Wednesday, September 12, 2012

Same old

There's a lot of media coverage about the drop in commodity prices, especially iron ore and coal, the inevitable slowdown to the mining boom (or what the media is calling an end to the boom), deferred investment in new mines/expansion of mines and in mining infrastructure.

And of course, all dominated by the emotional bogeyman of job losses.

Job losses dominate all thought here it seems, without much thought about a wider picture. A day doesn't pass without headlines screaming  'job losses'.

The cut to education budgets here in NSW resulted in calls to radio stations this morning, virtually all I heard complaining about job losses. I didn't hear one talk about the need to improve educational standards, or to get better value for money. But I digress...

In reality it's all just yet another example of how business operates.  There's a boom, businesses rush to expand, pile on staff, ignore cost restraints, make all sorts of investment plans. The boom will never end.

Some of it, like hiring staff and ignoring cost controls, can be done instantly so they are.  Other things take more time...and often that time is longer than the boom lasts.


Reverse everything you just did. Contract the business. Start looking at cost control. Fire staff in their droves. Ditch the money-raising for investments, put the investment 'on hold'.

That's when the media starts pushing the doom & gloom agenda, especially concentrating on job losses.   Note that they didn't give blanket coverage to job creation stories at the beginning of the boom, by the way.

I keep seeing 'hundreds lose jobs in coalmine closure' stories but I didn't see any 'coalmine hires hundreds' stories earlier.

Over the years, in different places,  I've seen the same old situation repeated over and over again in boom-bust cycles.

Way back, the advertising business was booming, agencies expanded, staff were hired by the thousand, long expense account lunches, costs not controlled. It inevitably came to an end, the lean years were back and the fat had to be cut out of the agencies. Job losses equalled the earlier job gains. Over-extended companies disappeared, swallowed up by bigger rivals.

Back in the eighties Sydney didn't have enough hotel rooms for booming domestic business travel and inbound tourism, companies tried to cash in on the boom and many new hotels were built. But they take two or three years to complete, by which time the boom was over. Business plummeted, staff were 'let go'. Many of the buildings had to be converted into apartments.

In Dubai (and Ireland, Spain, China et al) the recent real estate boom fuelled by cheap money at close to zero interest rates. Too many companies tried to cash in on the boom, resulting in too many properties for not enough buyers.  The boom ended, as they always do.  Thousands of jobs went, projects were cancelled, companies went bust, properties were left vacant.

Across the world the current (no, we're not clear of it yet) global financial crisis caused the usual panic. Businesses in all sectors were caught up in it, not just construction and finance. Companies contracted in an instant, millions of people who'd been hired during the fat years suddenly lost their jobs. Previously ignored cost controls suddenly became  number one priority.

History teaches us lessons but we always ignore them. Each time there's a boom business does the same thing, borrowing, expanding, hiring, at rates based on the boom never ending. And when it does end, they do the same panicky contraction.

It amuses me that each time it's treated as something new.

1 comment:

The Weekend Blogger said...

I read this post and kept nodding my head in agreement because this is exactly what I am watching unfold around me right now. The sad part is that the fat cats in sutis who take all the wrong decisions usually get away while the middle and lower rung workers who want nothing but a little bit of stability in their lives are the ones who pay .