The internet dotcom bubble was not just a dotcom phenomenon, but an ICT (information, communication, technology) bubble. Then we had a financial services bubble, and the real estate bubble that went with it.
In the mid-90s it was said that the next level of growth would be investment-led. It will be led by capital spending. That turned out to be right. So there were those two bubbles and on top of them, we had a commodity price bubble.
The real estate bubble led to a lot of pseudo-demand, a lot of people thought they were rich when they were not. There was a lot of spending based on fictional wealth that went away and people bought houses that they couldn’t afford. That fictional wealth then led to an incredible rise in manufacturing capacity in this country and China. So the commodity prices went up, and now it’s all gone, very suddenly.
While some people got out in time, some economies and companies were stuck. So we have contracting demand and over-capacity and we don’t have credit markets working. But that may not be a bad thing because you don’t want to be borrowing a lot these days. What leaders need to do, the easy answer is to focus on the core business and get back to basics. But the difficult part is figuring out what your core is.
The role of leadership is more complex than it has ever been. If you can go back to Elizabeth-I facing the Spanish Armada, any leader faced a more serious challenge than she faced that day. And it required attributes of leadership like vision and courage.
And talk about managing in tough times. Think about Mahatma Gandhi and what resources he had. Talk about disruption innovation that was the real example.
The Corporate leaders in India and in China, Brazil and Russia may have to face very challenging prospects. About the culture of downsizing, what happened in Jet Airways would not have happened in the US. That is because in India, you have a culture of employing a family, not just a person. It is harder to find a job here. And because of the rigidities, some of the decisions will be much more difficult than at any other place.
What is also interesting is India’s optimism. In the last 3-4 years, there is no other place that’s so brimming with optimism as India. Optimism is a good thing. One of the reasons optimism is generally more successful in business is that they are more willing to try, try and try. Optimistic resilience will win. The entrepreneurial spirit of India and the feeling we are growing, we are great, is important.
Many Wall Street firms had very similar assets or rather, time bombs as they are turning out to be, in their portfolio. They all started to notice negative warnings around the same time. In Goldman Sachs the word got around to the senior management pretty quickly and they decided to do something about it.
What they decided to do was the right thing. In other places, either the word didn’t go to the senior management or they didn’t do anything about it, or they did the wrong thing. You have to think about the culture of communication that allows you to bring bad news to the boss. You also have to think about bosses recognising that it is bad news. Then some decisiveness is needed to act.
A Legendary investor said, ‘You should buy stocks of companies that any fool can run because one day some fool is going to run it’. And clearly, there were fools in charge in some places. There is a clear evidence of leadership failure. Some of these highly leveraged products that are financial equivalents of nuclear weapons should be tightly regulated.
One thing we have learned in the last few years is that you can’t trust the financial engineers. You can trust the collective entrepreneurial energy of a lot of people looking to do something better than you can trust the genius of a small group of people sitting around a small table, whether it’s Washington, New Delhi or a boardroom.