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In the balance

"It was people who were realistic that have done well from the recession. Optimists and pessimists both did badly."



BBC World ServiceHugh Pym17 March 2012


PA’s Mark Thomas, business strategy expert, is interviewed on the BBC World Service’s In the Balance. Mark talks about how to pursue austerity without damaging growth. Mark is interviewed by the BBC’s chief economics correspondent, Hugh Pym, as part of a panel discussion with a Harvard economics professor and Goldman Sachs. The discussion is about austerity and stimulus – what is the best way to reduce debt and get countries out of recession.

Mark is asked about the balance between austerity and growth and whether austerity has gone too far. Mark draws on his work with businesses across Europe: “Clients are often asking me not about austerity, but where the growth is for the economy. Businesses themselves are looking at growth plans and one of the key drivers about where they decide to grow is where the market is growing. Lots of these companies are looking at Europe and not seeing the growth. Big multi nationals are continuing to grow, just not so much in Europe.”

Mark is also asked whether businesses question if it is right for governments to focus so much on deficit reduction and whether they should borrow a bit more to promote infrastructure: “There is a strong argument for infrastructure. One issue is about the pace of cost reduction and the other is about the timing. You have to cut costs at the right point in the economic cycle. If you have to cut costs very fast, by definition you have to cut the costs that are easiest to cut quickly, and those might not be the right costs to cut.”

Mark is also asked about his work advising companies on growth. Mark has written a book about zombie companies and economies and is asked, if companies are in a zombie state, is there actually much governments can do about it: “Yes there is. Although zombie companies are a problem, the bigger issue is zombie consumers and subdued demand. We have zombie governments like Greece - where there is no choice - or governments like ours - where we felt there was no choice – but the net result is that there is austerity in many places. This is depressing growth and it is not just the zombie companies but their interaction with the other zombies, including the banks who are still struggling to lend. There are definitely things governments can do.

Governments could encourage private sector involvement in net present value projects. This is any project that will have a return over time that is in excess of the capital invested. Therefore, there is a business case for doing infrastructure when it doesn’t worsen a government’s long term debt position and in the process creates stimulus to break the log jam.”

Mark is also asked about the delicate balance for policy makers and how they must talk realistically but still encourage growth. PA recently looked at how businesses reacted in the depths of the recession for its Managing Uncertainty report and Mark talks about who did well, the optimists or those who were more realistic: “It was people who were realistic that have done well. Optimists and pessimists both did badly. It took people a lot of time to accept that the fall of Lehmans would have a real impact on their own business. They waited until they saw it in their forward orders and, as we said, those who have to cut quickly don’t necessarily make the right cuts. They then also waited for business to come back. Those who were less optimistic and thought this could be a different type of recession put in contingency plans. However pessimists, rather than realists, were focused on protecting their position. There are huge shifts in market share after a recession so those that worked out a plan to take advantage of this to come out of the recession stronger were on the winning side of these shifts. Pessimism and optimism are both killers, realism is key.”

Mark is also asked what businesses are telling him and whether they are genuinely more optimistic or still worried: “Generally they are quite a bit more optimistic; many of them are now in a position where their concern is not about profitability but about where future growth is. Many of my clients are in this optimistic place.”

You can listen to the interview in full here. Mark is interviewed at 13, 19 and 23 minutes into the programme.

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