June 5th 2010

Accelerating Out of the Great Recession. How to win in a slow-growth economy. David Rhodes & Daniel Stelter.

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Accelerating Out of the Great Recession. How to win in a slow-growth economy. David Rhodes & Daniel Stelter. 2010 ISBN 9780071718141. This is a very important book. The two authors are from the Boston Consulting Group (BCG). I am a fan of BCGs research and this book does not disappoint. They look at the Great Depression, Japans lost decades and the 70s NA bust, to take lessons from companies that grew despite the slow growth economies.  Since at Rocket Builders we hope the best, but plan for the worst these lessons are gold.   They make a good argument that we are in for many years of slow growth and they had not factored in the recent sovereign debt problems as well as Canadians extremely high levels of indebtedness.   Just a few of the dozens of notes I made from this book:

  • Companies will faced increased market competition as their markets shrink
  • Governments will become more extreme in their interventions and protectionism (As well as increase role in  business ownership)
  • Consumption patterns will change (retrenching, payment of debt takes priority over consumption
  • Massive triggering of the deleveraging process in the business and private sector
  • Increased private savings with reduced consumer consumption drops interest rates, reducing  exports and imports
  • Resource inventories will rise, prices will stay low for long periods
  • Attention will be paid to building internal markets vs export markets if possible (this will not help China enough).
  • Industry restructuring will accelerate, as the weak business models fail more quickly,  M&A will increase for the strong.
  • Governments will be forced into massive debt levels to finance infrastructure ala FDRs New Deal
  • Deflation is a real threat to those in heavy debt as their asset values drop
  • Taxes must rise, but govt services will come under attack ( reduced public pensions, wages, employment rolls)
  • Health care and energy costs will be scrutinized and attacked relentlessly
  • Countries reliant on exports to drive their  economic/employment growth will suffer from increased internal strife as job losses mount
  • Anti immigration feelings in First World will rise internally as job losses stay high, impacting the Third World even more.
  • Todays teenagers could become more conservative,  better savers, but suffer longer terms of unemployment than their parents, this may reduce their interest in entrepreneurship.

The book goes on to show areas where the authors believes there are opportunities for growth, as well as ways that companies who did well in previous downturns did well. But I will leave them for you when you read this book.

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