If you’re ever feeling a little depressed or unhappy, try listening to a song called “Optimistic” by Sounds of Blackness (look it up on You Tube); it does exactly what it says on the tin.
I was listening to the song the recently and pondering on the nature of optimism. The “glass half full or half empty” scenario perfectly illustrates the power of mental attitude; the same level of liquid in the glass can evoke a strong positive or negative reaction depending on your point of view – and may ultimately decide what you do with the contents of the glass.
And so it is with the economy. More educated people than I can explain the intricacies of Keynesian versus Monetary economics (don’t ask), but at a basic level, I believe the economy operates mainly on the current level of optimism present in society. The reality is that money doesn’t simply disappear in a recession. In fact the total amount of money in circulation tends to remain relatively stable, apart from in extreme circumstances when special measures such as “quantitative easing” – basically printing more money – are introduced.
The key is what is happening to the money. The meditation and self-improvement guru Deepak Chopra, when asked about his attitude to money, said; “It’s like blood – you have to keep it flowing” and this is what drives economic growth – or lack of. In a boom period, people are confident that they will keep their jobs (or get better ones), or are keen to start businesses, so they borrow money and spend their wages on goods and services. And if people are spending, this means that businesses are selling their goods and services, so they are making profits, which means they can invest in growth, recruit new staff, etc.
Conversely, in difficult times, lack of optimism or fear of the future means that people will stop spending money and reduce their levels of borrowing, so businesses sell less and are unable to grow, or may struggle to stay afloat. They have less money to invest and a lower capability to borrow; money stops flowing and everything grinds to a halt.
The whole issue of the level of optimism in society is being highlighted both by Government activity and the news that the banks – who largely got us into this mess in the first place – are now thriving again. Despite the return of big profits – and bumper bonuses – for banks, lending to business remains low and businesses are still complaining that they cannot get good access to business finance. However, the banks all state that they have plenty of money available for business loans. The problem seems to be two-fold; on the one hand, fewer businesses are applying for loans, simply because they are pessimistic about their future prospects and secondly, those who are seeking finance are finding that the banks are making their lending criteria much stricter.
The recent lack of business willingness to borrow is a bad sign – an indication of lack of optimism. And it’s particularly bad for a coalition Government that is placing its faith in the private sector to lead us out of our economic problems. But the Government itself is a big part of the problem; its attempts to manage expectations by continually reminding us of all our financial worries, together with its short-term “slash and burn” strategy of making swingeing cuts where possible, are creating a depressing fog of negativity in society that many experts are predicting will destroy the fragile recovery and lead to a “double-dip” recession.
With the disappearance of the Regional Development Agencies (including Advantage West Midlands) and the Business Link national business support network, leaving behind a very messy and unco-ordinated business support sector, tangible help and guidance for small and medium sized business seems to be in short supply; which is worrying since SMEs employ over 56% of the workforce (over 12 million people).
Cutting costs are only ever one part of the equation – there also has to be significant investment in the drivers of growth. A sustained recovery will only take place when people start to feel confident enough to set up new businesses and existing businesses begin to access finance and investment once again. After several years, optimism is starting to return to the economy, but we are waiting with baited breath to see what the Government’s future strategy will be for creating a little more optimism within the business sector.
Watch this space…
(Original version of this article was printed in The Vine magazine, September, 2010)