Editor's note

The World Bank’s chief envisages a gloomy picture of the global economy if the world community does not make radical steps ahead; besides, these steps must be “completely novel”. From Mr. Justin Lin’s interview to the Danish daily Politiken (19.01.10, p.10) it became clear that present survival require different and new approaches for survival. The alternative to upturn and economic advance is a deeper recession, he argued. Therefore, the advice is simple: governments must stimulate economies in an effective way; the rich-developed countries are deemed to increase production, fill in the warehouses (that is facilitating export) and increase employment. That would increase potentials for export and provide for the new wave of profits.

Recommendations for survival

Economic restoration’s efforts, since the crisis begun, were driven by the governments’ measures to “fill-in the stores” with the assistance of governments’ “recovery plans”. Important aspect of recovery strategy lies in the “optimal choice” for efforts to stimulate export potentials.

People in advanced countries are worried, according to the WB, about the volumes of the debt the governments were involved in order “to buy-out” the banks in crisis. That is the way to eventually strong inflation. The issue shall be turned around differently: how to stimulate economic development.

The answer is, that the stimulus must be novel and non-traditional: that is, “smart investments” that increase productivity of the goods and services that consumers’ require. Selling these goods would cover the excessive state debts. However, argued Mr. Lin, a lot of money is used for shortsighted investments.

The rich countries are in excess of money; this is not a problem: governments can easily issued currency’s emissions or “sell the debt” further on (e.g. Japan’s recent example). Therefore, the limits in our actions, argued Justin Lin is not in money, it is in the way we make decisions. Truly enough, who would be against the “deep thought”!

Mr. Lin makes a couple of examples: Korea used 80 per cent of public rescue funds to support “green investment”, China the same amount for modernising infrastructure (roads, railways, etc. in total about $600 bln stimulus package); the US –only 11 per cent for green investments.

Finally, World Bank’s chief economist comes closer to “eternal issue”, i.e. finding new sources and ways to stimulate new demand. In this line, the push to new demand would come from the developing countries. They already show their strong position by overcoming the crisis. Besides, the BRIC countries increased their share of global GDP during 2000-08 from about 32 per cent to 46,3 percent while G-7 countries (US, UK, Japan, Germany, Canada, France and Italy) reduced from 41 per cent to 19,8 per cent. And forecast is even more interesting: the difference will be 61 per cent for the former and 12,8 for the latter somewhere in 2014.

[The new global economy. Building Brics. -Financial Times, 18 January 2008, p.6].

What is undoubtedly correct in the WB’s argument that the solution to global crisis is not in the hands of national governments. However, the danger is still there; it is up to the leaders to act in a professional and non-traditional way.

Another opinion

But then I came across an opinion from a top business executive, R. Lambert, director-general of the Confederation of British Industries and acquired a second opinion. Mr. Lambert’s opinion sounds to me as a qualified summary “for survival”.

The CBI boss cites Sir Davis Hare’s end of last year’s play “The power of Yes” about “how socialism replaced capitalism” (according to some reviewers): “Business is in some ways quite simple, it has clearly defined aims. The aim is to make money. So you have a measure against which to judge all the subsidiary actions which add up to the overall result”. This is what Mr. Lambert cannot agree on.

First, he argues, “business is anything but simple and it is certainly not easy. Even in its most basic form, it is built on complex organisations – financial backers, suitably qualified employees, competitive distribution systems, willing customers – and on the innovations that make one firm succeed where another fails. Less than half of the biggest 500 companies in the US in 1980 were still in business 20 years later”.

[Lambert R. Why David Hare is wrong about business. –Financial Times, 17 January, 2010, p.11].

Second misconception, according to Mr. Lambert, is business’ prime aim of making money.

The late management guru, Peter Drucker already several decades ago postulated, “with respect to the definition of business purpose and business mission, there is only one such focus, one starting point. It is the customer. The customer delivers the business.”

Nobody doubts the importance of profit: it makes business run, ensure the supply of capital for the innovation and expansion that will be required to meet customers’ needs in the future.

However, underlines CBI’s director, the companies that pursue the only aim to make money and maximize the profits “will not over time offer the quality and value that customers demand in return for their loyalty. They stay in business by offering good products at a fair price, not by squeezing out the most they can for their shareholders”.

Third, business depends on teamwork, on the common pursuit of worthwhile goals. It develops products and services that can change lives, e.g. new drugs and medicines, novel forms of communication, etc., argues Mr. Lambert. Business creates jobs, and with them the wealth and taxes on which everything in the public realm depends. On top of this, he adds, business is great fun – especially when things are going well. Again, citing P. Drucker: “free enterprise cannot be justified as being good for business: it can be justified only as being good for society”.

Fourth, success in business comes by earning the trust of suppliers, of employees, of customers and of the wider community; without this companies disappear. The shock in the banking crisis was connected to that lack of trust: bank deposits became unsafe. The financial sector of business broke the rules of sound business, and the society at large has to pay the price after all.

Finally, the crisis is not the outcome of “bad market structures”; on the contrary, for all its shortcomings, a market-based economy offers a great deal more than all the existing alternatives.

As healthy society is based on a healthy business sector, and vice versa.

Well, to my mind, we all have to learn from the present crisis; the importance of lessons is greater as long as the crisis is far from being over. Unfortunately, no single book exists that would describe the lessons for panacea; nobody has really been able to explain what should be done. However, it seems that we are learning from different textbooks -some are for beginners, others – for those managing and governing the survival.