Self-Fulfilling Prophecy

We are currently in the middle of what I call a self-fulfilling prophecy.  Companies look at what is happening in the world and predict that businesses will experience a slow down.  They see demand for their products falling and this will lead to a potential closure of their businesses.  Now there is no doubt that we are experiencing hard times.  Many persons were living off huge gains in the value of their houses, their equity portfolios and their huge commissions generated from the financial sector.  People were spending money like there was no tomorrow.  In Jamaica we have also experienced significant increase in real estate prices.  Persons were renting their properties to companies and expatriates for huge sums of money.  In addition persons were receiving unrealistic rates of return from unregulated industries such as Cash Plus and Olint.  All of this has now changed with the closure of these entities and the softening of the property market.

Companies have decided that the best way to protect themselves is by laying off staff and here is where the problem begins.  Recently it has been reported in the news that major companies have been undertaking redundancy exercises.  The theory is that the company will save costs and remain profitable for the long run.  However, there is a downside to all of this in that as more persons are laid off then the number of persons able to buy one’s products decreases.  This leads to a reduction of sales which leads to further redundancies and a further reduction in sales and so the cycle continues fulfilling the prophecy.

It is not that companies should never lay off personnel but that it should assess carefully whether this is the right step.  Unfortunately what we have seen in Jamaica is not redundancies with a view of returning a company to profitability but rather with the aim of making super profits.  In a recessionary period a company should not expect to make the same level of profit but should accept the notion of lower profits.  The idea is to accept smaller profits now with a view to being able to benefit in the long term.  If every company were to downsize, the effect on the economy would be devastating.  It is time for reason to take place and for attitudes to change.  Doing what is best for the country will ultimately achieve what is best for the company.  I hope that we can learn that lesson before it becomes too late.