Slowdown in economic growth is only a slowdown of the psyche!

Before discussing the relation between the economic phenomenon and the Psyche, let us just brush some aspects of the economic system in our society. Every society has a system that regulates the economic activities. There are certain major entities that play key roles in the system. In modern times four major entities play a role in regulating the economic system.

 They are …

• The government : The government collect taxes and spends the resources for the welfare of the society
• The financial institutions (Banks, Capital Markets etc): The financial institutions gather the savings of the households and use it for the developmental purposes through loans etc.
• The Producing organizations (Products / services): The producing organizations produce products and services required by the household.
• The households: Households work as a unit contributing to the society and develop their own members.

Each of these components has to play their respective roles to keep the economy alive and vibrant.   If any of these members collectively change their behavior it may result in slowdown of the economy, for example if Government introduces taxes, it will affect the households decisions, If the Producing organizations change their products it will affect the system.

 All of us know that recession has hit all parts of the world.

 Recession means any one of the above mentioned entities has taken steps contrary to the developmental pattern and others are affected by it in some negative way.

Conventionally it is held that recession happens when people lose their ‘purchasing power’.  When household’s ability to buy is lost, it will lead to lack of sales for the producing organizations. The goods produced have to be sold. But how can they be sold when people have lost their purchasing power?

 If manufacturers cannot sell, they cannot generate enough revenue to repay loans and the creditors. The business eventually goes bankrupt and the banks will be full of non-performing assets. In such situations the banks will lend less. This becomes a vicious cycle. Depositors panic because some banks would have collapsed. They withdraw their money, and more banks collapse.

In order survive the recession the Companies will lay off some of its employees and the people who have lost jobs will have lesser money to spend. The people who are have not lost their job will tend to control their expenses and try to save more to survive during the uncertain times. These decisions of the people will result in slower turnover of money and the money supply will get stuck.

However the current is recession is caused by the Financial Institutions in the West, who were exposed to exorbitant risks in the derivatives market.  The banks were burst and millions of people lost their savings and large number people lost their jobs.

But one thing we must understand is that in recession times, we have lost only money (financial capital), but not the ability to make money. The ability to make money is a psychological phenomenon. With proper mindset and psychological capital the lost prosperity can be regained. 

 The people may have lost their purchasing power.  But their needs, dreams, goals are still there. For example a person may not be able to own a car but the need to travel is still there.  The economy drives on the latent desires of the households and the governments.  We become really poor only when we cannot dream, desire or do not take calculated risks.  The existence of dreams, ideas and desires ensures a good business for producing organizations. When the producing organizations are complaining about the lack of sales, it also means that they are not caring much about the customers.  The needs / wants are always present, only that we are not finding ways to satisfy them.

 Also we have to be open to the opportunities around us than to distant places / countries. The near-care focus will yield better results than far-care focus in the long run. Even though we are living in a globalised world we still need to pay attention to the nearest environment we live. 

 In this sense recession is an opportunity to accelerate our psychological slowdown. Recession is the effect of our mental retardation.

 If the organizations and the households, aim for better life standards, the economic prosperity sure to come.

 Some of the solutions to beat recession and make way for prosperity are …

 For Business organization

• Become customer oriented
• Develop innovative products / services
• Help the smaller organizations
• If the service provider / vendor cannot be paid in cash, offer shares in the company
• Do Barter

 For Individuals

Keep the dreams and goals alive | Invest in social capital | Express the needs and seek help | Help others’ profusely | Be a value creator

Economic slowdown is a temperory phenomenon

 This is the summary of the talk given by Sasikanth Prabhu (business consultant)

 At Chintavedi, Thuravoor (31.05.09)