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Preprints & Reprints Making the Future Work Fish do it, birds and bees it; in fact all animals, plants and humans do it and so it seems to our financial markets. Boom and bust is not an exception to the rule, it is the rule. All natural systems behave more or less in the same way. Predators seek out their prey and eat and breed to the point where they themselves start to die through a lack of food. Flora and fauna exploit the nutrients in the soil and overtake the natural replenishment mechanisms through rainfall and the natural decay of waste created by plants and animals. They may enjoy a momentary stability, but ultimately they reach a point where the population dies off, due to a lack of life sustaining elements. In all biological (and physical) systems the pattern is the same, and it is boom and bust cycles. Steady state populations are short lived, they are always cycling, always tending to consume all available resources to the point where they have to reduce to survive. When we look at manufacturing and service industries and the sustainability of human populations across our planet, we should not be surprised to see the same properties in evidence with every other species and form of life. But unlike all our predecessors and other life forms we have the exceptional ability of understanding what is happening, and in principle, we have the mechanisms at hand to prevent boom and bust economies. Unfortunately the increasing use of IT and telecommunications makes it more likely that we predicate boom and bust cycles. Over the past 200 years technology and business systems have created exponential growth and wealth that appears to be unlimited. Even WWI, WWII, Vietnam and The Gulf War created but momentary glitches in the exponential raise of wealth and stocks. What is perhaps remarkable is that after every serious conflagration the economy returns to precisely the same trajectory in a matter of years or months. The present crisis in NY and the financial markets may be at the front of everybody's mind today, but we can be sure that within two years all will have recovered and most will have forgotten the market crash within another 5 years. What is clear is that the depth of the present recession is not an entirely a natural occurrence. Prior to the NY outrage just about every giant corporation on the planet were doing the same thing and working to the same rules, irrespective of the global outcome. Why are companies suddenly seeing profit margins plunge, their customer base disappear, and reacting with huge right offs measured in $Bns? I think it goes like this. Companies in trouble with turnover and profits down have to declare their position to the Stock Market in accordance with the GAAP (Generally Accepted Accountancy Practices). Such a posting will certainly engender an adverse reaction in the markets. So why not take advantage of the situation and right off as much as possible and suffer the pain once. As soon as markets recover they can then suddenly sell their inventory at 100% profit. What a wonderful mechanism for success - write everything down this quarter and hold it in store awaiting sales as markets recover. Without IT this would be impossible across a global economy. So as correlated decisions are taken faster as a result of more automation, look out for more recessions that are deeper and shorter lived. I think the pain of recessions will have to become so great that companies realise they have to, and can, break the boom and bust cycle by using the medium that created them to randomise their processes. Word count = 607 |