Hopes of Recovery

The global crisis in the United States has left many questioning the merits of the free market capitalist system. A system which has brought about improved economic growth, not only in the United States but other economies the world over, including South Africa, but with the current economic climate, world trade has declined with governments implementing protectionist strategies in an attempt to shield their domestic industries. Sales continue to plunge in the ailing automotive sector, with major companies like Daimler Chrysler and General Motors (GM) having to lay off workers, as the effects of the recession continue to cripple these companies.

Companies like GM who have operations in this country have been hit the hardest, as they are forced to lay off workers in their South African manufacturing plants, and in so doing they contribute to the increasing unemployment rate which now stands at 23%. The repercussions of such an economic crisis are two-fold, on the one hand you have high unemployment, which results in lower household consumption and spending which decreases demand for manufactured goods like cars and household appliances and you also have banks and other financial institutions who have become very cautious of giving these ailing companies credit, and simply put, if no one is spending then companies aren’t making any profit…then what’s the point of being in business? I reckon one of the tragedies of the economic recession, is that it has eroded consumer confidence and confidence in the business sector. The cost of doing business has just become too high.

It’s sad to see that many South African companies have found themselves on the brink of closure. It’s sad because those who suffer the most are the poor. I guess in order to solve any problem one needs to go to the root cause, and in order to find the right answers we need to ask the right questions, why are we in this mess? Many analysts have said that the problem is with the lack of regulation of the international financial system, but I reckon Henry Mintzberg got it right when he wrote that, “These companies were not being managed. They were being led, for short term spectacular performance”. It is clear that the companies were run with only the bottom-line in mind, and little care was placed on long term survival. But there is good news, and the signs are there that a recovery may present itself in the not so distant horizon, credit markets are improving, China’s economy is rebounding, commodity prices are stabilising and investor confidence is gradually improving. Many analysts speculate that the economies of developing countries like South Africa, Brazil and India will be the first to recover. I do hope that South Africa maintains the fiscal and monetary discipline that the Treasury has observed over the past decade, so that when the sun shines again, the South African economy will register the kind of economic growth that will eradicate poverty and unemployment and herald a new dawn, because success comes, as Rudyard Kipling put it: “If you can keep your head when others are losing theirs”.