True Business- real life for small businesses

Soothsayers and sleight-of-hand merchants, magicians and Victorian side-show owners. They’re as good a bet in understanding the current economic climate as anyone in the press.

I mean, what sort of misguided fool would proffer their opinion on this recession? Who’d be daft enough to stick their head above the parapet?

Er… me. I can’t help it. So, take this opinion in the spirit it was intended: I am no expert, no genius, and certainly not your financial adviser.

Let’s begin with the dictionary definition (and get shot of it). Officially, a recession is a decline in gross domestic product (GDP) for two quarters in succession. On that measure, we’re nowhere near a recession. The rate of increase in GDP has slackened off in the past quarter; but we’re nowhere near a nosedive. Yet whilst the dictionary says we’re doing just fine, then, that’s little comfort to consumers watching their mortgages and food bills skyrocket.

It’s too early to look at jobs, but there are some worrying signs. As I write, companies in the housebuilding and construction businesses are laying off staff in their hundreds. Jobs, however, are a horribly late indicator of economic trends- usually some 18 months to 2 years after the fact.

Let’s leave the dictionary aside, and speculate a little bit. Because, more than ever before, I think the answer to “Is this a recession” is “Well, it depends on who you are”.

There are several sectors (housebuilding as above being one) which are good barometers of economic health. Advertising is massively down on last year (the Trinity Mirror Group has been one of the big losers). Retail is in disarray, particularly at the top end (bad sales figures from John Lewis and M&S, and plenty of discounts in the pipeline from Currys). Banks are tapping their shareholders for a shot in the arm. They all suggest the worst.

But we’re forgetting some crucial issues here. These big companies are utterly beholden to their shareholders. Shareholders used to be in it for the long term: committed to a company over a decade or more, and therefore capable of weathering the bumps in the market. But many companies have experienced over a decade of constant growth and expansion; thanks to globalisation, massive consumer debt, the housing bubble, the Internet boom and plenty of other positive influences besides.

As these shareholders have become used to constant growth, short-termism has crept in. The shareholders’ expectation is such that even a hint of downward pressure leads to a price crash. Poor old Persimmon Homes, for example, has in the past week or so been valued at barely more than the land it owns (without any of the houses it plans to build).

In other words, the open financial markets are so jittery that they massively overstate the negative. A 3% drop in like-for-like retail sales can see shares in a retailer drop 15%. That’s bonkers. Yes, banks in particular are reaping the rewards of a decade of bacchanalian wealth, but it’s really important to separate the expectations-driven world of publicly quoted companies and the reality-driven world of the rest of us underneath.

Down here, in the world of small companies and the self-employed; I don’t think things are half as bad. Price inflation is a problem, export costs are high, but life is going on quite nicely, thank you, and whilst things may get a lot worse, I don’t think we’re in for anything like as bumpy a ride as we saw in the early 1990s or late 1970s.

My main reason for this optimism is simply that we are more “productively mobile” than ever before. If I closed my company down tomorrow, as a victim of the recession; I, as an individual, could turn my talents to something productive (and therefore money-making) in a matter of a couple of days. Twenty years ago, there were no Internet job boards. There was no such thing as “having a portfolio career”. Starting a company required a landline phone, an office and lots of administration. Today, you can work from home with a PC and a mobile, and be getting on with something useful in minutes.

I appreciate that that’s a slightly glamorous view; and I’m effectively denigrating the thousands of non-office-based or non-service careers out there. But I stand by my statement: we’re capable of offering some sort of service to someone in the world very quickly indeed. Recessions are cyclical; they’re natural adjustments in the order of the economic universe, a levelling of the cement in the economic mixer. And I think it settles faster today than ever before.

I may be horribly wrong. Entirely extraneous circumstances (Acts of God) may skew everything in an instant. The massive wealth in the Middle East and China may mean the West as we know it is on an entirely new economic footing. But in the mid-term, that’s my tuppenyworth: keep doing what you’re doing, be flexible, and you’re probably well placed to weather anything we can predict. And the unpredictable just ain’t worth worrying about.