General Motors, which was once the world’s largest auto company, recently announced the closure of three plants in the US and one in Mexico together with the layoff of thousands of employees. It is a continuation of the process that has been going on for several years and is hitting not just GM but also the other large auto companies in the US. Yet car ownership in the world continues to grow so why isn’t its business growing also? What has gone wrong? Very simply General Motors, like so many other large corporations, has not adapted quickly enough to the rapidly changing conditions in the world. The price of oil is a shining example. This month it has soared to more than $130 a barrel, double the price of just a year ago. Yet GM is still churning out large gas-guzzling SUV’s that people can no longer afford to run.
Some Japanese companies on the other hand have long recognised the changes taking place and have adjusted their model range to suit a market that demands fuel-efficient cars. GM, like so many behemoths in the West, is also burdened with the legacy of costly pension schemes negotiated in better days. The same goes for wages. How can a company expect to remain in business when its workers demand rates in excess of $25 an hour when in other parts of the world people are prepared to work for less than a dollar an hour? Some companies of course remain in business thanks to automation, technological innovation and market clout. But for many, their days are numbered and it is only a matter of time before they go the way of the dinosaurs.
History is strewn with similar examples
The industrial revolution in Europe owed much to the booming coal industry. By the fifties and sixties coal miners in the UK were highly paid and the unions that represented them wielded considerable power. In the early seventies they brought the country to a standstill by closing and blockading the mines in their efforts to press their ever-growing demands. The end result was that they priced themselves out of a job. It became cheaper for the country to import coal from the other side of the world. The mines in the UK are now just a relic of its industrial past.
Many other industries have gone the same way. The once flourishing garment industry in the UK could not compete with the low labour costs in Asia. Technology has also brought about rapid changes and spelt the death-knell for previously booming products and industries. Remember the mind-boggling Polaroid cameras that could produce a picture for you in a minute or two? And what has happened to the companies making typewriters? Individual skills that took years to acquire have also disappeared overnight. Newspapers used to be set up by compositors, a highly skilled job. Today, computers can do the same work in a fraction of the time. And what happened to chimney-sweepers?
Who were the first to disappear?
As far as scientific evidence is available it was of course the dinosaurs. They were wiped out almost certainly by a cataclysmic meteorite strike. It was not the impact that killed most of them but their inability to adapt to the resulting climate change and loss of vegetation. Smaller creatures however were able to adapt and survive, and we are here to prove it. What if there was a nuclear holocaust that produced a high level of radiation around the world? We would certainly not survive, nor would most of the animal kingdom. Cockroaches however can withstand radiation and they would probably survive. Without predators they could even become the dominant species on the planet. Free to develop fully we could even have a cockroach writing in the Bali Advertiser about ‘When humans roamed the world’.
What can we learn from all this?
What is clear is that being the biggest and the strongest does not guarantee survival. Far more important is the ability to adjust to changing conditions. Some changes or events are beyond our ability to recover from, such as a major meteorite strike or a nuclear holocaust. Neither of these is on the cards at the moment but there are other threats which could spell disaster but which are survivable if we adapt quickly enough. The obvious one is global warming. The effects of this in terms of human misery and damage to agriculture are already being seen. Possible solutions have been widely debated but without international commitment and cooperation, particularly from the energy-hungry mega nations such as the US and China, it is hard to see how we can avoid a further deterioration. Another threat is the rising price and growing shortage of oil and other commodities, particularly food. Again there are solutions, but only those nations that are quick to recognize the problem and take bold and rapid action to meet the challenge are likely to remain strong. Supporting prices with subsidies instead of discouraging consumption may win votes and stave off public disorder but it is not the solution and will only make things worse in the long term.
What can we do as individuals?
If you were in employment ten or twenty years ago just imagine if you could work exactly the same way today. Unless you were ploughing the rice paddy with the aid of a water buffalo the chances are you could not survive today using the same methods. So we have indeed learned to adapt to changes to a considerable degree. But changes are happening at an even faster pace now, so we have to adjust and adapt more rapidly too.
If you are in the manufacturing and export business you will be facing greater competition from countries with lower labour costs. Shipping is also likely to see a sharp cost escalation due to the price of oil and shortage of ships. If you have a cost disadvantage you have to compensate by way of quality and innovation. We are likely to see a downturn in international travel as the West works its way through recession so if you work in the tourist industry it may be wise to direct your marketing closer to home.
Where personal finance is involved we can no longer rely on the financial models of the past. Inflation threatens to seriously erode the value of cash and savings so it is vital to have investment plans that will protect and enhance the value of your savings. The old model of cash, bonds and equities must be expanded to include hedge funds (of the right kind), commercial property funds and commodities. The latter should include natural resources and agriculture, asset classes that are likely to see a demand and supply imbalance for a long time to come. Perhaps more importantly you need to revise upward and significantly the amount you are going to need to accumulate before you can safely retire.
Start planning a course of action now and you are more likely to be among the survivors and winners of tomorrow. Or just forget the whole issue, lie down on the beach and grab another beer. But just remember, a dinosaur was probably sitting there just 65 million years ago thinking nothing could change its comfortable lifestyle!
Colin Bloodworth, Financial Partners
World Trade Center 8th Floor, Jakarta and
Jln. Sunset, Kuta, Bali
colin.bloodworth@financial-parnerts.biz
(Note: this article reflects the writer’s views and not necessarily those of Financial Partners)
