In spring you have to grow, in summer you can harvest and in autumn you have to gain weight to have reserves for the winter. In winter certain trees die off and good gardeners even crop branches so that they can grow and flourish again next spring and summer.
That means recessions are absolutely necessary to reward sound business behaviour by the creative destruction of unsound businesses. And no business should be too big to fail. This is even more important as it has to give lessons to all of the next generation managers who have to decide what side to join.
We messed it up
But unfortunately we have spent all the resources accumulated by generations of hard working people during the last decade to prevent recessions and to save unsound businesses from going bankrupt. Now assets of ordinary people are ripped off – including pension funds, savings, and home ownerships; the banking system is still on the brink and much too overleveraged; central banks are out not only of ammunition but out of assets too – except of inflating money; and in the last round, we even used not only the money governments possessed but also the fortune of our future generations. We did not invest in infrastructure but in prolonging unsound business behaviour.
Ultimately the winter comes
And now, as we have spent all our and other’s money we have to confess that it did not help at all. It is like building hothouses around our artificially overgrown trees until we have burned all our resources to heat them up. And then, from one day to the other, it will get really cold and we will see that none of these trees is able to withstand cold winters. And we have sacrificed lots of healthy but not so fast growing trees to the illusion that trees grow into the sky like in no generation before. And lots of future managers will have to learn it the hard way – not by leading role models but by personal hardships – what sustainable and sound business behaviour means – and that it normally pays out.