Employment Lags Economic Rebound

Watching the economy often yields more questions than answers.  As some positive numbers filter out on economic activity the two questions I hear most are “Will the rebound last?” and “When will the rebound start creating job growth?”

Unfortunately the creation of jobs and the subsequent lowering of unemployment lags behind the growth of economic activity.  Whenever there is an economic downturn, organizations are forced to rethink their business operations in order to survive.  The decline last year resulted in significant payroll cuts as organizations trimmed back and cut costs trying to stay in business.

If you look at the national numbers one of the consistent patterns when this type of cut occurs is the increase in productivity.  Not only are firms cutting personnel, they are also rethinking the operational model they use to do business.  Some people interpret these gains as just meaning that the remaining employees are working harder.  Perhaps there is a thought that the least productive are fired first.  That does not fully explain the change we see.  Productivity gains are the result of finding efficiencies in operation.

One of the implications of this is that a rebound does not mean a return to business as usual.  Firms will not choose to go back to a less efficient business model from before the downturn, now that improvements have been discovered.  Jobs will not be created until the pace of economic growth is sufficient for firms to be confident they can hire and keep employees working under their new business model.

The recognition that improvements that result in increased productivity and efficiency will not be reversed also gives another rule of thumb for evaluating changes.  Two such rule of thumb questions have been asked by managers for over a year now.  First, “What activities if we had it do over would we not start?”  Second, “What activities if we terminated would we not restart?”  Many times managers are faced with making cuts or operational changes with limited information.  The future is uncertain and the behavior of both employees and customers change when the environment requires they must.  These questions help cut to the fundamental strategic underpinnings of the decision.

If you are evaluating some significant changes in response to the economic environment ask whether you would undo the changes when the economy improves.  There are many changes that are structural to an organization and deserve careful thought before implementing.  However, if it is obvious that once the change is made you would never voluntarily go back to the prior mode of operation, then your decision should be clear.

If the organization would never retreat from the decision, that is a strong indication that the choice should be faced and taken care of now.  Even though the current decision may be difficult, postponing action does not remedy the problem.

A tougher issue may be recognizing the past decisions that with current information are mistakes.  In this environment it is urgent to cut losses and dispose of those activities that detract from the organization’s success.  Once the baggage has been cleared from past decisions a foundation is in place to allow new growth.  Employment increases require that the economy reach the stage where firms have completed the cutting and retrenchment and have seen enough improvement in the core business to begin to rehire.  That will only occur when there is confidence that the economic recovery can be sustained.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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What Makes You Different?

What do you bring to your industry that differentiates your product, service, or the approach to business?  Traditional economic analysis tends to focus on the easily measurable and highly tangible assets and activities of the firm.  For tangible assets like land, labor, and capital input measures can be developed that while imperfect are readily understood.  However, there has been a long recognition in economic analysis that a significant portion of the value associated with economic activity is tied to the intangible assets and activities within the economy.

The classic example of this is entrepreneurship.  The entrepreneurial ability to find new markets and define creative new enterprises is difficult to explain or anticipate.  Of course, that is why we call it an intangible.  The pace of change continues to accelerate.  New products and innovations imply that a number of the firms that spring into existence and the number of jobs to be created will represent entirely new markets.

The contribution of intangible activities is not just limited to the startup company developing new industries.  There is also an intangible contribution associated with the managerial function.  The process of management and leadership may involve recognizing new business models that can transform existing enterprises.  Examples in recent years have been rampant as digital technology has required a rethinking of many industries.  For example, the way we consume music has come a long way from the vinyl record.  Similar pressures are hitting books and magazines.

As the way we are able to access and deliver information changes, then these business models will have opportunities for change and innovation as well.  Those companies that recognize effective new business models for an industry will be at the forefront of wealth creation.  In many ways the introduction of a new concept in the way an industry does business is more transformational than the introduction of a new product.

Part of the mix of intangible activities that promote success for both managers and entrepreneurs is the ability to recognize and find resources.  The productive activity of the firm involves the organization of resources to address productive activity.  Solving problems can be a very profitable activity, but some solutions are often apparent if resources are unlimited.  The wealth creation involves either solving the problem with very limited resources or attracting new resources that can be applied for the solution.

The Upstate of South Carolina has a solid history in manufacturing excellence.  However, a simple glance around the companies working and manufacturing in the region reveals that the environment has changed significantly.  The economic development efforts that are focused on attracting industries to a region recognize this change.  The industries that will be producing wealth into the future typically have a stronger portfolio of these types of intangible assets.     Today’s manufacturers have to be focused on creative smart innovative approaches to their industry.  The ability to differentiate the company whether in the product or processes is key to survival and wealth creation.  Ultimately this ability rests with the culture that is developed within the company and the type of talent they can attract and employ.  The intangible abilities are inevitably embedded within the people that companies hire.  If we want the Upstate to be home to the innovative and wealth producing companies of the future, then we must be able to supply and attract those individuals that display these attributes.   The best jobs will go to those who can recognize and produce this type of impact.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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Competing with BRIC

Looking at economic development issues in the Upstate we are often focused on creating the right environment to simultaneously support innovative high tech ideas and small business entrepreneurial growth.  While there are certainly some areas where the two opportunities overlap, there can be some debate within economic development circles about priorities.  This is not just a strategic decision here in the Upstate.  It is also apparent in the discussions of the economies that are emerging as potential leaders a generation from now.

In global economic discussions a great deal of attention is paid to the BRIC countries.  Brazil, Russia, India and China each have made gains in economic development.  Each has shown an increasing focus on markets and wealth creation.  In some cases the support of individual market behavior and ownership of the means of production clearly clashes with the historical economic dogma of the country.  However, the importance of productive employment and raising the living standards of the populace has forced the political systems to yield to economic realities.

It is interesting that the different priorities are reflected in the national policies.  In China and India there is more attention on small business development while in Russia there is a greater focus on innovation and technological gains.  The division is not surprising.  India and China both have large populations with a pressing need to focus on the poverty spread throughout these countries.  Russia on the other hand is a large country with pervasive issues of poverty.  However, it does benefit from some residual advantages in technology as well as some immediate trade capacity in natural resources from the vast mineral deposits throughout the country.  Each of the emerging countries has exhibited enough growth to identify the BRIC countries as potentially dominant economies a generation from now.  Of course, there are a lot of steps they have to get right along the way, but it is important for us to realize that the competition we face in the Upstate is not just competition from other metropolitan regions within the United States.  It is not even based on the historical trade blocks we have seen emerge within Europe or NAFTA.

The push for innovation within the Upstate must compete globally with the technological investments that are going on in Russia. The small business entrepreneurs must compete with the best and brightest emerging in China India, Brazil and elsewhere.  The million plus residents of the Upstate must compete with the billions just discovering the wealth generating capacity of freer markets in other countries.

The debate and issues we face in the Upstate are really not that different from economic development concerns worldwide.  We must expand employment and broaden the distribution of wealth throughout our region.  Governmental redistribution programs are not effective and sustainable.  Productive jobs in small businesses are the most effective proven technique for lifting up a society.  No governmental program has ever promised the level of independence and prosperity that is associated with the opportunities of a vibrant job market.

Innovation and technology have consistently provided the creation of wealth and prosperity.  Both will be essential for the Upstate to remain competitive in the global economy.  Each requires the availability of an intelligent educated work force that understands the basics of business and economics.  Our biggest constraint is we only have a little over a million people.  In the past we have risked wasting the potential of many within our society.  In order for our region to stand in the world economy we need to fully develop the human capital that is here in the Upstate.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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Customers Really Do Matter

Most complex business to business transactions require a significant amount of specialized investment.  This is not the investment of plant and equipment but rather an investment in service.  It takes a commitment of time and resources to define the needs of the buyer and specifically tailor the product for that specific need.  The more customization and design that a purchase requires the more likely the resulting contract becomes a relationship specific exchange.

Understanding the nature of these types of purchases is necessary to minimize procurement costs and to obtain the level of product and service needed for efficient operation.

This is different from the purchase of true commodities.  If any off the shelf product could serve the purpose then a procurement relationship can be as simple as placing an order or including an item on contract terms.  However, many products have multiple features and styles and are not perfectly interchangeable for the client needs.  With an extra layer of complexity the customer may not be able to effectively evaluate the options on their own prior to purchase.

These types of complex purchasing relationships require a focus on the selling company’s ability to invest in understanding the needs of the customer and designing the contract and purchase agreement that truly does meet their needs.

One of the implications from transactions requiring specialized investment in service is that it is easy for underinvestment to occur.  If either party becomes uncertain that the relationship will result in a contract, then the incentive to spend time understanding and evaluating the options falls.  As a result a less optimal purchase is made.

The investment in a specialized relationship is not without risks.  First, there is the obvious threat that ultimately you lose the sale.   An even more disheartening form of this is what economists refer to as the hold-up problem.  That is where one side provides a great deal of research and expertise, but the other takes that information and then uses it to acquire bids from competitors as well.  This type of opportunism is attempting to capitalize on the sunk costs of one vendor.  While it might appear to save money in a single transaction, as a repeated pattern of behavior it results in incomplete and less effective investment in the relationship prior to contracts being issued.  As a result the company spends more to fix and adjust after the fact.  What is not recognized by those behaving opportunistically is that often there is also an investment required on the part of the buyer.

While both parties can gain from investing in the vendor relationship it often falls on the sales team to make the extra effort and gain the sale.  If the company already has a relationship with another supplier it will be costly for them to switch until a competing vendor demonstrates the capacity for meeting the same level of complex service.

On the other hand if you already have the contract you must still continue to invest in the relationship.  The obvious reason is that there are competitors that are trying to determine what gaps exist in your understanding of the customer’s needs.  Those gaps may provide an entry to contest the market.

Of an even greater importance is the recognition that the specialized investment in the customer’s needs and processes may reveal new market opportunities to expand your business relationship.  Effective sales are often a matter of presenting a solution to a perceived problem. Sometimes in complex selling the customer does not realize the opportunity exists.  In that environment the customer sales function becomes a form of consulting as a value added service to the client.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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Advice Matters

None of the management cycles is more consistent than the swing into favor and out on the use of consultants.  On the positive side third party experts often have track records of operations improvement, effective cost cutting, and a clear ability to focus strategic thinking.  On the negative, most information is gleaned from your own sources and the issues have probably been recognized at some level.  The fees seem high for advice you should have been able to write on your own.

The value added from third party review is real even when the concerns addressed are known.  The key from a decision making perspective is the shift in priorities that an external perspective can produce.  In decision making choices always reflect the priorities and the perspective of the decision maker.  We all intentionally or unintentionally pick our battles.  Some issues seem more critical and urgent.  Others may be known but seem to be a distraction.  Maybe the tough decision on a second tier issue can be delayed for a cycle.

However, when forward progress becomes stalled, then it is often time to address improvement with a different order of priorities or by tackling a different tier of challenges.  If you ask the same questions in the same order you arrive at the same conclusion.  Insight can come from asking fresh questions.  Sometimes it takes an outside perspective to call attention to internal practices that are limiting growth.

The candid external review has been described as the “ugly baby” comments.  The expectation is that members of a family will not ever see the baby as “ugly.”  In business and professional organizations there are always projects and decisions that have a legacy impact.  Each was once someone’s baby.  Which ones have outlived their usefulness?  Where are the ugly babies?   Sometimes it takes an external perspective without the history and attachments that exist within an organization to ask why certain choices have been continued.

Given the value that can be available from listening to an external review, this should be a deliberate strategic choice in good times or bad.  Some consultants find that business is actually strongest during an economic downturn.  When internal perspectives no longer yield savings or improvements, then continued company survival may depend on fresh advice and a fresh perspective.  For the consultants there is also a tendency to hear less quibbling about the pricing structure of their fees when clients are desperate.  When the future success and viability of the organization is at stake, someone’s ability to point out areas for critical change is obviously worth the price.

Unfortunately, most of us are less eager to hear the same improvement suggestions during good times.  Since the data is mostly drawn from internal sources we can be more comfortable that we will eventually arrive at the right conclusion using our own internal people and processes.  Besides if we have enough time and money maybe that ugly baby will mature into a different type of opportunity.

The lack of urgency for improvement during expanding economic times is one of the reasons that periodic recessions are probably necessary for a healthy economy.  Only during the economic downturn does the economy flush out those choices and businesses that are really not producing and adding value on a continual basis.  The marginal company that just makes it during good times is among the first to fail in a downturn.  For those companies who are better run and do stay focused, the downturn may still be painful.  The difference is that the leaner operation also reveals new opportunities to expand and prosper.  If you do not see opportunities in your operation, maybe you should ask for outside help to balance your perspective.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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How to Increase Efficiency

How easily can your customers find what they need from your business?  One of the most basic operational mistakes that businesses, regulators, and bureaucracies make is to ignore transactions costs.  Transactions costs are the way economists describe the costs associated with either monetary or nonmonetary barriers to getting things done.  A customer service focus toward reducing transactions costs will improve efficiency.

Examples of transactions costs are easy to find.  Begin by considering how many steps it takes to accomplish a task.  This was one service challenge when companies started setting up automated voice mails or call center directories.  Push one if you want one type of help and push two for another.  Three layers later you discover that you are in the wrong decision tree.  Have you ever hung up on an automated system to redial?  It may be easier to start over than to find your way back from some systems.

Now that web based sales and advertising are common the same convoluted choices can become embedded with the newer technology.  How many clicks does it take to reach a destination?  The more clicks the more opportunities for you customer to get lost or give up.  The goal is to make those transactions that are most frequent and those that are most valuable easy for your prospects.

One of the more likely reasons that transactions costs increase occurs when regulatory structures change.  When the rules governing markets are uncertain and changing decisions take more time.  Documentation requirements can become another source of delay.  It may seem like a good idea to have the customer document they were told something, but is it always effective?

Consider the paperwork involved in a real estate closing.  When you purchase a house, there are mounds of forms to sign, initial, and receive.  Presumably your signature indicates that you have read and understood each document.  If you really want to frustrate the professionals handling a closing take time to read some of the documents.  Most closing attorneys are quite good at summarizing the issues.  They have to be since that is really all the time you will reasonably spend.  Even then it is a slow process.  Yes, buyers are given details, but those details are buried among the mounds of acknowledgements and disclosures.  When the complexity of the paperwork increases, then understanding can get lost in the blur of forms.

Local governments are not exempt from transactions costs concerns.  Consider the issues of land use and planning.  If you start a development project how long does it take to get the necessary approvals?  Some of the fear associated with zoning has less to do with land use requirements, and more to do with concern that processes will require excessive time, expertise, and money.  When the local government demonstrates an attention to customer service changes in the land use process are more palatable.

Of course, the classic examples of transactions costs come from dealing with the Federal Governmental agencies.  Do you have to hire a legal advocate to successfully navigate the system or will the same outcome occur for someone who does not hire counsel?  When pundits evaluate our nation’s senators and congressmen, they always debate their voting record.  However, an incumbent that does not have a good constituent service record will not last long.  One of the most important functions that our representatives perform is to express interest within the bureaucracy and encourage the agencies to perform as expected.  They become the advocates for customer service.

Evaluate the experience customers have with your organization.  Dealing with your organization should not be a frustrating experience.  Improve until customers see a smooth efficient organization.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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Defensive Management

Unfortunately, one of the significant cost pressures in modern business is the importance of reducing exposure to lawsuits or litigation.  The actions that companies take to minimize this exposure is defensive management and it is becoming a major cost we all share.

Let’s make it clear that I am not talking about basic consumer protection, but rather the additional costs and actions that companies make to prevent the potential for litigation over actions that do not involve the legitimate use of the products. 

For example, I recently noticed labels on window screens at my house.  It is clearly marked that the screen will not keep me from falling out of the window.  The fact that the company has gone through the cost and effort to add the safety label tells me that someone jumped through a screen, fell out a window, and then blamed the company.   

There are some areas where perhaps consumers should take responsibility for their actions.  I remember a comedian that commented on emergency room visits that begin with the phrase, “Hey watch this!”  Have we reached the point where it is always someone else’s fault if we injure ourselves?

In some cases the additional defensive management actions are supported by increased regulation of governmental protection.  I recently discovered that the new handle in my shower did not allow hot water.  Apparently to prevent the danger that I might get the water real hot and scald myself, a limit is placed in production that governs the maximum amount of hot water allowed.  Technically the limit should be adjusted at installation to the precise maximum temperature that the code allows.  Similar protection exists in the installation of hot water heating.  The result for me was cold showers.  Please stop protecting me from hot showers!  Of course plumbers can adjust and fix the problem.  It is classic defensive management that the initial shipment is based on the minimization of legal exposure, not the most likely expectation of what the consumer is paying for.

The point that I am expressing is not a desire for a more unsafe consumer environment.  I am not encouraging people to use the top of a ladder as a step even though the label clearly says it is not.  Rather my point is that we do make judgments and take risks.  Some risks should be considered a choice and a normal part of daily life.   Yes I have used the top of the ladder as a step on occasion.  It may not be the safest act, but it is safer than putting the ladder on an unsafe footing that seemed the other likely choice at the time.  Even without the label had I fallen I would blame myself, not the ladder manufacturer.  It seemed like a good idea at the time.  There is nothing defective about the product even if I do not use it as intended.

The other important point is that consumers overall are not stupid even if some occasionally make poor judgments.  Yes it may not be the brightest act to jump through a screen, or balance on the top step, or even scald yourself in the shower.  However, part of individual freedom is the freedom to make poor choices.  The catch is that this freedom comes with the requirement you take responsibility for those choices.  If we must blame others for our mistakes, then we will keep giving away the economic freedom to make decisions. We will also keep paying the cost of defensive management in every product we buy.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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What Inflation Means to Us

One of the emerging concerns associated with our economic recovery is the threat of inflation building within the economy.  Inflation is always a consequence of the management of monetary policy.  As the Federal Reserve has expanded their balance sheet to absorb toxic assets they have succeeded in injecting liquidity into the economy, but with an increased risk of emerging inflation.

Some analysts see concerns about inflation as being premature.  The lingering economic slump is still keeping downward pressures on company pricing practice. However, if you look at the global market some commodity pricing is already under pressure to increase.  For example, the markets for oil and gold have both begun to climb.  Inflation is not always a major problem, but our handling of the recent downturn invites an inflation risk.

The danger is that as interest rates remain low there are consequences for the economy over time.  As a policy of low rates and easy money to the banks continues, then eventually that pressure can increase the dollar value of economic activity without producing real productivity or growth.  A stimulative monetary policy may be called for now but the policy makers have to remain aware of the potential for inflation to result.

Unfortunately part of the policy trap that is faced may not be avoidable.  Basically the Fed uses interest rate policy to control the money supply as its primary tool to influence economic activity.  This means that the same weapon must be used to try and stimulate economic growth with low rates or restrain inflation by raising rates.  When slow growth occurs with inflation which priority is addressed?  If they turn too quickly from worrying about getting us out of recession to fighting inflation, then the economy may suffer a relapse.  Of course no one wants to see this occur.  Perhaps even more importantly from a policy perspective none of the policy makers would want to be blamed for causing another recession to kick in just as the last is finally beginning to recede.

The risk of another recession may effectively tie policy makers’ hands and force them to wait to respond to inflationary threats until it is clear to everyone that inflation has become our biggest concern.  With inflation, by the time it is clear that it has reemerged it is too late to take preventive action.  Any policy changes will still take time to be felt throughout the economy.  As a result the problem changes to fighting an established inflationary trend not just preventing an emerging one.

During the mid-seventies this country faced a severe round of stagflation.  The economy was in a slow growth economic stagnation, but inflationary pressures moved annual price changes into double digit increases.  That timeframe provides some basic lessons on inflation’s effect on the economy.  One of the toughest elements is the way that inflationary expectations get built into pricing.  The interest rate that you are charged has two components.  First there is the amount the lender expects to really earn.  Second there is the amount the lender needs to stay ahead of inflation.  So if a lending rate would normally be four percent, then a five percent inflation rate requires nominal interest rates to climb to nine percent. If inflation hits double digits a ten percent inflation rate would push the lender trying to obtain a four percent return to charge a fourteen percent interest rate.

Economic uncertainty and changing expectations for the role of government or the regulatory compliance process can slow growth and result in economic stagnation.  That part of the slowdown will not be offset by monetary policy, so increased stimulus becomes inflationary.  Unfortunately, the mix of economic problems raises the potential to face another stagflation like the seventies.  The good news, should this scenario occur, is that we do have experience solving that problem, once we wake to its importance.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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For Optimism – Focus on Control

The recent economic environment has been challenging with negative news prevalent.  I have received several observations and comments recently pointing out that my commentary and most of my outlook talks still come across as optimistic.  This is a little surprising given that pessimism would seem to be called for in these times.  That raises some interesting questions.  Why are some people more optimistic than others?  Do the optimists have a delusional view of the environment?  Finally, does it matter whether you are optimistic or pessimistic?

The type of optimism that I intend to convey is not naïve or delusional.  Instead what comes across as optimism is a matter of which questions I tend to think are most interesting, no matter what the economic environment.  An optimistic outlook follows naturally from asking the most productive questions.

One of the distinguishing characteristics that I attribute to those successful in business is an ability to focus intently where they can create change.  The question is not whether the economy is shrinking or growing.  Consider what actions you will take given each circumstance.  The optimism is not based on the environment, but on the recognition that you have choices in dealing with the circumstances.

While the environment may turn negative, there are people who will make vastly different fortunes in the same market.  What actions will you take to influence your outcomes?  The behavioral test that considers this difference in outlook is called the locus of control.  Some people see their fates determined externally by the decisions of others, environmental factors, or luck.  If this is your worldview, then it is hard not to be pessimistic when the news is bad.

On the other hand, people with a strong internal locus of control focus more on how their decisions and behavior determines their success.  Even though the national news may be bleak, that is not a reason for pessimism.  Instead the decision is what action or plans you will implement to optimize your position within this environment.

Many skeptics have portrayed optimists as having a blind faith that by thinking positive thoughts good things will occur. This misses the point.  If you choose a worldview where success is not a likely occurrence or is only a random draw, then that outlook prevents you from taking actions that increase your chances for success.

You will also limit your ability to succeed if you do not candidly evaluate your skills relative to the external environment.  The student that wants to assert strength in mathematics when all the test scores indicate a failure is not on a path to success.  This is not optimism it is self delusion.  Survival and success requires us to acknowledge that everyone does not have the same skill or receive the same outcome.  There are no trophies in life just for participating.  Self esteem can handle not being a winner at everything and improvement requires identifying your weaknesses.  You will not develop a strategy to solve a problem that you do not acknowledge.

Alternatively, visualizing a successful outcome is the first step in developing a strategic path that leads to success.  The goal is to move from where you are to where you want to be.  Optimism can focus your thoughts on those positive actions that will yield a better outcome.  If you focus on your choices and visualize paths to success, then you are prepared to recognize or take advantage of opportunities as they occur.

Optimism that is based on a realistic definition of the circumstances and focused on actions you can control does matter.  This is the foundation for creating success.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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A Look Back on ‘09

One of my traditions is to take the last week of the ear and look back  What were some of the significant changes during the year.  Some parts of 2009 will be memorable, others deserve some reflection because they are easier to forget.

For most 2009 will be celebrated for finally coming to a close.  It has been a tough year as the economy emerges from this great recession.  In fact the best news about the economy in 2009 is that it stopped declining.  That is not what we normally look for in terms of good news, but within the context of 2009 it is significant.

When 2008 was drawing to a close the question in the fourth quarter really involved the future stability of the system.  As the economy teetered with the financial regulatory system in disarray there was much discussion of the systemic risks.  System failure for the world economy is a frightening prospect. The first quarter brought new waves of bailouts and stimulus from Washington, but did little to give the economy confidence that we were on the right track again.

In spite of the noise and confusion that multiple bailouts brought, by the second quarter it was becoming apparent that the decline was over and the economy was beginning to reset at a lower level of activity.  This is critically important since the economy has to stop falling before the expectations that permit growth to return can occur.

For businesses who have survived 2009, it has required a refocused effort.  The level of activity is lower, but the number of players have been reduced as well.  Those companies that entered the year heavily leveraged or with unresolved management issues or a weak reputation for customer service did not make it this year.  Those who did survive found a base to operate and pay the bills, but there is still a great deal of anxiety about the terms and process that will be required for long term financing.  The economic fundamentals are beginning to reassert themselves, but the efficiency of the regulatory structure of the financial system does not inspire confidence.

One of the characteristics of the past year is that it was a tough time to be selling, but a pretty good time to buy.  For those who could look for opportunities in the recession they could take advantage of the turmoil to find some bargains.  There are risks to looking ahead when everyone else is focused on the short term problem, but there are also rewards for strategic thinking.  For those who took bold moves in 2009, the year will have represented a positive turn.

For many consumers, the past year has been a time to rediscover thrift as a lifestyle.  For the first time in memory data suggests that savings are increasing, credit card debt is falling, and the consumer has been focused on lowering financial risks.  Certainly part of the drive is a direct reflection of the headlines on job losses and foreclosure.  As that news softens we can certainly expect spending habits to grow from these new floors.  There is also the potential that the change toward thrift will become a permanent feature of this generation.  A generation that focuses early on savings can supply the funds that will permit investment and growth to reemerge as the dominant features of our economy.

As the book is closed on 2009, we can say that it was not as dark as the worst nightmares faced in 2008.  However, it was a rough ride. We can also be confident that the challenges of 2009 will be fading into memory a year from now.  2010 has a base to build upon.  There are some challenges looking ahead but the risks of 2010 are an improvement over the realities of 2009.

Darrell Parker is dean of the George Dean Johnson Jr., College of Business and Economics and Professor of Economics at USC Upstate.  Contact him at dparker@uscupstate.edu.

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