I'm developing a section of my Macro lectures called "digging deeper", which is providing evidence that we need to look beyond broad and aggregate indicators to really understand economic development. For example, people and business aren't uniformly affected by a recession. If incomes fall by, say, 5%, it encourages us to believe that everyone is 5% poorer. On the contrary, during the recession in the early 1990s a majority of people ended up better off. Similarly, we tend to look at the rate of bankruptcies and imagine that all companies are equally affected. But note the empirical and theoretical side of this. Firstly, all companies are not equally affected. Many famous companies were founded during a recession, being able to exploit falling asset prices and a rising pool of labour. But this is the whole point of economic interaction - prices generate a profit and loss system and it's the recessions where farsight and entrepreneurial alertness is rewarded. For the past decade successful entrepreneurs have been competing with "lucky" ones (i.e. businesses that were only able to cover the cost of capital due to either artificailly low interest rates, or artificially high asset prices) - now is the time that those who planned ahead can reap the rewards. The companies that were planning for a recession and changing their prodcut line accordingly get to not only steal a lead on less effective rivals, but buy them up at low prices when they fail. An article in the Financial Times reports a survey showing just hpw many companies are "in the mood to expand". Of the 300 companies surveyed in December 2008-February 2009 (i.e. before any signs of "green shoots":
- 21% plan to expand abroad
- 38% expect to make an acquisition
- 35% expect to launch a joint venture with a former competitor
As Rob Donaldson says,
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