How to Survive—and even Thrive—in this Recession

March 30th, 2010

Things are looking bleak in many parts of the world. Even some of the wealthiest parts are experiencing the consequences of the severity and persistence of the downturn. The chances of a further significant decline, both in the market and in the real economy, are now perhaps 50-50. According to some estimates, up to one-fourth of all commercial properties are in trouble; and 1 in 5 homes remains in danger of foreclosure. The effects of the stimulus program, weak at best, are now being offset by sharp declines in state and local government spending. The need for new economic policies is obvious, and yet such policies are not forthcoming.

In New Jersey, Governor Christie has taken an axe to the state budget, apparently with the approval of many voters; but he has not followed through on his commitment to stimulate the economy at the same time. On the contrary, he is looking to seize funds from the Clean Energy Program (which are ratepayer contributions, not tax revenues), which will cripple that fledgling industry; when he promised during his campaign to support renewable energy as the future engine of NJ’s economy. Is it possible to do both at the same time?

I believe that it is, and understanding this is part of the key to emerging from this recession into a new and more sustainable growth economy. First of all, this economic downturn can be used to remove programs and activities that are essentially wasteful or unproductive, rather than simply slashing across the board or cutting valuable social and economic programs. Second, new investment needs to be just that—investment, not just expenditure. Communities, public and private institutions, and individuals need to look at cutting back expenditures and simultaneously increasing investments, even if they need to borrow to make those investments.

Borrowing is in fact an important part of the investment process: it provides a vehicle for private wealth to be put to work, and it provides a means to pay for work that will yield savings or profits in the future. Municipalities need to find new ways to generate revenue to pay for the services that the community wants and needs; while taxpayers rail against “taxes,” they don’t want their sewers to back up or their schools to be shut down. Certain kinds of things, like utilities for example, they would rather pay for on a usage basis, and to the extent that municipalities can provide these services they stand to generate future revenues in order to support these and other public functions. Governments, in other words, need to become more like businesses.

Businesses, at the same time, need to become more like governments. They need to understand that their responsibility is to serve the public good, not just the interests of their private shareholders. Private shareholders deserve a fair return, but only if the business they own is actually contributing value to the marketplace, which is to say, to the community. When it starts causing more harm than good—as for example in the case of the tobacco industry, some military contractors, and some in the prison industry—they need to be reined in. Responsible public policy needs to set limits to what is allowable behavior, and what adjustments need to be made to markets to produce socially responsible outcomes. And businesses need to be about these outcomes at the same time and to the same extent as they are about making profits.

We also know that some businesses do better going through and coming out of a recession than others. The conventional albeit seemingly contrarian wisdom is that smart companies forge ahead when everyone else is pulling back, because both talent and resources are cheaper and it costs less to increase market share or expand into new lines of business. People often say that the New York Times, Proctor & Gamble, Chevrolet, and Camel emerged as strong companies after the Great Depression because they continued to advertise heavily and strengthen their products. Of course, these companies are usually the ones that have the resources already stockpiled just for this very situation; others, like the auto companies, are simply forced to cut back and seek to invest in a very limited way in new products.

And new research from the Harvard Business School suggests that success is less a function of either defensive strategies or aggressive investment, but of looking for “operational efficiency, expanding markets, and acquiring additional assets.” (“Roaring Out of Recession,” by Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen, Harvard Business Review March 2010.) In other words, it’s a combination of smart cost reductions and smart investments in areas of potential growth.

And it just so happens that this is what the “green economy” is all about: it’s about reducing energy costs, rising waste disposal costs, and other inefficiencies; and about growing in sectors where new products and services are needed. What we don’t need are more consumer goods that end up going into the waste stream; what we do need are better homes, schools, transportation systems, public health, sustainable agriculture, recycling, and waste handling. There are areas for growth in a more sustainable economy; they’re just different ones. And the wealth to be generated is even greater, since it is less likely to be catastrophically devalued by the traditional boom-and-bust cycles.

Let’s take some practical examples. Under New Jersey law, counties and municipalities can get into the energy business by a simple resolution, and effectively become their own suppliers and cost-cutters. But they don’t have the resources or the expertise to set up these operations. So companies and nonprofits are being formed to provide these programs and offer them to municipalities on a profit-sharing basis. This grows both the local economy and the coffers of local governments. Companies that invest lowering their energy costs, reducing their wastes, eliminating toxic elements in their products, and providing smarter choices for consumers will do better no matter what happens to the wider economy. And individuals who cut back their own expenses while investing their energies in new ventures will build a strong future for themselves and their families.

Sounds pretty obvious, doesn’t it? Yet too many governments, businesses, and individuals appear to be responding like the deer in the headlights—frozen in the face of budget cuts, declining sales, and unemployment—instead of using innovation and ingenuity to get through it and emerge stronger than ever from the experience.

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