The Lore of the Downturn [2008]
1991 was a bad year. The middle of the 1990-92 recession. Ruth Richardson’s Mother of All Budgets year.
I distinctly remember getting to the end of that year and thinking that I never wanted to go through such a depressing year again. And I never did.
Back then – actually, throughout the nineties – people in business used to have a lore of growth and recession. We’d watch for the signs. We knew which sector would feel the pinch first . . .and who would recover first. It was good to avoid working in industries that went down fast and up last.
Like corporate interior refurbishment. Market research – I worked for some of the larger firms then – went down fast but came back almost first – so that was a middling kind of business.
I forget what was best – the one that went down last and came back first. Food or funerals I suppose.
We were hardened survivors back then. Everyone had been made redundant at least twice – well that’s what it felt like. We travelled light. There was no loyalty. Well – some.
But we were cynical. The near collapse of the BNZ in 1990 had highlighted the role of banks in the upturns and downturns of the economy. We blamed them. And politicians.
We said things like : “they’ve sold off the family silver” and “they say one thing and do another”. That’s why a majority of us chose the new MMP voting system in 1993. Revenge.
In 2008, with seven years of rising affluence behind us, we are unprepared for a downturn. The lore has been forgotten – and the hard lessons that went with it. The average thirty-something of today was in their teens back then. They weren’t taking it seriously. Why should they?
For younger adults, their formative experience has been one of rising expectations. From 2000 on it seemed we got the knack of generating economic growth in New Zealand – even did some counter-cyclical stuff, growing when the rest of the world wasn’t. That felt cool.
Success has a thousand fathers of course – everyone from Roger Douglas on up was claiming the credit for it. But in this case it was true. The growth we’ve experienced in New Zealand in the 21st century has had many influences, among them:-
- Osama bin Laden who made small and safe look very desirable to ex-pats and migrants,
- the dot-com crash which reduced the paving on the streets of London, New York and San Francisco from gold back to asphalt, [metaphor alert]
- and the older baby boomers who began investing their wealth in property and shares like never before, once they finally got rid of their pesky children.
To say nothing of the contribution of the dairy cow, the Australian labour market, personal optimism and the need for the next new thing. And debt.
So yes – it’s complicated but it’s worked and it’s kept feeding itself – one year dairy payouts would do the trick, then rising employment, then rising house prices and new migrants, then a high dollar, then debt - being sold like candy by the finance industry - almost taking the place of wage rises [which have been surprisingly hard to spot, especially considering the extent of labour shortages].
Growth has been spread around and it hasn’t ever been too much of a bubble. But over time the safety margins have got thinner and vulnerability has increased. Enter interest rate rises, the price of oil and increasing food prices.
I bet the Reserve Bank Governor wishes he had something other than interest rates to tweak to keep inflation down.
The delayed effect of cumulative rises which hit as all those fixed interest contracts came up for renewal in the last 6 to 9 months has been a bit more over the top than was really needed. But he wasn’t to know about oil price rises and food prices – oh well maybe he was.
I read in the New York Times yesterday that the ‘Cassandra’ who predicted a few years ago that crude oil would rise to $100 a barrel is now predicting spikes of up to $200 a barrel before 2011.
He’s from Goldman Sachs – the same organisation that produced the ‘BRIC’ report, six years ago, predicting the growing economic dominance of Brazil, Russia, India and China. They seem to know what's what.
Anyway, here we are in 2008. And my question is – are we having a serious downturn here? Will it last long enough to seriously alter our attitudes and our consumption behaviours?
Will new rules and new coping strategies start emerging just as they did in the early nineties . . will we have new heroes and villains? New orthodoxies and new lore?
To understand that we need to understand two things:
- What’s really driving the growing gap between what we want and what we can afford? Is it all about the price of gas? Outward migration of both people and jobs? The housing market? Our low incomes and high debt? Or all of these.
- And what are we doing as consumers to adapt to these circumstances – are we beginning to change fundamentally or just marking time till things improve?
Cheers
Jill
Jill Caldwell is Director of Windshift Communications Ltd.
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