In March of this year, Federal Reserve Chairman Ben Bernanke told CBS’s
60 Minutes that in surveying the economic landscape, he saw positive signs of impending recovery, which he characterized as “green shoots.” In varying degrees, some other economists agreed with him. Others, however, had a dimmer view, most notably, Nouriel Roubini, who took the shine off Bernanke’s metaphor by warning of “yellow weeds” among the green shoots. So, which will prevail—the green shoots or the yellow weeds? In which direction is our economy heading?
Back in April, Chairman Bernanke’s economic spring made some sense. Given the indicators, it seemed reasonable to predict that major banks would report some profits, retail sales would increase slightly, and new claims for unemployment benefits would go down. In addition, by late spring, stock prices had started to climb and mortgage interest rates had begun to fall.
But, to paraphrase the poet T. S. Eliot, April can be the cruelest month. Within a few weeks, most of those green shoots had begun to wither in the hot summer sun. In June, a steep decline in the Dow Jones Industrial Average undermined the springtime rally; the shares of major manufacturers dropped, and mortgage rates were on the rise. In July, confidence in the fragile recovery was further undermined by a higher-than-expected unemployment rate of 9.5 percent—which is predicted to rise—and a drop in consumer spending. For the first time in history, the federal budget deficit exceeded $1 trillion, and, at least in some quarters, the efficacy of the stimulus package had been called into doubt, leading some, including billionaire investor Warren Buffett, to advocate for another round of spending and others to raise the specter of out-of-control inflation down the road.
Of course, while extreme views on either side might make for good headlines, they rarely, if ever, represent an accurate picture of reality. While acknowledging that we are not even close to being out of the woods, I prefer to be cautiously optimistic about the US economy, and our research seems to bear this out. For example, although no country has been spared entirely from the global recession, the US was by no means the hardest hit. Japan and Germany have seen larger contractions in GDP, and Russia has experienced an even more pronounced decline in economic activity. In addition, even though it has not recovered, world trade has at least tentatively stabilized and global liquidity appears to be recovering.
Economic predictions, however, don’t mean much unless they provide a strategy for business success. Given the economic scenarios, it seems to me that business leaders can take one of two approaches. They can succumb to gloom and doom, cut back, retrench, and hope for the best. Or, they can take a positive approach and adjust their strategies to succeed in spite of current economic reality.
At PwC we have chosen to view the economic downturn as an opportunity rather than an obstacle. Just what opportunities does the recession offer? Talent management is one example. Smart companies are taking advantage of talent available as a result of the current recession. Rather than laying people off, they are working hard to retain their top employees and are hiring in anticipation of better times to come. In fact, that’s been our strategy at PwC.
With competitors cutting back, the downturn also offers market share opportunities to those companies prepared to stay the course. Increased marketing efforts and targeted acquisitions can pay big dividends to businesses unwilling to dismantle their core strategies in response to economic challenges. A downturn also offers companies a unique opportunity to innovate while others focus on preserving the status quo.
There is no question that, post recession, the business landscape will have changed dramatically. Among companies, there is likely to be a low tolerance for mistakes, which could dampen innovation and increase risk aversion. Smart companies will not succumb to such challenges but will, in fact, prosper in spite of them. Confronting head-on a higher cost of capital and increased competition, particularly from the emerging world, they will focus on productivity and efficiency by, for example, developing innovative relationships within their supply chains and among those with whom they partner.
In short, the successful companies are betting on the future. And that includes PwC. This does not mean that we have buried our heads in the sand. We have not. We know the economy is in serious trouble, but we choose to prevail, not fail, and to thrive rather than just survive. Savvy companies will do the same.
That’s my view. What’s yours? We’d like to know. Send us your comments at pwc.com/view.
Bob Moritz is chairman and senior partner of PwC.