Growth, like alcohol, is best in moderation

By Brian Sullivan

The U. S. recovery since 2009 has been muted. In fact it is the slowest recovery since World War II. The slow pace has meant fewer new jobs created and a higher unemployment rate. Economists’ expectations for the remainder of this year and next are for more slow growth.

Slow growth is not all bad. Slow growth is better than contraction, and may be better than rapid growth.

Consider the benefits of moderate growth to a business owner. When seeing a moderate growth in sales, a business owner can plan for expansion. He can make decisions to produce the increased commerce in an efficient manner. Faced with slow growth, he can work his best workers longer and know he is giving good service. He can increase his workforce slowly, hand picking each new employee. He can put off buying new equipment while waiting on the newer version. He can try new methods, and fail without devastating consequences. To increase his production, he can improve the process rather than merely expanding the current process. The results are increased production with little or no increased expenses. Increased sales, with little or no increased expenses, increase profits.

Rapid growth is a blessing in some businesses, and a calamity in others. Referring to a restaurant, Yogi Berra once commented, “No one goes there anymore — it’s too crowded.” Yogi may have been speaking of a business which grew too quickly. A business manager forced to grow too rapidly will make mistakes. A pressed manager will hire the wrong people, substitute time for cost, degrade the product and make promises he can’t keep to get production up quickly. Managers faced with sales increases of 10 percent or 20 percent must expand every aspect of their business all at once. Hiring and training are hasty, even sloppy; logistics of moving materials in while sending product out make bottlenecks of any sort into disasters. Facility expansion, relocation or duplication become sudden necessities. Management time is spent planning and executing expansion, and is drawn away from quality control and customer service.

Now let’s think about China. China’s growth is slowing, as was inevitable. A country the size of China cannot grow at 10 percent plus inflation year after year — too many problems crop up. For example, in an effort to get coal to feed the industrial dragon, China increased mining production in Tibet. Traffic on the Tibet to Beijing highway increased 40 percent per year until in the summer of 2010 a 60-mile traffic jam closed Highway 110 for 11 days. Meanwhile, China is building a parallel railroad which will reduce the traffic. But infrastructure building is complex and slow, so the traffic on Highway 110 will continue to be bad for years to come.

Think about this. When I visited China in 1980, there were very few cars anywhere in the country. In downtown Beijing a red light would have 200 bicycles waiting, and maybe one car, no buses. Now China is the world’s largest consumer of automobiles, and most drivers on Chinese roads are “new” drivers. It must be more dangerous than driving in a high school parking lot. China is clearly having growing pains.

U. S. growth is moderate, somewhere between 1.5 percent and 2.5 percent. That pace is not fast enough for most people, but it is a pace that allows business to grow efficiently. It is also a pace that won’t send us into recession anytime soon. It may be better than a wild ride and a hangover.

Sullivan is president and chief investment officer for Regions Investment Management.

[RSS Feed] [del.icio.us]



To sign up for Mississippi Business Daily Updates, click here.

POST A COMMENT

 

Top Posts & Pages