Managing your way out of the economic downturn and into economic prosperity

Managing your way out of the economic downturn and into economic prosperity

“To sell raw materials and buy finished goods makes one poor; to buy raw materials and sell finished goods makes one rich.”
Chancellor of the Convocation Sejm of the Polish-Lithuanian Commonwealth, 1764. (Zamoyski, The Polish Way, pp. 238-139)

Henry Ford, for his part, believed that industry holds the solution to most of society’s problems. Nothing has happened to change this; manufacturing, and only manufacturing, can create almost limitless wealth. Manufacturing is the foundation of Western economies, and as such we must preserve and expand our manufacturing base. Industrial methods can also reduce the cost of services while improving their quality and this has critical implications for health care.

Success comes only from a systematic approach, i.e. synergistic and mutually supporting management and technological techniques, as opposed to standalone programs that change with the seasons.

Henry Ford described a situation very similar to the problems we are having today, and he was able to handle it. This suggests that today’s businesses should be similarly able to handle the bad economic conditions that we have recently faced, and in mny areas to a greater or lesser extent, still do.

“We begin work on 1921 under strange conditions. The Earth is just what it always was. Human needs, which are the mainspring of all human activity, are just what they always were. Material and men, the essential components of civilization, are both here in abundance, and yet there is a stoppage of activity.”

“Why? Because, apparently, something has happened to—what? To the soil? No. To men? No. To material resources? No. But something has happened to that quantity known as Money.”

“It would be a splendid thing if in 1921 some financier, whose business is making prosperity instead of making money, should show us the way to avoid having business tied up for money, when all the elements of business are here.”

As it was in 1921, human needs (which drive consumer demand) have not changed, nor has our capacity to meet those needs–with the exception of what short-sighted businesses have sent offshore instead of following Ford’s advice to put more brains into the business. We add that the real value of an asset, whether it is a house or a corporation, consists of what we can do with it as opposed to its “valuation” in the housing market or the stock market. As a simple example, a house can comfortably shelter the same number of people whether its market value is €250,000 or €500,000. If its market value falls by 50 percent, this does not mean it can suddenly shelter only half as many people and, if its market value doubles, it cannot suddenly house twice as many. Ford stated exactly what business has to do to survive and even prosper in bad economic times:

Then why flounder around waiting for good business? Get the costs down by better management. Get the prices down to the buying power.

Cutting wages [and by implication laying off workers] is the easiest and often most short sighted way to handle the situation, not to speak of its being an inhuman way. People, skills, knowledge and customer relationships are all assets – they just don’t appear as such on the balance sheet. Job reduction is, in effect, making the workforce suffer due to the incompetency of the managers of the business. If we only knew it, every depression is a challenge to every manufacturer to put more brains into his business–to overcome by management what other people try to overcome by wage reduction. To tamper with wages before all else is changed, is to evade the real issue. And if the real issue is tackled first, no reduction of wages may be necessary.

Partner in, Colin Fell has a 25 year track record of building successful international businesses. Educated in Manchester, London and New York he has worked extensively across Europe, particularly Scandinavia, USA and the Middle East.
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Henry Ford and a group of men walk through a power plant, inspecting electric generators and other machinery in operation. The men get into a car and drive away. The group walks through the plant yard. THF_HFS_V.200.FC.2243

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