Putting the Shopping Cart ahead of the Horse.

A 2013 Forbes article makes for a good read and may guide our thoughts on the situation we are facing now, particularly here in Malaysia. A stimulus package that offers little for SMEs in this time of uncertainty.

I know the article would be classified as TLDR (for boomers, that means Too Long Don't Read), so i'll highlight some excerpts but encourage you to read it in full for better comprehension. (https://www.forbes.com/sites/beltway/2013/01/30/think-consumption-is-the-engine-of-our-economy-think-again/#2ff9df836497)

PREMISE

- The Keynesian message is clear: if you want to put the economic pedal to the metal, get out there and consume!

- The American people are repeatedly told by financial pundits and politicians that consumption is an “engine” that “drives” economic growth.

BUT

- The historical record on economic growth conflicts with this consumption doctrine.

- Economic growth (booms) and declines (bust) have always been led by changes in business and durable goods investment.

ARGUMENT

- Consumer demand does not necessarily translate into increased employment.

- ...“consumers” don’t employ people. Businesses do.

- increased uncertainty can depress job growth even in the face of booming consumption

- consumer demand that appears to be driven by temporary or unsustainable policies is unlikely to induce businesses to hire.

- Increased investment drives economic growth, while retrenched investment leads to recession and reduced employment--and it always has.

- Before we can consume, we need to produce and earn a paycheck.

- paychecks have to flow to productive -- that is value-creating -- behavior, or value is simply being transferred and destroyed.

- Our various demands as consumers are enabled by our supply as workers/producers for others.

- For employees, those paychecks are income, but for the employers, wages represent most business’ single largest expense.

WRITERS PERSONAL EXPERIENCE RUNNING A BIZ

- When we finally began selling our product to customers, the income generated was barely enough to cover the real costs. We re-invested all of it into new inventory for the business, keeping nothing for ourselves in the hopes of improving our approach.

- Consumption didn’t create our output. Investment did.

- The only way to make the business grow would have been to secure enough capital to invest in a major manufacturing facility with higher productivity equipment and division of labor.

SUMMARY

- There is a fundamental illogic to the notion that an economy can be grown by encouraging consumption. When a person consumes, by definition, they use things up.

- Consumption is the goal, but it is production that is the means.

- Any program which accelerates the consumption of value, or worse, the destruction of value, ultimately make our society poorer.

- Savings and investment which enable increased productivity, greater specialization and trade are the true engines of economic growth.

- Increasing consumption is a result of that growth, never the cause of it.

- Much like everyone else, even Santa Claus must produce all year long before people get to enjoy their presents.

In the last stimulus package announced by the government of Malaysia, for now, it would seem that they have put the shopping cart (consumers) ahead of the horse (SMEs, producers). With the month-long Movement Control order and zero income across the board, SMEs are understandably frustrated with the situation.

Hopefully, further stimulus can address these frustrations.


Written by

Johan Amilin

Certified Performance and Business Coach
Experiencing the world and enjoying life. Love to travel and coach and mentor others. Father to 2 grown ass kids who are living their best lives.