I just read and reviewed a best-selling book, A Failure of Capitalism: The Crisis of '08 and the Descent into Depression, written by the acclaimed author, Richard Posner. Posner's written dozens of books, and has an excellent track record, but this time, he's missed the mark.
Certainly, there's no arguing the fact that we, as a society, let a lot of things slip which helped lead us into the current economic malaise. Interest rates got too low, lenders were overly aggressive in approving marginal loans for houses, we failed to put much money into savings each month, and corporate America's CEOs got carried away with a sense of their own invincibility; risky business decisions flowed. Last summer, the bubble burst.
I suppose we should've seen it coming.
It was no doubt, quite a mess. However, to blame the economic woes on "the failure of capitalism" may sell a lot of books, but the truth is, capitalism is alive and well. Corporate America is going through some hard times, though. However, it has nothing to do with the system; it has to do with their failure to understand how psychological human emotions come into play in the workforce, as well as the market.
Employees are really a fragile bunch of people; their emotions need to be understood, and they need to be treated with respect and dignity. That's not happening. Corporations got so big and so powerful, they didn't feel it necessary to treat employees like human beings. That was a misguided way of thinking, but it resulted in low morale, high turnover, and decreased productivity.
The decreased productivity has been estimated by some employee motivation experts---like Paul Herr, the author of Primal Management---to be costing corporations anywhere from $1-2 trillion, annually. The simple solution of getting employees engaged in their company's success would certainly go along way to getting our economy back on track, and it wouldn't even require a Stimulus Package.
The tricky part of the psychological equation is trying to understand the rationale behind the mysterious manner in which the stock market, real estate market, or commodities market moves. They're driven by forces more complex than rudimentary "supply and demand" concepts. Emotions are often difficult to gauge, but when the masses move the markets in one direction or another, it's apparent they're unstoppable.
Consider the way the stock market reacted in the late '90s; especially the NASDAQ. It rallied in a manner far greater than any logical explanation could warrant, but once the masses got behind it, "panic buying" took over, and the next thing you knew, the NASDAQ eclipsed the 5000 mark. So-called experts were predicting a run to 10,000 within a couple of years; then in early 2000, the first stage of the correction began.
As far as the masses were concerned, the NASDAQ was no place to be, and it moved sharply down to the 3000 level; it never stopped its decline, and when 9/11 occurred, it was all she wrote. Today, the NASDAQ is hovering around the 1800 level, which is about where it was six years ago. I'd say the correction has just about been completed, but really, who can tell? It all depends on the psychology of the investor, as a whole; someday they may decide everything's better again, and it'll be off to the races, at least for a while.
The free market economy is not to blame for this mess; fundamentally, capitalism is still alive and well. People are crazy, however; but we've always known that. And they will continue to be crazy and unpredictable; at least in the investment arena. In the workplace, they're anything but unpredictable; and the sooner Corporate America understands that, and deals with it, the better off we'll all be.
The companies that will thrive in the market going forward, will be the progressive companies that understand the importance of employee engagement, and how that can positively impact their bottom lines if they get it right. The choice is clear; the General Motors and Chryslers of the world didn't get it right; that's for sure. Before investing in a company, it would be highly recommended in investigating the management philosophy of that company; and the best way to find out about that is to ask the employees in the trenches how they feel.
They'll know, and they'll be honest.
by Larry Underwood, author of Life Under the Corporate Microscope: A Maverick's Irreverent Perspective