If you don’t do your job you cannot do it badly – but you can still fail.

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The IMF announcement of a toxic asset hole of probably $4 Trillion is shocking but not unexpected. Some of us believe that the statement is a ‘warmer’ and that there will be more to come. It is said that worse figures have already been presented in Washington.

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In a climate of anxiety about the future, when whole countries are going bankrupt, it is prudent to reduce non-essential spending to a minimum. In naval terms, ‘batten down the hatches’. But random cuts based on what is easiest to eliminate are not a good idea. While a target reduction in costs is essential the specific items to be cut need to be very carefully considered. How do you decide where to slash?

This is the time for your very best – and most difficult – forecasting. Don’t worry that your forecasts do not always come true. A thoughtful forecast is always more reliable than an arbitrary or random decision.

First consideration is what or who makes the most money for you. You need to assess for each of your big profit earners:

1. How is the downturn going to affect the profitability of this important sector?
2. Is the decline inevitable or can we do something to at least reduce the impact? If, in your opinion, the decline in sales is a foregone conclusion whatever you do, don’t waste money trying to prop them up. Cut costs to reduce the losses.
3. If the record of a market is that it responds quickly to promotion or advertising, don’t chop that budget – maybe even increase it. Sales may decline but it is likely that products or services seen to be giving the best value for money, while themselves prospering, will continue to be patronised by the consumer. Value spending is as important to a company as it is to a distressed consumer – that is when the TESCO tag-line “every little helps” comes into its own. While on the subject of TESCO, isn’t it interesting that the company’s real break-through with the consumer came when it upgraded its original ‘pile it high and sell it cheap’ policy to ‘Mrs Housewife wants a more comfortable environment in which to shop’?
4. The strong profit earners need all the attention you can give them now. If they have any weak management, weed it out and put in the best talent you can. Your flagship earners have to be kept going at all costs. The companies that fare best in hard times are those that are perceived to be trustworthy and give consistently good value for money.
5. Review your assets, especially the people. Two of the companies I am privileged to help have suddenly found a new source of ideas both for expansion and for cost savings by the simple expedient of asking their staff. Not rocket science but often forgotten.

Where will the cuts be made? Obviously the under-performers will go. So will those not producing the life-blood of the business. Some of the investment in staff development may be deferred, at least for a while. Ambitious plans for development of the business will have to be re-scheduled to a time when sources of funds are easier and return can be seen to be faster.

Do not assume that only big cuts matter. Many small savings can also amount to something sizeable. Beware of cutting out those who supply the essential information on which your survival decisions depend. I have seen attempts made to reduce already sparsely populated accounts and IT operations, with disastrous results. If anything, quicker and more accurate information is the order of the day, not less or outdated or non-existent data.

Over the last few years many businesses have flourished and been extended almost beyond their capacity. This has sometimes meant that training and development has been left behind in the rush to get the work done. Normal or sub-normal working will now be more likely and this presents an opportunity to catch up with missed opportunities to prepare for new products and services.

Most important of all in the current crisis is the ability to be creative. New needs, changing markets, additional opportunities, ingenious use of senior or home workers, smart sharing of jobs and an open mind to different ways of doing what we have always been doing are all possible contributors to survival and future growth. A moment’s thought is often worth an hour’s sweat.

How soon do you have to take action? You should have already started.

American citizens are justly angry at their taxes being used to bail out the reckless and fraudulent money-go-round of the financial system. The badly squeezed middle-class all over the world are already carrying the bulk of the costs since they pay most taxes, support young and old and work nineteen hours a day to produce the incomes on which society depends. In our attempted correction of the damage that has been done we should be supporting not punishing them.

Here’s how to turn adversity into sanity:
What goes down must come up – even if we don’t know when. If the earnings of companies you might invest in are not as susceptible to recession as most shares, buy them. You may have to sit tight for a couple of years but they will come up again.

If your job is threatened – or lost – consider what you’d really like to do. We succeed best when we enjoy what we are doing. A look at your career, past and future, is something you can profitably do now. This may also be a good time to start a business. You will find it difficult to get finance from the bank, but that in itself is a good discipline. If you cannot persuade them to believe in your project ask yourself harder questions before starting.

What is the opportunity for capitalism now? The old model has failed but it wasn’t all bad. It financed the world we live in with its high-tech, high mobility, high quality medicine and high education. Many have benefitted from this. Can we re-stimulate the economic cycle, omitting the faults and making it work better for everyone, not just for the few?

What can we learn from the Grameen Bank? Muhammad Yunus started it to micro-finance the very poor. What about a version of it higher up on the financial ladder to provide capital and loans for new and developing entrepreneurs? Every society needs to encourage its young. There is no reason why governments shouldn’t be involved in this on behalf of their citizens. If you think Governments should not be involved in business study what has just happened in the money markets.

Look beyond public money for this pump priming, too. Business has a life cycle; why should it not finance the early stages of the next cycle? Corporate Social Responsibility (CSR) could have no greater aspiration than to see future generations flourish. Why shouldn’t you and I invest, too, perhaps with some modest level of safeguard and guidance?

Above all, why shouldn’t the people who have been hit hardest by the financial scandal determine the regulatory process for the future? If we put discipline back into the hands of the regulators who landed us in the mess they will do so again. Fresh thinkers won’t be perfect but at least they will see the wood for the trees, something the present lot failed to do.

There are pitfalls to be avoided. By merging banks we create an even bigger cartel than we already had. We must prevent the power that is being put into the hands of very few bankers from becoming another weapon of mass destruction.

Regulation must not become so overwhelming that business grinds to a halt. A bank with whom I have banked in credit for over ten years wants me to present myself, my passport and my NRIC in person at their counter to open a new account. No wonder trillions went missing; they were probably stolen while bank managers were examining the dental records of established customers. Let’s not fall straight back into that

Half the people alive today have never experienced serious inflation. They will shortly. At the end of it, many will have starved to death. Those remaining will live in a very different world from that of the past fifty years. Cheap food, easy personal mobility, considerable leisure time, increasingly high medical standards. All these are going to be severely dented by ‘the enemy within’ – inflation.

Can we prevent it? Can we cure it when it happens? How can we cope with it?

Societies wake up to threats quite suddenly, having long ignored the warning signs. Those who predicted problems were castigated as pessimists, ignored, mentally pilloried. “Optimism will solve our problems. Let’s be positive.” Yes, indeed, but let’s be realistic first.

The planet is not short of food or energy. It can support more people if we conserve a responsible amount of the natural habitat and don’t pollute ourselves to death. But many populations are more short of money today than they were ten years ago. Can that be right – by any standard?

Inflation used to be localized; it is now international. The big demands of rapid growth, fuelled by expectations of people who know how the other half lives and want a slice of it for themselves, mean the market mechanisms draw speculators into hoarding against the expected price rises. As I write this article available oil freighter tonnage is in short supply because so many tankers are being sailed deliberately slowly across the oceans anticipating better pickings when they arrive.

Are the speculators to blame for inflation? No they are not. They are fulfilling a function the market demands, although we should examine whether the controls on them are adequate to prevent informal cartels from artificially raising the costs. After all, hedge finds and derivatives were doing a job for the market, too. Their sordid demise led to much suffering and quite a lot of the world inflation now beginning.

Finding guilty parties is not going to solve the problem. Indeed, most of us are partly guilty. Our natural greed, whether motivated by the desire to secure others’ futures or simply to demonstrate our ability to win, is at the root of the problem. A competitive society demands competition and that means winners and losers.

As long as the law of supply and demand operates – forever – there will be inflation when something vital to human existence is scarce. Energy, food, water, air, medicine are all going to be in short supply in the future. When two or three shortages occur together horrendous inflation follows. We can only use our resources as prudently as possible to mitigate it.

If we work hard at transparency in business dealings we will solve some of the problems. Being open will discourage speculative hoarding, especially if there are rules against it, and corrupt marketing can be reduced. The world is aware of the need for transparency but is not yet committed to achieving it.

We must now do two things to cope with inflation.

Price increases must be lower than cost increases. That will reduce dividends but will make the value of those dividends greater in the medium term. One of the worst accelerators of inflation is the desire to profit in an inflationary market – and the ease of doing so.

We must also borrow more sensibly. Borrowing to invest is wise. Borrowing to indulge is foolish. When we learn that tomorrow really does come we will prepare for it properly.

Until then we shall have what we are about to see and experience – serious inflation.