Marion's Blog

The Economist, the Pragmatist and the Politician

Two years ago the economic recession started. Since then life for most of us has been very interesting. Interesting in the way that for many life suddenly wasn’t as secure, jobs were diminishing or might diminish before your next breakfast, your home was no longer guaranteed to stay in your name, the bank you were banking with might be taken over or simply disappear….along with your savings as happened with some banks in Europe and so on.

Now, a few years later, it was interesting to listen to three people discussing the current economic situation on “Meet the Press” yesterday. And, perhaps not unexpectedly, the bottom line is all about how small and medium businesses continue to drive the new economy.

Mayor Bloomberg, former Federal Reserve Chairman Alan Greenspan and Pennsylvania Governor Ed Rendell joined presentor Mr. Gregory in the discussion. There were a number of key points made that I feel all business owners should consider.

Mayor Bloomberg said: “well, you have the public not wanting any new spending, you have the Republicans not wanting new taxes, the democrats not wanting any new spending cuts and you have the markets not wanting new borrowing and you have the economists not wanting any of the above. And that leads to paralysis”.

There is a lot of truth in the statement – however, the issue is that small businesses, entrepreneurs, DO want to invest, do want to grow, do want to continue their businesses, but they require investment and funding in order to be able to do so, and if the banks are in this state of paralysis, it becomes impossible to grow, and with the lack of growth of small businesses into medium sized businesses, there is no growth in the number of people they employ.

In the discussion, Alan Greenspan goes on to point out that the economy is in fact becoming distorted. “There has been a significant recovery amongst the high-income individuals who have had US$800 billion added to their 401(k)s and are spending it and are carrying what consumption there is. Large banks are doing much better, and large corporations are in excellent shape. The rest of the economy, small business, small banks, and a very significant amount of the labour force, which is in tragic unemployment, long-term unemployment is pulling the economy apart”. The average of the two is what we are looking at but they are fundamentally at this moment in time two separate types of economy.

In effect, what Alan Greenspan is pointing out, and what the real underlying fear should be is that the above mimic the characteristics of a third world country – a small wealthy upper class, a huge lower class and a non-existent or dwindling middleclass.

From the discussion, there were no clear conclusions from any of the parties, although the three – different as they were, agreed that something needed to happen to break the cycle and restore the middleclass and smaller businesses and allow them to restart on a growth path.

The problem that occurs now, is that the growing lower class is mad – mad at the banks, mad at the government and mad at those people that seem to do well despite the recession whilst their own lives are being turned upside down. And this is really where I personally see a difference between the so called “lower class” and entrepreneurs. Entrepreneurs have never cared for what other people do, or say or think. Their focus is very strongly on making their business work. And it is this spirit that can really make the difference. However, we can not do it alone. It needs to be recognised first by government and the there is no chance in hell if we don’t align all the parties named by  Bloomberg: the public, the banks, the wealthy individuals, the Democrats and the Republicans – and it requires all of them to recognise that a concerted effort is needed, difference need to be put aside and we have to enforce that the very banks that got so much government support during their darkest days, in turn support the small and medium sized businesses. It is only when this first step, the support for smaller businesses will start to crank up, can the spiral downwards into an economy that mimics a third world country be stopped and reversed. It is here that lies the key to recovery.

Get businesses to grow and you will soon create more jobs, new employee security and as a result more consumer spending, all of which will help the economy’s climb back out of the hole…

Marion