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Eureka: Explaining the current global recession
by Jay Gutman
2017-01-06 11:26:41
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res01_400I could bother you with statistics and figures on how 2016 was a slow year in terms of growth, with very few countries going over the 5% growth mark. As an ordinary citizen trying to make a living and thrive, here are 10 factors which have largely contributed to slow growth in 2016, and mysticism has nothing to do with recessions.

1. Bureaucracy

Several dozen rounds of paperwork to get any business done. Dozens of papers need to be notarized, everything from bank transactions to health records to security tests need to be verified in extreme detail.

Note that I have nothing against bureaucracy. I like the kind of bureaucracy where I’m given a checklist written in clear English of the steps I need to go through to get business done, the kind of checklist that doesn’t change too frequently and that outlines each step very clearly. I do have something against bureaucrats throwing papers at me, complaining my papers have the wrong color, or staring at me like they’re about to - pardon the rudeness of the tone here- punch me in the face, which is the case in many countries.

In 2016 around the world, many business transactions had to be cancelled because of missing paperwork.

2. Currency manipulation

How do you manipulate currency? Banks collect paper money at the end of the day and only release parts of the paper money back to the market. To talk more clearly imagine you own a shop, that you make 200 shekels that day and that you decide to put 200 shekels cash in your bank account. The next day, your bank keeps 100 shekels in its reserves and only releases 100 shekels back to the market. Put that at the macroeconomic scale and you get the idea.

The opposite can also be true, that is you give your bank 200 shekels and print out 100 shekels and put 300 shekels back into the market. If the bank puts 100 shekels to the market out of the 200 you gave them, you will have, let’s say, 200 shekels in your bank account, but if you want to convert your shekels to dollars, you will get 400 dollars, double the rate when the currency rate should be 200 shekels for 200 dollars. If the bank prints 100 shekels and puts them back to the market, you will have 200 shekels, but they will really be worth 150 dollars. Sketching but you get the idea.  

Since most debt is in dollars, some countries had to keep printing money to repay the debt, while others had to block paper money in reserve accounts leading to weakening the dollar compared to that currency.

 Since 2016 was a bit of a wild year, many countries played with currency, sometimes with smart moves, other times, not so smart moves.

3. Cost of transportation

A taxi ride anywhere used to cost me a couple of bucks 10 years ago, now taxi rides cost real money. Despite the decline of oil prices, transportation has maintained higher rates, which are in some cases prohibitive. To give an example, I can only work within walking distance from my house, because I would lose money if I worked elsewhere, because of transportation costs.

Many countries stopped importing because of high prices, price hikes caused by transportation. Other countries stopped exporting because if they did, just like me, they would lose money by exporting.

4. Severe competition

You start a Thai food restaurant in your neighborhood, someone else starts a Thai food restaurant in the same neighborhood. You start a grill and someone else starts a grill. You open a furniture store and someone else opens a furniture store. Then a third Thai restaurant opens, then a fourth, the a fifth, then people get tired of Thai food and opt for Middle Eastern food or Italian food.  

5. Lack of business common sense

The first thing on any business owner’s mind should be how sales they intend to make, the next thing should be dividing sales by production costs. Many of the businesses I have seen lack that basic common sense.

Common sense includes that your business should have parking space in the neighborhood for clients and workers to park their cars in, should have a huge network of potential clients and should be very pleasant with clients. Precise product features are another aspect of basic business common sense.

6. Frequent legal changes

 You can smoke in your restaurant ; no you can only smoke in your restaurant if there’s ventilation ; no you can only smoke in your restaurant if there’s an open space ; oh no you can’t smoke in your restaurant for any reason but you can put an ashtray at the porch ; oh no people can only smoke within a 30 feet distance from the porch ; streets are now no smoking streets.

This is just one example of the frequent legal changes. Others along the same lines happen with security norms, environmental norms, health norms, technology norms, payment norms and other norms.

Constant new norms have forced many businesses to shut down. When legislating, like the old saying goes, if it ain’t broken, don’t try to fix it.

7. Synthetic products

2016 saw more and more synthesizing of different products, from garbs to electronics to construction materials to heavy metals to several other products.

Synthesizing means merging two or several elements together and has the consequence of having much better quality raw materials, from heavy metals to textile to the rest. This means small workshops had a lot of trouble competing with those whose synthesizing technology led to unbreakable, or much higher quality materials.

8. Lack of networking opportunities

Let’s say business is about networking, and doing a lot of networking. 2016 was a tough year for networking, from networking events being way too expensive, to smaller networking events being made rare because of incidents that happen during such events. Let’s just say that in 2016 people were a lot more likely to report incidents, and that incidents happened more frequently. Terror scares have also made networking events scarcer.

9. Blurred lines between production, wholesales and retail

Huge companies who also own wholesales and retail shops has become the norm in some countries. This means if you have a product, you’ll have to dance around to convince wholesalers and retailers to put them on the shelves.

10. Liberal banking, housing, production and transportation systems

It used to be that governments kind of made suggestions, if not laws, regarding banks, housing, production or transportation. The government no longer gives out guidelines, meaning banks, transportation or housing is much more liberal as a market. Very high interest-rate loans and expensive housing, or transportation companies competing with prices has become the norm, as prices go up considerable and the quality of service is not always optimal.

Perhaps a think tank would need to discuss how to fix these economic trends. Let’s hope they get fixed for the better.

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